<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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
HONIGMAN MILLER SCHWARTZ AND COHN DEWEY BALLANTINE
222 LAKEVIEW AVENUE, SUITE 800 1301 AVENUE OF THE AMERICAS
WEST PALM BEACH, FLORIDA 33401-6112 NEW YORK, NEW YORK 10019
(407) 838-4500 (212) 259-8000
</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>
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- ---------------------------------------------------------------------------------------------------
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
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value...................... 3,105,000 Shares $13.00 $40,365,000 $13,919.06
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</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
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<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 Consolidated
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 AUGUST 8, 1996
PROSPECTUS
2,700,000 SHARES
EDUCATIONAL MEDICAL, INC.
[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 $12.00 and
$14.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. The Company intends
to apply to have the Common Stock of the Company approved for listing on the
Nasdaq National Market System ("NNM") under the symbol " ."
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>
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- ---------------------------------------------------------------------------------------------------
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, (iv) assumes the issuance of 1,025,641 shares of Common
Stock upon the cashless exercise of outstanding warrants to purchase 1,333,333
shares of Common Stock and (v) gives effect to a 5-for-3 Common Stock split
effected June 20, 1996 (the transactions referred to in (ii), (iii) and (iv)
above are to occur upon the consummation of the Offering and, along with the
stock split referred to in (v) are called the "Offering Transactions").
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 two 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 reported 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 demographic
trends. These trends include (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) a decline in military service
opportunities.
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.
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, the Company's acquisition criteria are: historical
profitability; acceptable default rates with respect to federally guaranteed or
funded student loans; established and marketable curricula; and locations in
high population
3
<PAGE> 6
areas. 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.
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.
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)..................... 6,720,052 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....... " "
- ---------------
(1) Assumes completion of the Offering Transactions. Excludes at August 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."
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
YEAR ENDED MARCH 31, 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 1,255 883 269 176
------- ------- ------- --------- --------- ---------- ----------
Income from operations before other
expenses................................... 1,558 2,351 193 299 3,451 185 306
Other expenses(1)............................ -- -- 1,126 776 1,929 -- --
------- ------- ------- --------- --------- ---------- ----------
Income (loss) from operations................ 1,558 2,351 (933) (477) 1,522 185 306
Interest expense, net........................ 389 574 798 923 811 236 196
------- ------- ------- --------- --------- ---------- ----------
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 (loss) per share
(unaudited)(3)(4).......................... $ (.31) $ .02 $ (.01) $ .01
========= ========= ========== ==========
Pro forma shares outstanding
(unaudited)(3)............................. 4,646,524 4,813,904 4,646,524 4,813,904
========= ========= ========== ==========
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
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(6)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................... $ 2,028 $ 23,127
Total current assets......................................................................... 6,606 27,705
Total assets................................................................................. 17,118 38,140
Long-term debt, including current portion.................................................... 6,738 2,318
Total liabilities............................................................................ 11,523 7,103
Total stockholders' equity................................................................... 5,595 31,037
</TABLE>
See accompanying notes on following page.
6
<PAGE> 9
- ---------------
(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, $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. 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 $4,900 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 $13.00 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.
(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) Pro forma as adjusted to give effect to 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. See "Use of
Proceeds."
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.
POTENTIAL ADVERSE EFFECTS OF REGULATION
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.
For the fiscal year ended March 31, 1996, the Company derived approximately 76%
of its cash receipts from 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, California 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."
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. 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
8
<PAGE> 11
$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.
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. Upon receipt of the
proceeds of this Offering, the Company will have a positive tangible net worth
on a consolidated basis of approximately $25.1 million. 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 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 could
secure the funds to post the Financial Responsibility Bond which the Department
of Education may request, or 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.
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. 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. 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%, 21.4%, and 20.0%,
respectively, and ranged from highs of 31.2%, 30.9% and 24.0% 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%. The average Cohort Default Rate for students at all postsecondary
9
<PAGE> 12
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 (the three most
recent years for which final data is available) or those ending with federal
fiscal 1994 (based on 1994 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.
Furthermore, 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 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; 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 or 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. Based on the advice of counsel, the Company does not believe
that any person legally or beneficially owns more than 25% of the voting stock
of the Company and controls the Company within the meaning of the applicable
Regulations and that as a result, the consummation of this Offering will not
constitute a change in ownership resulting in a change in control. The Company
is currently seeking confirmation of this understanding from the Department of
Education. However, there can be no assurance that the Department of Education
will agree with the Company's interpretation of the applicable Regulations. 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 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.
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
All of the Company's schools derive their Title IV funding pursuant to the
Federal Direct Student Loan Program ("FDSLP"). Funding for the FDSLP 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. Most recently the continuation of the FDSLP and the amount
of funds appropriated for the award year ending June 30, 1997 were the subject
of legislative controversy. Although funding for the program was approved for
the award year commencing July 1, 1996, there can be no assurance that funding
10
<PAGE> 13
will continue at current levels, or that the program itself will be continued.
If the 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 student
under FFEL, 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.
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. Such
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 are presently no definitive
agreements, arrangements or understandings with respect to any material
acquisition and there can be no assurance that the Company will be successful in
identifying, acquiring and operating additional schools. When the Company does
acquire 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 control with
respect to such school for purposes of Title IV eligibility, which means that
schools must either be acquired subject to recertification 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 to
regain eligibility. 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. Although the Company has had no difficulty in
obtaining such recertification and approval in the past, there can be no
assurance that such approvals may not be subject to unexpected delays or
difficulties which may materially and adversely effect the Company's operations.
NEED FOR ADDITIONAL FINANCING
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. As of June 30, 1996, the Company
had no commitment for additional debt financing. 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.
Although the Company is currently negotiating a line of credit with a financial
institution, 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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
11
<PAGE> 14
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. 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. 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 15.7%, 15.7%, 11.1%, 2.3% and 1.9%, respectively, of the
outstanding Common Stock of the Company, assuming the Over-allotment Option is
not 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 5.2% of the Company's outstanding Common Stock after the
Offering (assuming the Over-allotment Option is not 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."
12
<PAGE> 15
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. The Company intends to apply 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.
DILUTION
Based upon an assumed initial public offering price of $13.00 per Share,
purchasers of Shares in the Offering will experience an immediate dilution of
$9.26 in pro forma net tangible book value per Share. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
After the Offering 6,720,052 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 6,720,052 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 4,020,052 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. 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 control
could have a similar discouraging effect. See "Risk Factors -- Potential Adverse
Effects of Regulation."
13
<PAGE> 16
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 $26.0 million, assuming an initial public offering
price of $13.00 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 $2.7 million of the net
proceeds of the Offering to repay senior subordinated indebtedness with a
carrying value of approximately $2.5 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 and the
Company has entered into a non-binding letter of intent with a possible
acquisition candidate. No assurance can be given that the Company will enter
into a definitive agreement for such acquisition or 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
compliance with applicable 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.
14
<PAGE> 17
DILUTION
At June 30, 1996, the pro forma net tangible book value (deficit) of the
Company (assuming the consummation of the Offering Transactions and before the
Offering) was approximately ($339,000), or ($.08) 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 $13.00 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 $25.1 million or $3.74
per share of Common Stock. This represents an immediate dilution of $9.26 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.............................. $13.00
Pro forma net tangible book value (deficit) per share after
consummation
of the Offering Transactions and before the Offering............ $ (.08)
Increase attributable to the Offering.............................. 3.82
------
Pro forma as adjusted net tangible book value per share after consummation
of the Offering Transactions and the Offering.............................. 3.74
------
Dilution per share to new investors.......................................... $ 9.26
======
</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)........ 4,520,052 67.3% $ 8,143,193 22.2% $ 1.80
New investors purchasing shares
from the Company.............. 2,200,000 32.7 28,600,000 77.8 $ 13.00
--------- ----- ----------- -----
Total................. 6,720,052 100.0% $36,743,193 100.0%
========= ===== =========== =====
</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.
15
<PAGE> 18
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 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
---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents...................................... $ 2,028 $ 2,029 $23,127
======= ======= =======
Long-term debt................................................. $ 6,738 $ 6,738 $ 2,318
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); 4,549,217 shares pro forma and 6,749,217
shares pro forma as adjusted.............................. 17 45 67
Additional paid-in capital on common stock................... -- 9,655 35,631
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 31,037
------- ------- -------
Total capitalization...................................... $ 12,333 $12,334 $33,355
======= ======= =======
</TABLE>
16
<PAGE> 19
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 Consolidated Financial Statements of
the Company which have been audited by Ernst & Young LLP, independent auditors,
whose report thereon is 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 1,255 883 269 176
------- ------- ------- --------- --------- --------- ---------
Income from operations
before other expenses... 1,558 2,351 193 299 3,451 185 306
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) 1,522 185 306
Interest expense, net..... 389 574 798 923 811 236 196
------- ------- ------- --------- --------- --------- ---------
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
======= ======= ======= ========= ========= ========= =========
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
--------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (CONTINUED):
Pro forma net income
(loss) per share
(unaudited)(3)(4)....... $ (.31) $ .02 $ (.01) $ .01
========= ========= ========= =========
Pro forma shares
outstanding
(unaudited)(3).......... 4,646,524 4,813,904 4,646,524 4,813,904
========= ========= ========= =========
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
</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, $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. 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 $4,900 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 $13.00 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.
(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.
18
<PAGE> 21
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 earns tuition revenue on a monthly basis, pro rata
over the length of the relevant program. Under federal and state regulations and
accrediting commission standards, the Company generally is required to refund a
portion of the tuition payments received from a student 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. 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 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
19
<PAGE> 22
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. 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.
20
<PAGE> 23
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. 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. 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, 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 a shift in employer
requirements for medical assistants. Student retention rates did not change
materially compared to retention 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.
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
21
<PAGE> 24
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 $93, or 34.6%, to $176 for the three months ended June 30,
1996 from $269 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 $40, or 16.9%, to
$196 for the three months ended June 30, 1996 from $236 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 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 retention rates did not change materially compared to
retention 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.
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."
22
<PAGE> 25
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 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.
Retention improved as a result of a company-wide initiative to improve student
retention rates.
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.
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.
23
<PAGE> 26
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 refunds. 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. 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 $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
24
<PAGE> 27
and (iv) the maintenance of a minimum cash reserve equal to 25% of prior year
school refunds. See "Financial Aid and Regulation."
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. As of June 30, 1996, the Company
had no commitment for additional debt financing. 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.
Although the Company is currently negotiating a line of credit with a financial
institution, 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.
25
<PAGE> 28
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 two 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 reported 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 the Company's two fashion and design schools awards 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.
The Company believes the demand for postsecondary career oriented
educational will increase over the next several years as a result of recognized
demographic and economic trends. These trends include (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) a
decline in military service opportunities.
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.
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. 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 acquisition criteria are: historical
profitability; acceptable default rates with respect to federally guaranteed or
funded student loans; established and marketable curricula; and locations in
high population areas. 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 also believes that both new and existing schools will
benefit from the ability to replicate successful programs among the schools.
26
<PAGE> 29
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 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'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. In the last two fiscal years, individual schools of the
Company have developed four new diploma programs which have been modified and
adopted by other Company schools to meet the needs of their local markets. In
addition, five existing programs from the Company's curricula library have been
modified and replicated by schools in which such programs were not previously
offered. 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.
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
27
<PAGE> 30
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.
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 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 POPULATION AT
DEGREE AT DATE OF MARCH 31,
INSTITUTION DATE ACQUIRED CURRICULUM GRANTING(1) ACQUISITION 1996
--------------------------------- ------------- --------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Maric College of Medical Careers 4/88 Healthcare Yes(2) 14 311
Vista, California
Maric College of Medical Careers 4/88 Healthcare Yes 135 909
San Diego, California
Maric College of Medical Careers 4/88 Healthcare Yes(2) 91 245
San Marcos, California
Long Medical Institute 4/88 Healthcare Yes(2) 129 233
Phoenix, Arizona
Andon College 11/89 Healthcare No 150 332
Stockton, California
Andon College 11/89 Healthcare Preliminary 123 242
Modesto, California Approval(3)
Bauder College 3/92 Fashion and Yes 440 429
Atlanta, Georgia Design/Business
Modern Technology School 3/93 Healthcare Preliminary 221 359
of X-ray Approval(3)
Hollywood, California
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
APPROXIMATE STUDENT
STUDENT POPULATION
ASSOCIATE POPULATION AT
DEGREE AT DATE OF MARCH 31,
INSTITUTION DATE ACQUIRED CURRICULUM GRANTING(1) ACQUISITION 1996
--------------------------------- ------------- --------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Dominion Business School 5/93 Business/ Preliminary 129 155
Roanoke, Virginia Healthcare Approval(3)
Dominion Business School 5/93 Business/ Yes(2) 254 204
Harrisonburg, Virginia Healthcare
Dominion Business School 5/93 Business/ Yes(2) 154 95
Staunton, Virginia(4) Healthcare
ICM School of Business 7/93 Business/ Yes 376 422
Pittsburgh, Pennsylvania Healthcare
Ohio Institute of Photography 7/93 Photography/ Yes 67 273
& Technology Healthcare
Dayton, Ohio
California Institute of 8/93 Fashion and Yes 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
Department of Education must recertify the school when it becomes degree
granting in order for Title IV funding to be available for the new degree
programs.
(2) Degree granting status has been approved; however, programs have not yet
been implemented.
(3) 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
sent to the Department of Education for final approval with respect to
their associate degree status.
(4) 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.
PROGRAMS OF STUDY
The Company's programs are intended to provide students with the specific
knowledge and job skills required to prepare them for existing 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.
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,
29
<PAGE> 32
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 two 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 (IN NO. OF NO. OF PROGRAM (IN TOTAL NO.
SCHOOLS STUDENTS MONTHS) SCHOOLS STUDENTS 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
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.
30
<PAGE> 33
(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 and Professional
Image Technology.
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.
STUDENT RECRUITMENT
The Company endeavors to recruit motivated students with the ability to
complete the programs offered by the Company's schools and 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.
31
<PAGE> 34
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 as
a prerequisite for admission. At March 31, 1996, 88% of the students were high
school graduates or held recognized equivalent certification. Approximately 19%
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 Company's students 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 between individual students and instructors when students are
experiencing academic difficulties. The average withdrawal rate at all of the
Company's schools for the period from September 1994 through May 1995, as
calculated under current federal regulations, was approximately 22.4%. 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.
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.
32
<PAGE> 35
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 the Company's programs 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>
Employers of the Company's graduates in the year ended March 31, 1996
included the following major organizations:
<TABLE>
<CAPTION>
HEALTHCARE FASHION AND DESIGN
- ------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C>
Aetna Insurance Scripps Clinics Abercrombie & Fitch Macy's
American Red Cross Sharp Hospital Systems BBDO Rich's
Balboa Naval Hospital UCLA Medical Clinic By Design Saks Fifth Avenue
Cedars-Sinai Medical Center UCSD Medical Group Ethan Allen The Gap
Kaiser-Permanente Veterans Administration Hospitals Lord & Taylor The Limited
Olsten Kimberly-Quality Care Visiting Nurse Health System
</TABLE>
<TABLE>
<CAPTION>
BUSINESS PHOTOGRAPHY
- ------------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
ALCOA PNC Bank American Greetings Hallmark
American Express Sprint Communications Fingerhut NCR
AT&T United Airlines General Electric Olan Mills Studios
Avis Rent-A-Car United Parcel Service General Motors Proctor & Gamble
Holiday Inn U.S. Air Gibson Greeting Cards
Mellon Bank Westin Hotels
</TABLE>
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 233 full-time faculty members (defined as those faculty members
spending at least 20 hours per week teaching classes at the Company's schools)
and 265 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 498
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
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<PAGE> 36
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
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. Competition among educational institutions is believed to be
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.
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<PAGE> 37
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, 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 Hollywood, California school. The
suit alleges that the sellers made significant financial and operational
misrepresentations to the Company that reduced the real 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 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.
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 outcomes 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 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
35
<PAGE> 38
Company will pay the plaintiffs $1,000,000, of which $30,000 was paid upon the
preliminary approval, $570,000 of which was paid upon final approval, and
$400,000 of which is payable on April 1, 1997. In addition, the Company agreed
to make available tuition credits of $1,150,000 to class members, provided that
qualified students elected to utilize tuition credits by July 17, 1996. At the
expiration of the period, four students elected to utilize such tuition credits.
The unused tuition credits will be redeemed by the Company for $0.10 on the
dollar. 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> 39
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 SEOG 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 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 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, 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 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 the
student is
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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> 41
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 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 afforded to a fully certified school.
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.
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 have, or have had, a 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 a limited
appeal of the determination. 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.
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The federal fiscal 1991, 1992 and 1993 Cohort Default Rates for all of the
students at the Company's schools averaged 19.3%, 21.4% and 20.0%, respectively,
and ranged from highs of 31.2%, 30.9% and 24.0% 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%. 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 (the three
most recent years for which substantially all final data is available) or those
ending with federal fiscal 1994 (based on 1994 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. Furthermore, 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. 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 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.
Based on the advice of counsel, the Company does not believe that any person
legally or beneficially owns more than 25% of the voting stock of the Company
and controls it within the meaning of the applicable Regulations and that as a
result, the consummation of this Offering will not constitute a change in
ownership resulting in a change in control. The Company is currently seeking
confirmation of this understanding from the Department of Education. However,
there can be no assurance that the Department of Education will agree with the
Company's interpretation of the applicable Regulations. 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 Department of Education's regulations provide that after a Company
becomes publicly-traded, a change in control occurs
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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.
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 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
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 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.
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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. Upon receipt of the
proceeds of this Offering, the Company will have a positive tangible net worth
on a consolidated basis of approximately $25.1 million. 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 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 could
secure the funds to post the Financial Responsibility Bond which the Department
of Education may request, or 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 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. 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.
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
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requirement. If the Department of Education determined that the Company's
methods of compensation do not comply with the Incentive Compensation Rule, the
Company may be required to modify is compensation system, repay certain
previously disbursed Title IV Program funds, pay administrative fines or loose
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
For-profit 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
educational processes and outcomes. 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.
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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............ 42 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.
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, Limited,
Canadian World Fund Limited and Third Canadian General Investment Trust Limited,
all of which are investment funds.
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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 (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.
45
<PAGE> 48
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), (iii) was not an officer of the Company at any
time, and (iv) 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, 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>
ANNUAL COMPENSATION (1)
----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS COMPENSATION COMPENSATION
- ------------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Gary D. Kerber................................... $187,124 $155,606 -- $4,720(2)
Chairman, President and Chief Executive Officer
Vince Pisano..................................... $140,595 $116,915 -- --
Vice President of Finance and Chief Financial
Officer
Gerry M. Taylor.................................. $109,283 $101,615 -- --
Director of Operations -- Western Region
Ellen L. Bernhardt............................... $107,744 $ 66,006 -- --
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.
46
<PAGE> 49
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 FISCAL YEAR (PER SHARE) DATE 5% 10%
- ------------------------------- ---------- ------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary D. Kerber................. 16,667 9.5% $3.60 12/13/05 $252,161 $397,126
President and Chief Executive
Officer
Vince Pisano................... 13,333 7.6% $3.60 12/13/05 $201,715 $317,685
Vice President of Finance and
Chief Financial Officer
Gerry M. Taylor................ 25,000 14.3% $3.60 12/13/05 $378,233 $595,678
Director of Operations --
Western Region
Ellen L. Bernhardt............. 10,000 5.7% $3.60 12/13/05 $151,293 $238,271
Director of
Operations -- Eastern Region
</TABLE>
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 the interests of
employees with the interests of the shareholders of the Company, and to
facilitate attracting and retaining employees of exceptional ability.
Administration. The Stock Option plan is administered by the Compensation
Committee of the Board (the "Committee"), 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 Committee 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 options, stock appreciation
rights and restricted stock. Subject to the provisions of the Stock Option Plan,
the Committee 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
Committee 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.
47
<PAGE> 50
Shares to 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 Committee, 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 Committee 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 Committee 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 Committee.
The exercise period for stock options and stock appreciation rights will be
determined by the Committee, 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.
Stock option and stock appreciation rights are not transferable by a
Participant other than by will or by the laws of descent and distribution, and
stock options and 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 Committee 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 Committee 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 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
48
<PAGE> 51
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 Committee 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 Committee.
Termination, Duration and Amendments of Plan. The Stock Option Plan may be
abandoned or terminated at any time of 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 (i) without approval or ratification of the
shareholders (A) increase the maximum number of shares in the aggregate which
are subject to the Stock Option Plan (other than anti-dilution adjustments), (C)
change the class of persons eligible to be Participants under the Stock Option
Plan, or (D) materially increase the benefits accruing to the Participants under
the Stock Option Plan, or (ii) 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 expiation 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 fair market value of the shares on
the date of exercise. Such amount will ordinarily be deductible by the Company
in the same
49
<PAGE> 52
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 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. 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.
50
<PAGE> 53
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 $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. 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
1,025,641 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.
51
<PAGE> 54
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) September 12, 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.
52
<PAGE> 55
PRINCIPAL AND SELLING STOCKHOLDERS
The following tables sets forth, as of August 7, 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 OWNED SHARES TO BE OWNED
PRIOR TO OFFERING NUMBER OF AFTER THE OFFERING
------------------- SHARES TO BE -------------------
NAME(1) NUMBER PERCENT SOLD IN OFFERING NUMBER PERCENT
- ---------------------------------------------------- --------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
Sprout Capital V(2)(3)(18).......................... 977,215 21.6% -- 977,215 14.5%
Sprout Technology Fund(2)(3)(18).................... 21,126 * -- 21,126 *
DLJ Venture Capital Fund II, L.P.(2)(3)(18)......... 17,438 * -- 17,438 *
DLJ Capital Fund II, L.P.(2)(18).................... 40,898 * -- 40,898 *
Lawrence, Tyrrell, Ortale & Smith(3)(4)(17)......... 1,057,200 23.4 -- 1,057,200 15.7
Delaware State Employees' Retirement
Fund(3)(5)(6)..................................... 743,590 16.5 -- 743,590 11.1
Declaration of Trust for Defined Benefit Plans of
ICI American Holding Inc.(3)(5)(6)................ 154,615 3.4 -- 154,615 2.3
Declaration of Trust for Defined Benefit Plans of
Zeneca Holding Inc.(3)(5)(6)...................... 127,436 2.8 -- 127,436 1.9
Pecks Management Partners Ltd.(5)(6)................ 1,025,641 22.7 -- 1,025,641 15.3
Sirrom Capital Corporation(7)....................... 141,666 3.1 83,674 57,992 *
Gary D. Kerber(3)(8)................................ 349,845 7.7 -- 349,845 5.2
Vince Pisano(9)..................................... 184,001 4.0 -- 184,001 2.7
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.................................... 0 -- -- 0 --
A. William Benham, Jr.(13).......................... 4,166 * -- 4,166 *
Robert T. Cresci(6)(14)............................. 0 -- -- 25,000(15) *
Carl S. Hutman...................................... 135 * -- 25,135(15) *
W. Patrick Ortale, III(16).......................... 0 -- -- 25,000(15) *
Richard E. Kroon(17)................................ 0 -- -- 25,000(15) *
Investech Distributees(18).......................... 704,873 15.6 416,326 288,547 4.3
All directors and executive officers as a group
(11 persons)...................................... 611,063 13.1 711,063 10.2
</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 Holding Inc. and Declaration of Trust for
Defined Benefit Plans of Zeneca Holding Inc. As such, Pecks has sole
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 511 Union Street, Nashville, Tennessee 37219.
53
<PAGE> 56
(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 1,025,641 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 1,057,000
shares of Common Stock beneficially owned by LTOS and for which Mr. Ortale
disclaims any beneficial ownership.
(17) Mr. Kroon is the managing director of Sprout Capital V, Sprout Technology
Fund, DLJ Venture Capital Fund II, L.P. and DLJ Capital Fund II, L.P.
Excludes 1,056,677 shares of Common Stock owned, in the aggregate, by such
entities and for which Mr. Kroon serves as a managing director. 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.
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 prior to 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."
54
<PAGE> 57
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 6,720,052 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
55
<PAGE> 58
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, 4,020,052 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.
56
<PAGE> 59
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 .
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
6,720,052 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 4,049,217 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 during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to manner of sale
57
<PAGE> 60
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, 2,936,419 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."
58
<PAGE> 61
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.
59
<PAGE> 62
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Honigman Miller Schwartz and Cohn, 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.
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, Suite 1400, 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.
60
<PAGE> 63
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
EXHIBITS
To
FORM S-1
Under
The Securities Act of 1933
------------------
EDUCATIONAL MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VOLUME I
<PAGE> 64
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
EXHIBITS
To
FORM S-1
Under
The Securities Act of 1933
------------------
EDUCATIONAL MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VOLUME II
<PAGE> 65
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EDUCATIONAL MEDICAL, INC., AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 quarters 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 quarter ended June 30, 1996 (unaudited).......................... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1994, 1995, 1996
and the quarters ended June 30, 1995 (unaudited) and June 30, 1996 (unaudited)...... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 66
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
--------------------------------------
May 24, 1996, except as to the first
paragraph in Note 7 as to which
the date is June 20, 1996.
F-2
<PAGE> 67
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------------- -------------------------
1995 1996 1996 PRO FORMA
----------- ----------- ----------- 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), 4,549,217 shares (pro forma)........ 16,768 16,768 16,768 45,492
Additional paid-in capital on common stock.......... 35 35 35 9,654,285
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> 68
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues.......................................... $26,475,125 $32,065,009 $38,651,827 $ 8,761,824 $ 9,203,279
School operating costs:
Cost of education................................... 8,235,431 10,102,326 12,251,778 2,939,022 3,225,181
Facilities.......................................... 4,073,460 4,978,613 5,387,425 1,297,268 1,418,412
Selling and promotional............................. 4,058,917 5,399,678 5,568,263 1,352,391 1,418,722
Provision for losses on accounts receivable......... 1,144,361 1,238,287 1,082,408 285,849 198,360
General and administrative expenses................. 7,535,799 8,792,245 10,027,952 2,432,248 2,461,501
Amortization of goodwill and intangibles.............. 1,235,362 1,255,288 882,953 269,153 175,926
Other expenses:
Legal defense and settlement costs.................. -- 600,000 1,115,000 -- --
Loss on closure or relocation of school............. 1,125,518 -- 50,000 -- --
Impairment of goodwill and intangibles.............. -- 176,042 764,000 -- --
----------- ----------- ----------- ----------- -----------
Income (loss) from operations......................... (933,723) (477,470) 1,522,048 185,893 305,177
Interest expense (net of interest income of $149,637,
$36,699, $150,186, $29,998 and $41,285,
respectively)....................................... 797,548 922,924 810,439 236,417 195,992
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes..................... (1,731,271) (1,400,394) 711,609 (50,524) 109,185
Provision (benefit) for income taxes.................. (169,966) 27,982 632,185 11,595 43,674
----------- ----------- ----------- ----------- -----------
Net income (loss)............................. $(1,561,305) $(1,428,376) $ 79,424 $ (62,119) $ 65,511
=========== =========== =========== =========== ===========
Pro forma net income (loss) per share of Common Stock
(unaudited)......................................... $ (.31) $ .02 $ (.01) $ .01
=========== =========== =========== ===========
Weighted average number of shares used in calculating
pro forma net income (loss) per share of Common
Stock (unaudited)................................... 4,646,524 4,813,904 4,646,524 4,813,904
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 69
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> 70
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS ENDED JUNE 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 1,284,043 931,076 244,208 156,745
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 (357,665)
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) 19,191
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities........... (1,968,845) 1,312,883 (1,941,842) (1,044,603) (413,712)
----------- ----------- ----------- ----------- -----------
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> 71
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.
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.
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.
F-7
<PAGE> 72
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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 1,167,242 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
F-8
<PAGE> 73
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 ($4,900,000) 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 and
supplemental net income and pro forma supplemental net income for 1996 would
have been $.12 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 $13 per share)
yielding 1,025,641 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.
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.
F-9
<PAGE> 74
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
F-10
<PAGE> 75
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS (CONTINUED)
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
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
</TABLE>
F-11
<PAGE> 76
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>
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.
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.
F-12
<PAGE> 77
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
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 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.
F-13
<PAGE> 78
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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.
F-14
<PAGE> 79
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
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>
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>
F-15
<PAGE> 80
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES (CONTINUED)
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>
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.
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
F-16
<PAGE> 81
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLAN (CONTINUED)
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 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 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.
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
F-17
<PAGE> 82
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. OTHER EXPENSES (CONTINUED)
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> 83
- ------------------------------------------------------
- ------------------------------------------------------
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......................... 14
Dividend Policy......................... 14
Dilution................................ 15
Capitalization.......................... 16
Selected Consolidated Financial and
Other Operating Data.................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 19
Business................................ 26
Financial Aid and Regulation............ 37
Management.............................. 44
Certain Transactions.................... 52
Principal and Selling Stockholders...... 53
Description of Capital Stock............ 55
Shares Eligible for Future Sale......... 57
Underwriting............................ 59
Legal Matters........................... 60
Experts................................. 60
Additional Information.................. 60
Index to Consolidated 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
[EDUCATIONAL MEDICAL, INC. LOGO]
------------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
MONTGOMERY SECURITIES
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 84
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
NASD filing fee................................................................... *
Nasdaq National Market filing fee................................................. *
Transfer agent's fee and expenses................................................. *
Accounting fees and expenses...................................................... *
Legal fees and expenses........................................................... *
"Blue Sky" fees and expenses (including legal fees)............................... *
Costs of printing and engraving................................................... *
Miscellaneous..................................................................... *
--------
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> 85
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 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 1,025,641 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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Restated By-Laws of the Company.
*4.1 Form of Common Stock Certificate.
*5.1 Opinion of Honigman, Miller, Schwartz and Cohn.
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.
</TABLE>
II-2
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
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.
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.
</TABLE>
II-3
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
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 Consent 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.
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.
21.1 List of Registrant's Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Honigman Miller Schwartz and Cohn (included in the opinion filed as
Exhibit 5.1 to this Registration Statement).
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.
II-4
<PAGE> 88
(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 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-5
<PAGE> 89
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Atlanta, Georgia on August 8, 1996.
EDUCATIONAL MEDICAL, INC.
By: /s/ GARY D. KERBER
------------------------------------
Gary D. Kerber
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary D. Kerber and Vince Pisano, or any one of
them, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead in any
and all capacities to execute in the name of each such person who is then an
officer or director of the Registrant any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing required or necessary to be done in and about the premises
as fully as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
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, August 8, 1996
- --------------------------------------------- President and Chief Executive
Gary D. Kerber Officer (Principal executive
officer)
/s/ VINCE PISANO Vice President and Chief August 8, 1996
- --------------------------------------------- Financial Officer (Principal
Vince Pisano financial and accounting
officer)
/s/ ROBERT T. CRESCI Director August 8, 1996
- ---------------------------------------------
Robert T. Cresci
/s/ CARL S. HUTMAN Director August 8, 1996
- ---------------------------------------------
Carl S. Hutman
/s/ W. PATRICK ORTALE, III Director August 8, 1996
- ---------------------------------------------
W. Patrick Ortale, III
/s/ RICHARD E. KROON Director August 8, 1996
- ---------------------------------------------
Richard E. Kroon
</TABLE>
II-6
<PAGE> 90
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-7
<PAGE> 91
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-8
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Restated By-Laws of the Company.
*4.1 Form of Common Stock Certificate.
*5.1 Opinion of Honigman, Miller, Schwartz and Cohn.
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.
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.
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
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 Consent 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.
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
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.
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.
21.1 List of Registrant's Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Honigman Miller Schwartz and Cohn (included in the opinion filed as
Exhibit 5.1 to this Registration Statement).
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.
<PAGE> 1
EXHIBIT 10.1
================================================================================
EDUCATIONAL MEDICAL, INC.
$4,000,000
13% SENIOR SUBORDINATED NOTES DUE JULY 23, 1996
AND
WARRANTS TO PURCHASE COMMON STOCK
-------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
-------------------------------------------------------------------------
DATED AS OF JULY 23, 1991
================================================================================
<PAGE> 2
EDUCATIONAL MEDICAL, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of
July 23, 1991
To each of the Investors listed
on the Purchaser Schedules hereto
Ladies and Gentlemen:
The undersigned EDUCATIONAL MEDICAL, INC., a Delaware corporation (the
"Company"), and each of the investors named on the Purchaser Schedules attached
hereto (collectively, the "Investors"), hereby agree as follows;
1. Preliminary Statement.
1A. Authorization of Units. As of the date hereof. the Company
will have authorized the issuance and sale to the Investors of 4,000 Units (the
"Units"), each Unit comprising (i) $1,000 principal amount of 13% Senior
Subordinated Promissory Notes of the Company substantially in the form attached
hereto as Exhibit A (the "Notes") in the aggregate principal amounts set forth
on the respective Purchaser Schedules attached hereto; and (ii) warrants to
purchase 200 shares of Common Stock substantially in the form attached hereto
as Exhibit B (the "Warrants"), in accordance with and subject to the terms and
provisions of this Agreement.
1B. References. Certain capitalized terms used in this Agreement
are defined in paragraph 14. References to a paragraph are, unless otherwise
specified, to one of the paragraphs of this Agreement and references to an
"Exhibit" or "Schedule" are, unless otherwise specified, to one of the exhibits
or schedules attached to this Agreement.
2. Purchase and Sale of Units; Closing.
2A. Purchase and Sale of Units. The Company, subject to the terms
and conditions set forth herein, hereby agrees to issue, sell and deliver to
the Investors and, subject to the terms and conditions set forth herein, the
Investors severally agree to purchase from the Company the number of Units set
forth opposite the name of each of the Investors in the Purchaser Schedule
attached hereto. The purchase price of each Unit purchased and sold hereunder
shall be $1,000.
2B. Closing. The purchase and delivery of the Units to be
purchased by the Investors shall take place at a closing (the "Closing") at the
offices of Willkie Farr & Gallagher, at 9:00 a.m., New York time, on July 23,
1991 (the "Closing Date"). On the Closing Date, the Company
<PAGE> 3
will deliver to the Investors the Securities comprising the Units, against
receipt of the purchase price therefor by wire transfer of immediately
available funds, by certified check payable to the order of the Company or by
such other payment method as the Investors and the Company shall agree. The
Notes shall be made payable to and shall be registered in the names of, and the
warrants shall be issued and registered in the names of, the Investors or the
Investors' nominees or other designees (each thereof a "Designee"). The Notes
shall be issued to each Investor in the aggregate principal amount and the
Warrants shall enable such Investor to purchase the total number of shares set
forth opposite the name of such Investor on the signature pages hereof.
3. Conditions of Closing. The Investors' obligation to purchase
and pay for the Securities to be purchased by them hereunder is subject to the
satisfaction, on or before the Closing Date, of the following conditions and if
by the Closing Date the following conditions shall not have been satisfied or
waived by the Investors, the Investors shall, at their election, be relieved of
all further obligations under this Agreement, without thereby waiving any other
rights they may have by reason of such failure or such nonfulfillment provided,
that if the Closing occurs notwithstanding such failure or nonfulfillment, such
failure or nonfulfillment shall not constitute a ground for relief hereunder
independent of any other provision of this Agreement or of any opinion,
certificate,' instrument or other document issued or delivered hereunder or
pursuant hereto:
3A. Opinion of the Company's Counsel. The Investors and their
special counsel shall have received from Morgan, Lewis & Bockius, counsel for
the Company, a favorable opinion addressed to the Investors, dated the Closing
Date, reasonably satisfactory to the Investors and substantially in the form of
Exhibit C attached hereto.
3B. Representations and Warranties; Events of Default. The
representations and warranties contained in paragraph 11 hereof shall be true
in all material respects on and as of the Closing Date, except to the extent of
changes caused by the transactions herein contemplated; there shall exist on
the Closing Date no Event of Default or Default; and the Company shall have
delivered to each of the Investors an Officer's Certificate, dated the Closing
Date, to both such effects.
3C. Charter Documents and By-Laws. Each Investor shall have
received a certificate, dated the Closing Date, of the Secretary of the Company
attaching (i) a true and complete copy of the Certificate of Incorporation of
the Company and each Subsidiary with all amendments thereto, as filed with the
Secretary of State or other appropriate official of their respective states of
incorporation; (ii) true and complete copies of the By-Laws of the Company and
each Subsidiary in effect as of such date; (iii) certificates of good standing
of the appropriate officials of the jurisdiction of incorporation of the
Company and each Subsidiary and of each state or other jurisdiction in which
the Company and each Subsidiary is qualified to do business, and is doing
business, as a foreign corporation; and (iv) resolutions of the Board of
Directors of the Company, authorizing the execution and delivery of this
Agreement, the Coinvestors Agreement, the Registration Rights Agreement, the
Securities, the issuance and delivery of the Securities and the
2
<PAGE> 4
reservation for issuance of a sufficient number of shares of Common Stock for
which the Warrants may be exercised.
3D. Purchase Permitted by Applicable Laws. The purchase of and
payment for the Securities to be purchased by the Investors hereunder
(including the use of the proceeds of such Securities by the Company) shall not
be prohibited by any applicable law or governmental regulation (including,
without limitation, section 5 of the Securities Act of 1933, as amended (the
"1933 Act") or Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System) and shall not subject the Investors to any tax,
penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and the Investors shall have
received such certificates or other evidence as they may request to establish
compliance with this condition.
3E. Proceedings. All corporate and other proceedings taken or to
be taken in connection with the transactions contemplated hereby, and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors and their special counsel, and the Investors and
their special counsel shall have received all such counterpart originals or
certified or other copies of such documents as each of them may reasonably
request.
3F. Registration Rights and Coinvestors Agreement. The Investors
shall have received a fully executed counterpart of each of the Registration
Rights Agreement and the Coinvestors Agreement satisfactory in form and
substance to the Investors and to special counsel to the Investors and such
agreement shall be in full force and effect and no term or condition thereof
shall have been amended, modified or waived.
3G. Letter of Accountants: Accompanying Officer's Certificate.
Each of the Investors shall have received copies of a letter from the
independent public accountants of the Company, dated as of a date no less than
five days before the Closing Date, in form and substance satisfactory to the
Investors. Each of the Investors shall also have received a certificate from
the Chief Financial Officer of the Company, dated the Closing Date, in form and
substance satisfactory to the Investors, stating that; (i) the financial
statements for the fiscal years ended March 31, 1989, 1990 and 1991 have been
prepared in accordance with GAAP, (ii) the Company's monthly report for the
month of April 1991 reflects the operations of the Company for such month
subject to normal adjustments and (iii) the Company s accounting books and
records of accounts have been maintained properly and materially true and
correct entries therein have been made of all dealings and transactions in
relation to its business activities.
3H. No Adverse U.S. Legislation, Action or Decision. There shall
be no action, suit, investigation or proceeding pending, or, to the best of the
Investors' or the Company s knowledge, threatened, against the Company or the
Company's respective properties or rights, or the Company's affiliates,
associates, officers or directors, before any court, arbitrator or
administrative or governmental body which seeks to restrain, enjoin, prevent,
question the validity or legality of, or seek to recover damages or to obtain
other relief in connection with, the issuance of the Securities or the
Company's performance of its obligations pursuant to this
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Agreement, and, to the best of the Investors' or the Company s knowledge, there
shall be no valid basis for any such action, proceeding or investigation.
3I. Compliance with Securities Laws. The offering and sale of the
Securities under this Agreement, shall have complied with all applicable
requirements of federal and state securities laws, and the Investors shall have
received evidence of such compliance in form and substance satisfactory to
them.
3J. Approval and Consents. The Company shall have duly received
all authorizations, consents, approval, licenses, franchises, permits and
certificates by or of all federal, state and local governmental authorities
necessary for the issuance of the Securities and all thereof shall be in full
force and effect at the time of the Closing. The Company shall have delivered
to the Investors an Officer's Certificate, dated the Closing Date, to such
effect.
3K. Material Changes. Since March 31, 1991, there shall not have
been any changes in the business of the Company which shall individually or in
the aggregate, have a material adverse effect on the business, financial
condition, results of operations or prospects of the Company, nor has the
Company incurred any material liability, contingent or otherwise, which has
such effect.
3L. Compliance with Financial Covenants. The Company shall have
delivered to the Investors an Officer's Certificate, dated the Closing Date, in
form and substance satisfactory to the Investors, stating that immediately
subsequent to the financing made pursuant to this Agreement, the Company shall
be in material compliance with all covenants, agreements and undertakings in
agreements, contracts or documents evidencing or governing Indebtedness of the
Company and no default or event of default, or event which with notice, lapse
of time or both shall constitute a default or event of default, shall have
occurred and be continuing under the terms of any such agreements, contracts or
documents.
3M. Cumulative Convertible Preferred Stock.
(a) The Company shall have converted all the accrued and unpaid
dividends on its Cumulative Convertible Preferred Stock to Common Stock at
$5.00 per share and on the Closing Date there shall be no accrued and unpaid
dividends on the Cumulative Convertible Preferred Stock.
(b) The Company shall have amended its organizational documents to
eliminate all future accruals of dividends on its Cumulative Convertible
Preferred Stock except to the extent such Cumulative Convertible Preferred
Stock is entitled to participate on a pari passu basis with respect to
dividends declared on Common Stock, based on the number of shares of Common
Stock into which such Cumulative Convertible Preferred Stock is convertible.
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3N. Delivery of Securities. At the Closing, the Company shall
tender to all of the Investors the Securities to be purchased by them, in form
and substance satisfactory to the Investors and their special counsel.
4. Conditions to the Obligations of the Company. The Company's
obligation to sell the Securities to the Investors hereunder is subject to the
satisfaction, on or before the Closing Date, of the following conditions and if
by the Closing Date the following conditions shall not have been satisfied or
waived by the Company, the Company may, at its election, be relieved of all
further obligations under this Agreement, without thereby waiving any other
rights it may have by reason of such failure or such nonfulfillment:
4A. Accuracy of Representations and Warranties. The
representations and warranties of the Investors contained in paragraph 12
hereof shall be true in all material respects on and as of the Closing Date,
except to the extent of changes caused by the transactions herein contemplated.
4B. Blue Sky Approvals. The Company shall have received any
requisite approvals of state securities commissioners and such approvals shall
be in full force and effect on the Closing Date.
4C. Purchase of All Securities. Each Investor shall have tendered
full payment for the number of Units set forth opposite the name of such
Investor in the Purchaser Schedule.
5. Prepayments of Notes.
5A. Prepayments of Notes in General.
(i) The outstanding principal amount of the Notes shall be subject
to prepayment, repurchase or redemption prior to maturity only under the
circumstances set forth in this paragraph 5. No partial prepayment of the
outstanding principal amount of the Notes pursuant to paragraph 5C shall
relieve the Company of its obligation to make any of the required prepayments
pursuant to paragraph so.
(ii) If there is more than one holder of the Notes, the aggregate
principal amount of each partial prepayment of the Notes shall be allocated
among the holders of the Notes at the time outstanding in proportion to the
unpaid principal amounts of the Notes respectively held by each such holder.
5B. Mandatory Prepayments of the Notes.
(i) On the last day of June, September and December of 1993,
March, June, September and December of 1994 and 1995 and March of 1996, the
Company shall prepay $100,000 outstanding principal amount of the Notes,
without premium or penalty, together with accrued and unpaid interest thereon
to each such prepayment date, and such principal amount of
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the Notes and accrued and unpaid interest thereon shall become due and payable
on each such prepayment date.
(ii) Concurrently with the consummation of any transaction
resulting in a Change of Control, regardless whether such transaction requires
the consent of the holders of the Notes, the Company shall prepay all
outstanding principal amount of the Notes, without premium or penalty, together
with accrued and unpaid interest thereon to such prepayment date, and such
principal amount of Notes and accrued and unpaid interest thereon shall
thereupon become due and payable on such date. Nothing in this paragraph 5B
shall be deemed to permit a transaction prohibited under paragraph 8G.
5C. Optional Prepayments of the Notes.
(i) At any time prior to maturity, the Company may, in its sole
discretion but subject to compliance with subparagraph (ii) below, prepay
outstanding principal amount of Notes, without premium or penalty, provided
that no holder of Notes shall receive a payment of principal in other than an
integral multiple of $1,000, together with accrued and unpaid interest thereon
to any such prepayment date.
(ii) The Company shall give each holder of Notes written notice of
each prepayment pursuant to subparagraph (i) of this paragraph 5C, not less
than 30 days but not more than 60 days prior to the prepayment date, specifying
such prepayment date, the principal amount of the Notes to be prepaid on such
date and that such prepayment is to be made pursuant to paragraph 5C Notice of
prepayment having been given as aforesaid, the principal amount of the Notes
specified in such notice, together with accrued and unpaid interest thereon to
the prepayment date, shall become due and payable on such prepayment date
unless (a) the holder of such Notes shall have prior to such prepayment date
tendered such Notes pursuant to an exercise of Warrants or (b) a holder of
Warrants or Common Stock purchased upon exercise thereof shall have requested
filing pursuant to the Registration Rights Agreement of, or the Company shall
otherwise have filed, a registration statement for Common Stock under the 1933
Act with the Commission, in which case prepayment shall be effected upon the
lapse of 60 days after the declaration of effectiveness of such registration
statement by the Commission and shall be effected only as to Notes that are not
tendered on or before such date pursuant to an exercise of Warrants.
6. Buyback of Warrants.
6A. Buyback of Warrants in General. The Warrants shall be subject
to call, repurchase or redemption prior to exercise or expiration only under
the circumstances set forth in this paragraph 6. No partial call of the
Warrants pursuant to paragraph 6C shall relieve the Company of its obligation
to purchase Warrants pursuant to paragraph 6B. If there is more than one
holder of the Warrants, the aggregate number of Warrants to be redeemed under
any partial redemption shall be allocated among the holders of the Warrants at
the time outstanding in proportion to the amounts of the shares purchasable
upon exercise of the Warrants respectively held by each such holder.
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6B. Put of the Warrants.
(i) At any time after March 31, 1998 but on or before March 31,
1999, a holder of Warrants may provide the Company with a written request for
the purchase of warrants and within 60 calendar days following receipt of such
request, the Company shall purchase from such holder Warrants representing 50%
of the shares purchasable upon exercise of all Warrants held by such holder, at
a price equal to the product of $5.00 and the number of shares purchasable upon
exercise of such purchased Warrants.
(ii) At any time after March 31, 1999, a holder of Warrants may
provide the Company with a written request for the purchase of Warrants and
within 60 calendar days following receipt of such request, the Company shall
purchase from such holder all Warrants held by such holder, at a price equal to
the product of $5.00 and the number of shares purchasable upon exercise of such
holder's Warrants.
(iii) Concurrently with the consummation of any transaction
resulting in a Change of Control, if requested in writing by a holder of
Warrants the Company shall purchase all Warrants held by such holder at an
aggregate price equal to the product of (x) (A) $1.00 (if the purchase occurs
on or before June 30, 1992), (B) $1.50 (if the purchase occurs after June 30,
1992 but on or before June 30, 1993), (C) $2.00 (if the purchase occurs after
June 30, 1993 but on or before June 30, 1994), or (D) $2,50 (if the purchase
occurs after June 30, 1994) and (y) the number of shares purchasable upon
exercise of such holder's Warrants, which amount shall thereupon become due and
payable on such date.
6C. Call of the Warrants.
(i) On or after the later of (i) the second anniversary of the
Closing Date or (ii) the date which is six months after the Company has
consummated an Initial Public Offering, the Company may, in its sole discretion
but subject to compliance with subparagraph (ii) below, purchase, and the
holders of outstanding Warrants shall, if the Company complies with
subparagraph (ii) below, sell to the Company, all outstanding Warrants at a
price equal to the product of $1.00 and the number of shares purchasable upon
exercise of such Warrants, provided that no such purchase and sale shall occur
unless, for at least 30 days within a period of 40 consecutive trading days
ending on the proposed purchase date, the closing bid or sale price of the
Company's Common Stock as reported on NASDAQ or the New York Stock Exchange has
been equal to or in excess of 200% of the Exercise Price in effect on such
proposed purchase date.
(ii) The Company shall give each holder of Warrants written notice
of a purchase of Warrants pursuant to subparagraph (i) of this paragraph 6C not
less than 60 days prior to the purchase date, specifying such date, the number
of the Warrants (computed by reference to the number of shares purchasable by
exercise thereof) to be purchased on such date and that such purchase is to be
made pursuant to this paragraph 6C. Each such notice shall be accompanied by
an Officer's Certificate stating that all of the applicable conditions set
forth in subparagraph
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(i) of this paragraph 6C have been fulfilled. Notice of purchase having been
given as aforesaid, the purchase price under this paragraph 6C shall become due
and payable on such purchase date unless (a) the holder of such Warrants shall
have exercised such Warrants previously pursuant to paragraph 11, (b) the
holder of such Warrants shall have made a request for purchase of its shares
pursuant to any provision of paragraph 6B or (c) a holder of Warrants or Common
Stock purchased upon exercise thereof shall have requested filing pursuant to
the Registration Rights Agreement of, or the Company shall otherwise have
filed, a registration statement for Common Stock under the 1933 Act with the
Commission, in which case purchase and sale shall not be effected until the
lapse of 60 days after the declaration of effectiveness of such registration
statement by the Commission. Should the Warrants not be purchased on such
purchase date due to the Company's failure to perform its obligations under
this paragraph 6C, any subsequent purchase may be effected only after
compliance with the provisions of this subparagraph (ii) from and after such
purchase date.
7. Affirmative Covenants. All covenants contained herein shall
be given independent effect so that if a particular action or condition is not
permitted by any such covenants, the fact that such action or condition would
be permitted by an exception to, or otherwise be within the limitations of,
another covenant shall not avoid the occurrence of a Default if such action is
taken or condition exists. The provisions of this paragraph 7 are for the
benefit of Investors so long as they hold any Securities and for the benefit of
each other holder of Securities; provided that (i) except for paragraphs 7A,
7B, 7H and 7I, such provisions shall have no further force or effect upon
payment in full of all Indebtedness under the Notes and (ii) upon payment in
full of all Indebtedness under the Notes and completion of an Initial Public
Offering, paragraphs 7A and 7B shall have no further force and effect.
7A. Financial Statements. The Company covenants that it will
deliver to each of the Investors and each other holder of Securities;
(i) as soon as practicable and in any event within 30 days after
the end of each month (other than the last month) in each fiscal year, the
consolidated statements of income for such month and for the period from the
beginning of the current fiscal year to the end of such month and a
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such month, setting forth in each case in comparative form figures for the
current year operating plan, all in reasonable detail to indicate the results
of the Company's operations for such period on a basis consistent with past
practice, and certified by the chief financial officer or chief accounting
officer of the Company as fairly presenting the financial condition of the
Company and its Subsidiaries, subject to the changes resulting from normal
adjustments (including audit and year-end adjustments), provided, however, that
all obligations pursuant to this clause (i) shall terminate upon consummation
of an Initial Public Offering;
(ii) as soon as practicable and in any event within 45 days after
the end of each quarterly period for which the Company shall prepare statements
for such period (other than the last quarterly period) in each fiscal year, the
consolidated statements of income, changes in stockholders, equity and cash
flow of the Company and its Subsidiaries for such quarterly period
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and for the period from the beginning of the current fiscal year to the end of
such quarterly period, and a consolidated and consolidating balance sheet of
the Company and its Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year, all in reasonable detail, prepared in
accordance with GAAP on a basis consistent with past practice, and certified by
the chief financial officer or chief accounting officer of the Company as
fairly presenting the financial condition of the Company and its Subsidiaries,
subject to the changes resulting from audit and year-end adjustments;
(iii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, consolidated and consolidating statements of
income, changes in stockholders' equity and cash flow of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such year, setting forth in each case
(commencing with any such reports delivered after the close of the Company's
first full fiscal year following the date hereof) in comparative form
corresponding figures from the preceding annual audit, and accompanied by a
report, with respect to the consolidated financial statements, of independent
public accountants of recognized national standing selected by the Company and
reasonably satisfactory to the Investors, whose report shall state, without
qualification as to the scope of its audit, that such consolidated financial
statements present fairly the financial condition of the Company and its
Subsidiaries in accordance with GAAP on a basis consistent with past practice
and that the examination by such accountants has been made in accordance with
generally accepted auditing standards;
(iv) as soon as practicable and in any event no later than 30 days
before commencement of a new fiscal year, a business plan and operating budget
(including, without limitation, revenue accounts, cash flow and balance sheets)
of the Company for such fiscal year setting forth in each case in comparative
form corresponding figures from the preceding fiscal year, in reasonable
detail, provided, however, that all obligations pursuant to this clause (iv)
shall terminate upon consummation of an Initial Public Offering;
(v) promptly upon transmission thereof, copies of all financial
statements, proxy statements and reports as the Company shall send to its
stockholders and copies of all registration statements (without exhibits) and
all reports which it files with the Commission (or any governmental body or
agency succeeding to the functions of the Commission) or with any domestic
securities exchange on which any of its securities are listed and copies of any
such reports filed by the Company s directors or officers in their capacity as
such if the Company has received a copy of such report, and copies of all press
releases and other statements made available generally by the Company or its
Subsidiaries to the public concerning material developments in the business of
the Company and its Subsidiaries;
(vi) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any of its Subsidiaries by independent accountants
in connection with any annual, interim or special audit made by them of the
books of the Company or any of its Subsidiaries; and
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(vii) with reasonable promptness, such other financial and/or
operating data as the Investors may reasonably request.
Together with each delivery of financial statements required by clauses (i),
(ii) and (iii) above, the Company will deliver to the Investors an Officer's
Certificate (a) setting forth in narrative form the consolidated operational
results for the Company for the fiscal period covered by such financial
statements and (except to the extent specifically set forth in such financial
statements) the aggregate amount of Indebtedness, fixed charges and pretax cash
provided by operations, on a consolidated basis, of the Company outstanding at
the end of such fiscal period, and the aggregate amounts of interest expense
(stated separately) on Indebtedness, on a consolidated basis, of the Company,
in each instance during such fiscal period, (b) in the case of the financial
statements provided in clauses (ii) and (iii) above, demonstrating (with
computations in reasonable detail) compliance by the Company with the
provisions of paragraphs 8A, 8B, 8D, 8E and 8K, and (c) stating that there
exists no Event of Default or Default or, if any Event of Default or Default
exists, specifying the nature thereof, the period of existence thereof and what
action the Company, proposes to take with respect thereto. Together with each
delivery of financial statements required by clause (iii) above, the Company
will also deliver to the Investors a certification of the accountants referred
to in such clause (iii) stating that, in making the audit necessary to the
certification of such financial statements, they have obtained no knowledge of
any Event of Default or Default, or, if, to their knowledge, any Event of
Default or 'Default exists, specifying the nature and period of existence
thereof; provided that such accountants shall not be liable to anyone by reason
of their failure to obtain knowledge of any such Event of Default or Default
which would not be disclosed in the course of an audit conducted in accordance
with generally accepted auditing standards. Forthwith upon the discovery by an
executive officer of the Company of any Event of Default or Default, the
Company will deliver to the Investors an Officer's Certificate specifying the
nature thereof, the period of existence thereof and what action it proposes to
take with respect thereto. Each Investor is hereby authorized to deliver a
copy of any financial statement or certificate delivered pursuant to this
paragraph 7A to any regulatory body having jurisdiction over such Investor.
7B. Books and Records; Inspection of Property. The Company will
keep, and will cause each of its Subsidiaries to keep, proper books of record
and accounts in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities so that
the financial statements of the Company may be presented in accordance with
GAAP. The Company covenants that it will permit any Person representing the
Investors and designated in writing by such Investors, at the Investors'
expense, to visit and inspect any of the properties of the Company and its
Subsidiaries, to examine the corporate, financial and operating records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the directors, officers and independent accountants of the Company and its
Subsidiaries, all at such reasonable times and as often as the Investors may
reasonably request.
7C. Additional Covenants Pending the Closing. The Company
covenants that pending the Closing it will not, without the prior written
consent of the Investors, take any action which
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would result (i) in any of the representations or warranties contained in this
Agreement not being true in all material respects at and as of the time
immediately after such action or (ii) in any of the covenants contained in this
Agreement becoming unperformable. Pending the Closing, the Company will
promptly advise the Investors of any action or event of which it becomes aware
which has the effect of making incorrect any of such representations or
warranties or which has the effect of rendering unperformable any of such
covenants.
7D. Compliance with Laws, etc. The Company covenants that it will
exercise reasonable diligence in order to assure that it complies with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which would materially adversely
affect the business, condition (financial or other), assets, property or
operations of the Company and its Subsidiaries, taken as a whole.
7E. ERISA. Promptly (and in any event within 30 days) after the
Company or any of its Subsidiaries knows or, in the case of a single-employer
Pension Plan has reason to know, that a Reportable Event with respect to any
Pension Plan has occurred, that any Pension Plan is or may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA or that
the Company or any of its Subsidiaries will or may incur any liability to or on
account of a Pension Plan under Sections 4062, 4063, 4064, 4201 or 4204 of
ERISA, the Company will deliver to the Investors, so long as they shall hold
any of the Securities, a certificate of the chief financial officer of the
Company setting forth information as to such occurrence and what action, if
any, the Company is required or proposes to take with respect thereto, together
with any notices concerning such occurrences which are (a) required to be filed
by the Company or the plan administrator of any such Pension Plan controlled by
the Company or its Subsidiaries, with the PBGC or (b) received by the Company
or its Subsidiaries from any plan administrator of a Multiemployer Plan or
other Pension Plan not under its control, The Company shall furnish to the
Investors, so long as they shall hold any of the Securities, a copy of each
annual report (Form 5500 Series) of any Pension Plan received or prepared by
the Company or any of its Subsidiaries. Each annual report and any notice
required to be delivered hereunder shall be delivered no later than 10 days
after the later of the date such report or notice is filed with the Internal
Revenue Service or the PBGC or the date such report or notice is received by
the Company or any of its Subsidiaries, as the case may be.
7F. Corporate Existence; Maintenance of Properties. The Company
covenants that it: (i) will do or cause to be done all things necessary to
preserve and keep in full force and effect the corporate existence and rights
of the Company and its Subsidiaries (except that the corporate existence of any
of its Subsidiaries may be terminated if such termination is, in the judgment
of the Board of Directors of the Company, in the best interest of the Company
and is not materially disadvantageous to the holders of the Securities or any
securities issued in exchange therefor) ; (ii) will cause its properties and
the properties of its Subsidiaries used or useful in the conduct of their
respective businesses, other than properties which in the aggregate are not
material to the business and operations of the Company and its Subsidiaries,
taken as a whole, to be maintained and kept in good condition, repair and
working order and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as in the judgment of
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the Company may be necessary so that the businesses carried on in connection
therewith may be properly and advantageously conducted at all times; and (iii)
will, and will cause each of its Subsidiaries to, qualify and remain qualified
to conduct business in each jurisdiction where the nature of the business of or
ownership of property by the Company or such Subsidiary, as the case may be,
may require such qualification.
7G. Insurance. The Company covenants that, so long as the
Investors shall hold any of the Securities, it will maintain, and will cause
each of its Subsidiaries to maintain, with financially sound and reputable
insurance companies, funds or underwriters, insurance for the Company and its
Subsidiaries of the kinds, covering the risks and in the relative proportionate
amounts usually carried by companies conducting business activities similar to
those of the Company and its Subsidiaries.
7H. Filing of Reports under the 1934 Act. The Company shall give
prompt notice to each of the Investors of the filing of any registration
statement (an "Exchange Act Registration Statement") pursuant to the 1934 Act,
relating to any class of equity securities of the Company and the effectiveness
of such Exchange Act Registration Statement and the number of shares of such
class of equity security outstanding as reported in such Exchange Act
Registration Statement. If the Company shall have filed an Exchange Act
Registration Statement or a registration statement (including an offering
circular under Regulation A promulgated under the 1933 Act) pursuant to the
requirements of the 1933 Act, the Company shall use all reasonable efforts to
(i) comply with the reporting requirements of the 1934 Act, and (ii) comply
with all other public information reporting requirements of the Commission that
are a condition to the availability of an exemption from the 1933 Act (under
Rule 144 thereof, as amended from time to time, or successor rule thereto or
otherwise) for the sale of shares of Common Stock issuable upon exercise of the
Warrants by any Investor. The Company shall cooperate with each Investor in
supplying such information as may be necessary for such Investor to complete
and file any information reporting forms at present or hereafter required by
the Commission, including, without limitation, any information required as a
condition to the availability of an exemption from the 1933 Act (under Rule 144
thereof or otherwise), for the sale of shares of Common Stock issuable upon
exercise of the Warrants by any Investor.
7I. 1933 Act Registration Statements. The Company covenants that
it shall not file any registration statement under the 1933 Act (other than a
Form S-8 registration statement, or any successor to the Form S-8 registration
statement) covering any securities unless it shall first have given each
Investor written notice thereof. The Company further covenants that each
Investor shall have the right, at any time when it may be deemed by the Company
to be a controlling person of the Company, to participate in the preparation of
such registration statement (regardless of whether or not an Investor will be a
selling security holder in connection with such registration statement) and to
request the insertion therein of material furnished to the Company in writing
which in such Investor's judgment should be included. In connection with any
registration statement referred to in this paragraph 7I, the Company will
indemnify each Investor, its partners, officers and directors and each person,
if any, who controls such Investor within the meaning of section 15 of the 1933
Act, against all losses, claims, damages, liabilities and
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expenses caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus or any
preliminary prospectus or any amendment thereof or supplement thereto or caused
by 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 are caused by any untrue statement or alleged untrue statement or
omission or alleged omission contained in written information furnished to the
Company by such Investor expressly for use in such registration statement. If,
in connection with any such registration statement, such Investor shall furnish
written information to the Company expressly for use in the registration
statement, such Investor will indemnify the Company, its directors, each of its
officers who signs such registration statement and each person, if any, who
controls the Company within the meaning of the 1933 Act against all losses,
claims, damages, liabilities and expenses caused by any untrue statement or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any preliminary prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein not misleading, but only to
the extent that such untrue statement or alleged untrue statement or such
omission or alleged omission is contained in information so furnished in
writing by such Investor for use therein. The provisions of this paragraph 7I
are in addition to, and not in limitation of, the provisions of the
Registration Rights Agreement.
8. Negative Covenants. All covenants contained herein shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that such action or condition
would be permitted by an exception to, or otherwise be within the limitations
of, another covenant shall not avoid the occurrence of a Default if such action
is taken or condition exists. The provisions of this paragraph 8 are for the
benefit of Investors so long as they hold any of the Securities and for the
benefit of each other holder of any of the Securities, and, except for
paragraph 8F, such provisions shall have no further force or effect following
the payment of all Indebtedness under to the Notes.
8A. Restricted Payments.
(i) The Company covenants that before the consummation of an
Initial Public Offering it will not make, and will not permit any Subsidiary to
make, any Restricted Payments.
(ii) The Company covenants that after the consummation of an
Initial Public Offering it will not make, and will not permit any Subsidiary to
make, any Restricted Payments (a) until after the end of a fiscal quarter and
(b) then only to the extent of (x) 25% of Net Income of the Company in such
quarter reduced by (y) the amount of consolidated net losses of the Company for
the period commencing the first day of the fiscal year in which such Initial
Public Offering is consummated and ending the last date of the preceding fiscal
quarter, as such consolidated net losses would appear on a consolidated
statement of income for the Company for such period prepared in accordance with
GAAP, but only to the extent of such consolidated net losses that have not been
offset previously against Net Income under this subparagraph (ii).
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8B. Restrictions on Indebtedness. The Company covenants that it
will not incur, create, assume or suffer to exist any Indebtedness or permit
any of its Subsidiaries to do any of the foregoing, other than any of the
following;
(i) Indebtedness represented by the Notes and this Agreement;
(ii) additional unsecured Senior Debt or Senior Debt secured by
Liens as permitted by subparagraph 8C(v);
(iii) Indebtedness that is subordinated or pari passu to
Indebtedness evidenced by the Notes and subordinated to Senior Debt;
(iv) other Indebtedness of the Company and its Subsidiaries
outstanding on the date hereof as described in, and in the amounts set forth
in, Schedule 11E;
(v) any operating lease obligations; and
(vi) any Indebtedness secured by Liens as permitted by
subparagraphs 8C(iii) or (iv).
8C. Restrictions on Liens. Except as set forth in Schedule 8C,
the Company covenants that it will not and will not permit any Subsidiary to
create, assume or suffer to exist any Lien upon any of its property or assets,
whether now owned or hereafter acquired, except;
(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings and for which adequate
reserves have been established;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, in accordance with GAAP shall have been made
therefor;
(iii) purchase money security interests (including mortgages, leases
and other deferred purchase devices) attaching only to the property or assets
purchased;
(iv) security interests granted in connection with the purchase by
the Company of corporations or other entities which upon purchase thereof
become Subsidiaries, which security interests are (a) granted only to the
sellers of such Subsidiaries and (b) attach only to the stock of such
Subsidiaries;
(v) security interests in the assets of the Company securing
Senior Debt; and
(vi) security interests securing Indebtedness on Schedule 11E
hereof.
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8D. Loans, Advances and Investments. The Company covenants that
it will not, and will not permit any of its Subsidiaries to make or permit to
remain outstanding any loan or advance to, or guarantee, endorse or otherwise
be or become contingently liable, directly or indirectly, in connection with
the obligations, stock or dividends of, or own, purchase or acquire any stock,
obligations or securities of, or make any Investment in, any Person, except
that the Company or any Subsidiary may;
(i) make or permit to remain outstanding loans or advances to any
Subsidiary or, as to a Subsidiary, any such loan or advance to the Company;
(ii) own, purchase or acquire stock, obligations or securities of a
Subsidiary or of a corporation which immediately after such purchase or
acquisition will be a Subsidiary;
(iii) own, purchase or acquire (a) commercial paper rated P1 or
higher by Moody's Investors Service Inc., or A1 or higher by Standard & Poor's
Corporation on the date of acquisition, (b) certificates of deposit of United
States commercial banks (having a combined capital and surplus in excess of
$500,000,000), (c) obligations of or guaranteed by the United States government
or any agency thereof, and (d) money market funds organized under the laws of
the United States or any state thereof that invest substantially all of its
assets in any of the types of investments described in clauses (a), (b) or (c)
of this clause (iii);
(iv) endorse negotiable instruments for collection in the ordinary
course of business, make or permit to remain outstanding travel, moving and
other like advances to officers, employees and consultants in the ordinary
course of business or make or permit to remain outstanding lease, utility and
other similar deposits in the ordinary course of business;
(v) guarantee Indebtedness of any Subsidiary to the extent such
Subsidiary's Indebtedness is permitted by paragraph 8B; and
(vi) make loans or advances to employees in the ordinary course of
business, provided that such loans shall not exceed $25,000 per employee unless
a majority of disinterested members of the Company's Board of Directors
approves such loan.
8E. Shareholders' Equity.
(i) The Company covenants that it will not at any time permit its
Shareholders Equity to be less than (x) $4,000,000 plus (y) 50% of consolidated
earnings (less, without duplication, all provision for taxes) as the same would
appear on a consolidated statement of operations of the Company for the period
beginning April 1, 1991 and ending at the time of determination of Shareholders
Equity, prepared in accordance with GAAP.
(ii) The Company covenants that it will not at any time incur any
additional Indebtedness if its ratio of Indebtedness to Shareholders Equity is,
or if the effect of such incurrence is to cause such ratio to be, greater than
2 to 1.
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8F. Transactions with Affiliates. The Company covenants that it
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into or permit to exist any transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service), with any Person who, prior to such transaction, is
the holder of 5% or more of any class of equity securities of the Company or
with any Affiliate of the Company or of any such holder on terms that are less
favorable to such Subsidiary or the Company, as the case may be, than those
that would be obtainable at the time from any Person who is not such a holder
or Affiliate, except that the Company may give guaranties and make loans and
advances in accordance with paragraph 8D(i), (v) and (vi).
8G. Merger and Asset Sales. The Company covenants that it will
not enter into any transaction of merger or consolidation or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or substantially all of the Company's business, property or
fixed assets (either through a sale of assets or stock), whether now owned or
hereafter acquired, except (i) if the Notes and all interest accrued thereon
have been paid in full or provided for at the closing of such transaction out
of the proceeds of it or (ii) that the Company may merge or consolidate if (a)
the Company is the surviving entity and remains an entity incorporated under
the laws of a state of the United States of America, (b) immediately after such
merger or consolidation (and giving effect thereto) no Default shall have
occurred and be continuing, and (c) after giving effect to such merger or
consolidation the Company would be able to incur at least $1.00 of additional
Indebtedness in accordance with paragraph 8E (ii) without a Default resulting.
8H. Certain Contracts. Except as otherwise specifically permitted
by any other provision of paragraph 8, the Company covenants that it will not,
and will not permit any of its Subsidiaries to, enter into or be a party to (i)
any contract providing for the making of loans, advances or capital
contributions to any Person other than a Subsidiary, or for the purchase of any
property from any Person (except as permitted by paragraph SD), in each case
primarily in order to enable such Person to maintain working capital, net worth
or any other balance sheet condition or to pay debts, dividends or expenses, or
(ii) any contract for the purchase of materials, supplies or other property or
services if such contract (or any related document) requires that payment for
such materials, supplies or other property or services shall be made regardless
of whether or not delivery of such materials, supplies or other property or
services is ever made or tendered, or (iii) any contract to rent or lease (as
lessee) any real or personal property if such contract (or any related
document) provides that the obligation to make payments thereunder is absolute
and unconditional under conditions not customarily found in commercial leases
then in general use or requires that the lessee purchase or otherwise acquire
securities or obligations of the lessor, or (iv) any contract for the sale or
use of materials, supplies or other property, or the rendering of services, if
such contract (or any related document) requires that payment for such
materials, supplies or other property, or the use thereof, or payment for such
services, shall be subordinated to any indebtedness (of the purchaser or user
of such materials, supplies or other property or the Person entitled to the
benefit of such services) owed or to be
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owed to any Person, or (v) any other contract which, in economic effect, is
substantially equivalent to a guarantee.
8I. Conduct of Business. The Company covenants that it will not,
and will not permit any of its Subsidiaries to, engage in any business other
than the business engaged in by the Company and its Subsidiaries on the date
hereof which includes the provision of training to individuals to improve or
create skills with respect to personal interests, existing careers or new
careers, and any businesses or activities substantially similar or related
thereto.
8J. No Amendments. The Company will not amend its Certificate of
Incorporation (including, without limitation, the Cumulative Convertible
Preferred Stock) or By-laws in any manner to cause the Investors to be unable
to exercise any right or privilege, or in such a way as to cause the Company to
be unable to perform any of its obligations to the Investors specifically
provided for in this Agreement, the Registration Rights Agreement or the
Coinvestors Agreement; without limiting the provisions of the preceding clause,
nothing in this paragraph 8J shall limit the Company's right to amend its
Certificate of Incorporation or take any other action with respect to the
authorization or issuance of capital stock, including the authorization or
issuance in the number of shares of common or preferred stock or the
designation of preferences as to distributions on liquidation, so long as
compliance by the Company with such terms will not conflict with the
prohibition contained in such clause; provided, however, that the Company shall
not create any class of capital stock having a preference superior to its
common stock with respect to dividends, or change the number of its directors.
8K. Interest Coverage Ratio. The Company covenants that it will
not permit, its Interest Coverage Ratio to be less than (i) 1 to 1 for any two
consecutive fiscal quarters or (ii) 1.5 to 1 at the end of any fiscal quarter,
for the twelve-month period then ended.
9. Subordination.
9A. Subordinated Debt Subordinate to Senior Debt. All
Subordinated Debt shall be junior and subordinate to all Senior Debt (as
defined in paragraph 14) to the extent and in the manner provided in this
paragraph 9 and each holder of a Note, by its acceptance thereof, agrees to be
bound by the provisions of this paragraph 9. Subordinated Debt shall not be
junior or subordinate to any Indebtedness of the Company other than Senior
Debt.
9B. Suspension of Right to Receive Payments of Subordinated Debt;
Other Defaults.
9B(l). Failure to Pay Principal of or Interest on Senior Debt. If at
the time any payment or prepayment with respect to any Subordinated Debt or any
purchase, redemption or other retirement (whether at the option of the holder
or otherwise) of Subordinated Debt is to be made, directly or indirectly, or
immediately after giving effect thereto there shall have occurred a Default in
the payment of principal or interest due on Senior Debt (whether by lapse of
time, acceleration or otherwise), then any payment or distribution of any kind
or character, whether in cash, property or securities, which may be payable or
deliverable with respect to Subordinated
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Debt shall be paid or delivered by the Company directly to the holders of
Senior Debt, ratably, for application in payment thereof, unless and until all
Senior Debt shall have been paid in full.
9B(2). Acceleration of Payment of Senior Debt or Subordinated Debt.
(a) If at the time any payment or prepayment with respect to any
Subordinated Debt or any purchase, redemption or other retirement (whether at
the option of the holder or otherwise) of Subordinated Debt is to be made,
directly, or indirectly, or immediately after giving effect thereto (i) the
Senior Debt or the Subordinated Debt shall have been declared by the holders
thereof due and payable before its expressed maturity and (ii) such
acceleration shall not have been expressly rescinded in writing by the holders
of Senior Debt pursuant to the relevant Senior Debt Agreement or by the holders
of Subordinated Debt pursuant to the relevant Subordinated Debt Agreement, as
the case may be, then any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or deliverable
with respect to Subordinated Debt shall be paid or delivered by the Company
directly to the holders of Senior Debt, ratably, for application in payment
thereof, unless and until all Senior Debt shall have been paid in full or such
acceleration shall have been rescinded.
(b) Prior to the payment in full of all Senior Debt, the holders
of Notes will not, upon the occurrence of an Event of Default referred to in
paragraph 10 hereof (other than an Event of Default which, by the terms of
such paragraph 10, causes an immediate and automatic acceleration of all
payment obligations in respect of the Notes), declare any or all of the Notes
due and payable or demand or sue for the payment of any amount owing on the
Notes, unless and until the holders of the Notes have notified the holders of
Senior Debt of the occurrence of such particular Event of Default and 90 days
shall have elapsed since the date of such notice and such Event of Default
shall not have been cured; provided, however, that if such Event of Default is
of the nature set forth in paragraph 1OA(iii) and the event giving rise thereto
does not result in any other Event of Default described in such paragraph
1OA(iii), then the holders of Notes shall not, prior to the payment in full of
all Senior Debt, declare any or all of the Notes due and payable on demand or
sue for the payment of any amount owing on the Notes (such period of time
during which such rights are suspended being called the "Continuous Standstill
Period"); provided, further, however, that, notwithstanding the foregoing, if
any holder of Senior Debt shall accelerate the maturity of such Senior Debt
prior to the expiration of such 90-day period or during the Continuous
Standstill Period, the holders of Notes may forthwith accelerate the maturity
of the Notes. Nothing in this paragraph 9B(2)(b) shall be deemed to permit any
payment with respect to the Notes at a time when such payment would be
prohibited by paragraphs 9B(l) or 9b(2)(a).
9B(3). Bankruptcy or Insolvency. In the event of (i) any insolvency,
bankruptcy, liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the Company or
(ii) any proceedings for voluntary liquidation, dissolution or other winding-up
of the Company, whether or not involving insolvency or bankruptcy proceedings,
then all Senior Debt shall first be paid in full, or such payment shall have
been duly provided for, before any further payment is made with respect to
Subordinated
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Debt. In any of such proceedings, any payment or distribution of any kind or
character, whether in cash, property or securities, which may be payable or
deliverable with respect to Subordinated Debt shall be paid or delivered
directly to the holders of Senior Debt, ratably, for application in payment
thereof, unless and until all Senior Debt shall have been paid in full;
provided that in the event that payment or delivery of any cash, property or
securities to any holders of Subordinated Debt is authorized by a final
nonappealable order or decree giving effect, and stating in such order or
decree that effect is given, to the subordination of Subordinated Debt to
Senior Debt, and made by a court of competent jurisdiction in a reorganization
proceeding under any applicable law, no payment or delivery of such cash,
property or securities payable or deliverable with respect to Subordinated Debt
shall be made to the holders of Senior Debt. Anything in this paragraph 9 to
the contrary notwithstanding, no payment or delivery shall be made to holders
of Senior Debt of securities that are issued and delivered to holders of
Subordinated Debt pursuant to reorganization, dissolution or liquidation
proceedings, or upon any merger, consolidation, sale, lease, transfer or other
disposal not prohibited by the provisions of this Agreement, by the Company, as
reorganized, or by the corporation succeeding to the Company or acquiring its
property and assets, if such securities are subordinate and junior at least to
the extent provided in this paragraph 9 to the payment of all Senior Debt then
outstanding and to the payment of any securities that are issued in exchange or
substitution for any Senior Debt then outstanding.
9C. Rights of Holders of Senior Debt Not to Be Impaired. No right
of any present or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act by any such holder, or by any noncompliance by the
Company with the terms and provisions and covenants herein contained,
regardless of any knowledge thereof any such holder may have or otherwise be
charged with. The provisions of this paragraph 9 are intended to be for the
benefit of, and shall be enforceable directly by, the holders from time to time
of the Senior Debt. Each of the holders of Subordinated Debt waives notice of
or proof of reliance on this Agreement and protest, demand for payment and
notice of default by the holders of Senior Debt.
9D. Company's Obligation Unconditional. The provisions of this
paragraph 9 are solely for the purpose of defining the relative rights of the
holders of Senior Debt, on the one hand, and the holders of Subordinated Debt,
on the other hand, against the Company and its property. Nothing herein shall
impair, as between the Company and the holders of Subordinated Debt, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders thereof the full amount of the Subordinated Debt in accordance with the
terms thereof and the provisions hereof and nothing herein shall prevent the
holder of any Subordinated Debt from exercising all remedies otherwise
permitted by applicable law or hereunder upon Default hereunder or under any
Subordinated Debt (including, without limitation, the right to demand and sue
for payment and performance hereof and the Subordinated Debt and to accelerate
the maturity hereof as provided in paragraph 10), subject to the provisions of
Section 9B(2) and subject to the rights under this paragraph 9 of holders of
Senior Debt to receive cash, property or securities otherwise payable or
deliverable to the holders of Subordinated Debt, The failure to make any
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payment with respect to the Subordinated Debt by reason of any provision of
this paragraph 9 shall not be construed as preventing the occurrence of an
Event of Default under paragraph 10.
9E. Payments Held in Trust. If the holder of any Subordinated
Debt shall receive any payment or delivery of cash, property or securities in
respect of such Subordinated Debt which such holder is not entitled to receive
under the provisions of this paragraph 9, such holder will hold any amount so
received in trust for the holders of Senior Debt and will forthwith turn over
to the agent for the account of the holders of Senior Debt such payment or
delivery in the form received to be applied in payment or prepayment of Senior
Debt.
9F. Subrogation. Upon the payment in full of all Senior Debt and
termination of any Senior Debt Agreement, the holders of Subordinated Debt
shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of the Company applicable to Senior Debt
until all Subordinated Debt shall have been paid in full. For the purpose of
subrogation, no payments to the holders of Senior Debt of any cash, property or
securities that the holders of Subordinated Debt would be entitled to receive
and retain but for the provisions of this paragraph 9, and no payment pursuant
to the provisions of this paragraph 9, to holders of Senior Debt by holders of
Subordinated Debt, shall, as between the Company and its creditors (other than
the holders of Senior Debt), on the one hand, and the holders of Subordinated
Debt, on the other, be deemed to be a Payment by the Company with respect to
the Senior Debt.
9G. Reliance by Holders on Final Order or Decree. Anything in
this paragraph 9 to the contrary notwithstanding, in the event that payment or
delivery of any cash, property or securities to any holders of the Notes is
authorized by a final non-appeal able order or decree giving effect to the
subordination of the Indebtedness represented by the Notes to Senior Debt, and
made by a court of competent jurisdiction in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership, or
similar proceedings under any applicable law, no payment or delivery of such
cash, property or securities payable or deliverable with respect to the
Indebtedness represented by the Notes shall be made to the holders of Senior
Debt, nor shall any payment or delivery be made to holders of Senior Debt of
securities that are issued and delivered to holders of Notes pursuant to
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership, or similar proceedings, or upon any merger,
consolidation, sale, lease, transfer or other disposal not prohibited by the
provisions of this Agreement, by the Company, as reorganized, or by the
corporation succeeding to the Company or acquiring its properties and assets,
if such securities are subordinate and junior at least to the extent provided
in this paragraph 9 to the payment of all Senior Debt then outstanding and to
the payment of any securities that are issued in exchange or substitution for
any Senior Debt then outstanding.
10. Events of Default; Remedies.
10A. Events of Default. If any of the following events shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law or
otherwise);
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(i) the Company defaults in the payment of any principal of or
premiums on any Note or any mandatory prepayment of any Note after such payment
becomes due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest on any
Note for a period of 10 days after such payment becomes due; or
(iii) the Company or any Subsidiary defaults in any payment of
principal of or interest on any other obligation for money borrowed (or any
Capitalized Lease Obligation, any obligation under a conditional sale or other
title retention agreement, any obligation issued or assumed as full or partial
payment for property whether or not secured by a purchase money mortgage or any
obligation under notes payable or drafts accepted representing extensions of
credit) beyond any period of grace provided with respect thereto, or the
Company or any Subsidiary fails to perform or observe any other agreement, term
or condition contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is to
cause, or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become due prior
to any stated maturity; provided that the aggregate amount of all obligations
as to which such a payment default shall occur and be continuing or such a
failure or other event causing or permitting acceleration shall occur and be
continuing is equal to or greater than $100,000; or
(iv) any representation or warranty made by the Company herein or
in any writing furnished pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(v) the Company defaults in any material respect in the
performance or observance of any of its agreements contained in paragraphs 5, 6
7D, 7E, 7F or 8; or
(vi) the Company fails in any material respect to perform or
observe any other agreement, term or condition contained herein and such
failure shall not have been remedied within 30 days after notice by an Investor
to the Company; or
(vii) the Company or any of its Subsidiaries makes an assignment for
the benefit of creditors or is generally not paying its debts as such debts
become due; or
(viii) any decree or order for relief in respect of the Company or
any Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law, whether now or hereafter in effect (herein called "Bankruptcy
Law"), of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the Company or
any Subsidiary, or of any substantial part of the assets of the
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Company or any Subsidiary, or commences a voluntary case under the Bankruptcy
Law of the United States or any proceedings (other than proceedings for the
voluntary liquidation and dissolution of a Subsidiary) relating to the Company
or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and the
Company or such Subsidiary by any act indicates its approval thereof, consent
thereto or acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings, and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company or any of its Subsidiaries decreeing the dissolution of the
Company or such Subsidiary and such order, judgment or decree remains unstayed
and in effect for more than 90 days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any of its Subsidiaries decreeing a split-up of the
Company or such Subsidiary which requires the divestiture of substantial assets
of the Company and its Subsidiaries, taken as a whole, and such order, judgment
or decree remains unstayed and in effect for more than 90 days; or
(xiii) a final judgment in an amount in excess of $100,000 is
rendered against the Company or any of its Subsidiaries and, within 30 days
after entry thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within 60 days after expiration of any such stay,
such judgment is not discharged; or
(xiv) any Pension Plan fails to maintain the minimum funding
standard required by Section 412 of the Code for any plan year or a waiver of
such standard is sought or granted under Section 412 (d) of the Code, or any
Pension Plan subject to Title IV of ERISA is, has been or is likely to be
terminated or the subject of termination proceedings under ERISA, or the
Company or only Subsidiary or an ERISA Affiliate has incurred or is likely to
incur a liability to or on account of any Pension Plan under Sections 4062,
4063, 4064, 4201 or 4204 of ERISA, and there results from any such event or
events a liability or a material risk of incurring a liability to the PBGC or
any Pension Plan which, if incurred, could have a material adverse effect upon
the business, operations or financial condition of the Company or a Subsidiary
of the Company, or the Company or a Subsidiary has engaged in a prohibited
transaction that would result in a liability, penalty or tax under ERISA or
Section 4975 of the Code, as the case may be, which could have a material
adverse effect upon the business, operations or financial condition of the
Company or any Subsidiary of the Company; then (a) upon the occurrence of any
Event of Default described in the foregoing clauses (vii), (viii), (ix), (x),
(xi) or (xii), the unpaid principal amount of and accrued interest on the Notes
outstanding shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which
are hereby expressly waived by the Company, and (b) upon the occurrence of any
other Event of Default, the holder or holders of at least a majority of the
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aggregate unpaid principal amount of the Notes at the time outstanding may, at
its or their option and in addition to any right, power or remedy permitted by
law or equity, by notice in writing to the Company, declare all of the Notes to
be, and all of the Notes shall thereupon be and become, immediately due and
payable together with interest accrued thereon, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Company.
10B. Other Remedies. If any Event of Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by
suit in equity or by action at law, or both, whether for specific performance
of any covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the Investors or any other holder of any Note is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
11. Representations, Covenants and Warranties. The Company
represents, covenants and warrants to each Investor that;
11A. Organization; Qualification and Authority. The Company is a
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware, At the Closing Date, each Subsidiary of the Company
will be a corporation duly organized and existing under the laws of the
jurisdiction of its incorporation. As of the Closing Date, the Company and
each subsidiary will be duly qualified to do business as a foreign corporation
and in good standing in each jurisdiction in which the character of its
properties or the nature of its business makes such qualification necessary and
in which the failure to so qualify would have a materially adverse effect on
the operations or financial condition of the Company. The Company has, and as
of the Closing Date each of its Subsidiaries will have, the corporate power to
own its properties and to carry on its business as now being conducted. The
Company has all requisite corporate power and authority to enter into this
Agreement and each agreement executed by it, to issue and sell the Notes and
Warrants hereunder and to issue Common Stock upon exercise of the Warrants and
has the requisite corporate power and authority to carry out the transactions
contemplated hereby and thereby to be performed by it, and the execution,
delivery and performance hereof and thereof have been duly authorized by all
necessary corporate action. This Agreement constitutes, and each other
agreement or instrument executed and delivered by the Company pursuant hereto
or thereto or in connection herewith or therewith will constitute, legal, valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms.
11B. Financial Statements. The Company has furnished the Investors
with the following financial statements: audited consolidated balance sheets of
the Company as of March 31, 1989, 1990 and 1991, and the related consolidated
statements of income, retained earnings and cash flows of the Company for the
fiscal years then ended, together with the independent auditor's
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reports thereon, and a consolidated balance sheet as of April 30, 1991 and the
related consolidated statements of income, retained earnings and cash flows of
the Company for the calendar month then ended. Such financial statements
(including any related schedules and notes and except for the monthly financial
statements) have been prepared in accordance with GAAP consistently applied
throughout the period or periods in question and all of such financial
statements (including any related schedules and notes) show all liabilities,
direct or contingent, of the Company required to be shown in accordance with
GAAP consistently applied throughout the period or periods in question and
fairly present the consolidated financial position and the consolidated results
of the Company for the periods indicated therein, subject, in the case of the
monthly statements, to normal adjustments. There have been no material adverse
changes in the condition (financial or other), results of operations, business
or prospects of the Company since March 31, 1991.
11C. Capital Stock and Related Matters. As of the Closing Date and
after giving effect to the transactions contemplated in this Agreement, (i) the
Company's authorized capital stock will consist of (a) 3,500,000 shares of
Common Stock, par value $.0l per share, of which 823,982 shares will be issued
and outstanding; 1,000,000 shares will be reserved for issuance upon exercise
of the Warrants; and 838,888 shares will be issuable upon exercise of
outstanding Common Stock warrants; (b) 1,100,000 shares of Cumulative
Convertible Preferred Stock, par value $.0l per share, of which 1,020,000
shares will be issued and outstanding; 54,931 shares will be issuable upon
exercise of outstanding Cumulative Convertible Preferred Stock warrants; and
all issued and outstanding shares shall have been duly and validly issued,
fully paid and non-assessable; (ii) the Warrants, if exercised in full, would
represent approximately 27% of the Company's outstanding Common Stock on a
fully diluted basis; (iii) no shares of Common Stock will be owned or held by
or for the account of the Company or any of its Subsidiaries; (iv) neither the
Company nor any of its Subsidiaries will have outstanding any stock or other
securities convertible into or exchangeable for any shares of capital stock,
any rights to subscribe for or to purchase or, options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any other character relating to the issuance
of, any capital stock, or any stock or securities convertible into or
exchangeable for any capital stock which have not been waived (other than the
Notes and the Warrants and except as set forth on Schedule 11C hereto); (v)
except as contemplated hereby neither the Company nor any of its Subsidiaries
will be subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of capital stock; and (vi) the Company
will not have filed or be required to file, pursuant to Section 12 of the 1934
Act a registration statement relating to any class of debt or equity
securities. Except as contemplated by this Agreement and as disclosed by the
Company on Schedule 11C, there are no agreements, written or oral, between the
Company and any holder of its capital stock, or to the best knowledge of the
Company, among any holder of its capital stock relating to ownership or voting
of the capital stock of the Company.
11D. Actions Pending. Except as set forth in Schedule 11D, there
is no action, suit, investigation or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries or any
of their properties or rights, by or before any court,
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arbitrator or administrative or governmental body, which, if adversely decided,
would have a materially adverse effect on the Company or its Subsidiaries.
11E. Outstanding Debt. Except as set forth on the Company's
audited balance sheet as of March 31, 1991 or in Schedule 11E, neither the
Company nor any of its Subsidiaries has outstanding any material amount of
Indebtedness, and there exists no default or event of default, or event which
with notice or lapse of time or both will constitute a default or event of
default under the provisions of any instrument evidencing such Indebtedness or
of any agreement or document relating thereto.
11F. Title to Properties. Each of the Company and its Subsidiaries
has (i) good, sufficient and legal title to its respective real property (other
than real properties which it leases from others) subject to no Lien of any
kind except Liens permitted by paragraph 8C, and (ii) good title to all of its
other respective properties and assets which are material to the current
conduct of its business (other than properties and assets which it leases from
others and other than properties and assets disposed of in the ordinary course
of business), subject to no Lien of any kind except Liens permitted by
paragraph 8C. To the extent material to the Company's ability to carry on its
business in substantially the same manner as it is now being conducted, each of
the Company and its Subsidiaries enjoys peaceful and undisturbed possession
under all leases necessary in any material respect for the operation of its
respective properties and assets, none of which contains any unusual or
burdensome provisions which might materially affect or impair the operation of
such properties and assets, and all such leases are valid and subsisting and in
full force and effect.
11G. Taxes. Each of the Company and its Subsidiaries has filed all
federal, state and other income tax returns which are required to be filed, and
each has paid all taxes as shown on said returns and on all assessments
received by it to the extent that such taxes have become due or except such as
are being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP.
11H. Conflicting Acrreements. Neither the execution or delivery of
this Agreement, the Registration Rights Agreement, the Coinvestors Agreement or
the Securities, the offering, issuance and sale of the Securities, nor
fulfillment of or compliance with the terms and provisions hereof and thereof,
will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries pursuant to (i) the charter or By-Laws of
the Company or any of its Subsidiaries, or (ii) any award of any arbitrator or
any agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or any
of its Subsidiaries is subject. Neither the Company nor any of its
Subsidiaries is a party to, or otherwise subject to any provision contained in,
any instrument evidencing indebtedness for borrowed money of the Company or any
of its Subsidiaries, any agreement relating thereto or any other contract or
agreement (including its charter) which limits the amount of, or otherwise
imposes restrictions
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on the incurring of, Indebtedness of the type to be evidenced by the Notes, or
contains dividend or redemption limitations on any capital stock of the
Company, except for this Agreement.
11I. Offering of Securities. Neither the Company nor any Person
acting on its behalf has, directly or indirectly, offered any of the Securities
or any similar security of the Company for sale to, or solicited any offers to
buy any of the Securities or any similar security of the Company from, or
otherwise approached or negotiated with respect thereto with any Person other
than the Investors and their affiliates and other accredited investors (as such
term is defined in Regulation D promulgated under the 1933 Act); and the
Company has not taken and will not take any action which would subject the
issuance or sale of any of the Securities to the provisions of section 5 of the
1933 Act or violate the provisions of any securities, Blue Sky law of any
applicable jurisdiction.
11J. Broker's or Finder's Commissions. No broker's or finder's fee
or commission will be payable by the Company with respect to the issuance and
sale of the Securities or the transactions contemplated hereby except for fees
payable to Equitable Securities Corporation (which fees shall be the sole
responsibility of the Company).
11K. Regulation G, Etc.; Use of Proceeds. Neither the Company nor
any of its Subsidiaries owns or has any present intention of acquiring any
"margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of
Governors of the Federal Reserve System (herein called a "margin stock"). All
of the proceeds of the sale of the Securities will be used by the Company for
general corporate purposes and for the repayment of outstanding Indebtedness.
None of such proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin stock or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of Regulation G. Neither the Company, any
of its Subsidiaries nor any agent acting on its behalf has taken or will take
any action which might cause this Agreement or the Notes to violate Regulation
G, Regulation T, Regulation U or Regulation X or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the 1934 Act, in
each case as in effect now or as the same may hereafter be in effect.
11L. Pollution and Other Regulations. To the best of the Company's
knowledge, the Company and its Subsidiaries are in compliance in all material
respects with all laws and regulations including, without limitation, those
relating to pollution and environmental control, equal employment opportunity,
employee safety and other like governmental laws and regulations affecting the
general conduct of its business in all jurisdictions in which it is presently
doing business, and the Company will use its best efforts to comply and to
cause each of its Subsidiaries to comply in all material respects with all such
laws and regulations which may be legally imposed in the future in
jurisdictions in which the Company or any Subsidiary may then be doing
business.
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11M. Absence of Pension Plans. The Company neither maintains nor
has any present intention to implement any funded pension plan subject to ERISA
for the benefit of any of its employees.
11N. Agreements with Affiliates. Neither the Company nor any of
its Subsidiaries is a party to any contract or agreement with, or any other
commitment to, any Affiliate of the Company or any of its Subsidiaries, except
as contemplated hereby.
11O. Possession of Franchises, Licenses, Etc. To the best of the
Company's knowledge, the Company and its Subsidiaries possess all franchises,
certificates, licenses, permits and other authorizations from governmental
political subdivisions or regulatory authorities, that are necessary in any
material respect for the ownership, maintenance and operation of its properties
and assets, and neither the Company nor any of its Subsidiaries is in violation
of any thereof in any material respect.
11P. Patents, Etc. The Company and its Subsidiaries own or have
the right to use all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, which
are necessary for the operation of its business substantially as presently
conducted. As of the Closing Date and after giving effect to the transactions
contemplated hereby, nothing has come to the attention of the Company, any of
its Subsidiaries or, to the best of the Company's knowledge, any of their
respective directors and officers to the effect that (i) any product, process,
method, substance, part or other material presently contemplated to be sold by
or employed by the Company or any of its Subsidiaries in connection with its
business may infringe any patent, trademark, service mark, trade name,
copyright, license or other right owned by any other Person, (ii) there is
pending or threatened any claim or litigation against or affecting the Company
or any of its Subsidiaries contesting its right to sell or use any such
product, process, method, substance, part or other material or (iii) there is,
or there is pending or proposed, any patent, invention, device, application or
principle or any statute, law, rule, regulation, standard or code relating
thereto which would prevent, inhibit or render obsolete the production or sale
of any products of, or substantially reduce the projected revenues of, or
otherwise adversely affect in any material respect the business, condition or
operations of the Company and its Subsidiaries, taken as a whole.
11Q. Holding Company and Investment Company Status. Neither the
Company nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", or a "public utility", within
the meaning of the Public Utility Holding Company Act of 1935, as amended, or a
"public utility" within the meaning of the Federal Power Act, as amended.
Neither the Company nor any of its Subsidiaries is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940, as amended.
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11R. Governmental Consents. Neither the nature of the Company or
any of its Subsidiaries, nor any of their respective businesses or properties,
nor any relationship between the Company and any other Person, nor any
circumstance (other than circumstances relating to the Investors) in connection
with the offer, issue, sale or delivery of the Securities being purchased by
the Investors hereunder is such as to require on behalf of the Company or any
of its Subsidiaries any consent, approval or other action by or any notice to
or filing with any court or administrative or governmental body in connection
with the execution and delivery of this Agreement, the offer, issue, sale or
delivery of the Securities being purchased hereunder or fulfillment of or
compliance with the terms and provisions hereof or the Securities being
purchased hereunder.
11S. Insurance Coverage. The properties of the Company and each of
its Subsidiaries are insured for the benefit of the Company or such Subsidiary
of the Company in amounts deemed adequate by the Company's management against
general and professional liability risks usually insured against by Persons
operating businesses similar to those of the Company or its Subsidiaries in the
localities where such properties are located.
11T. Subsidiaries. Schedule 11T correctly sets forth the name of
each Subsidiary of the Company as of the Closing Date and the jurisdiction of
its incorporation. As of the Closing Date and after giving effect to the
transactions contemplated hereby, all the outstanding shares of stock of each
Subsidiary of the Company have been validly issued and are fully paid and
non-assessable and all such outstanding shares are owned by the Company or
another wholly owned Subsidiary of the Company free of any Lien or claim, and
no such Subsidiary has outstanding stock or securities convertible into or
exchangeable or exercisable for any shares of capital stock, nor does it have
outstanding any rights to subscribe for or to purchase, any options for the
purchase of, any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any other character
relating to the issuance of, any shares of capital stock or any securities
convertible into or exchangeable or exercisable for any shares of capital
stock.
11U. Disclosure. Neither this Agreement nor any other document,
certificate or written statement furnished to the Investors by or on behalf of
the Company in connection herewith (including, without limitation, the Private
Placement Memorandum as supplemented by an addendum dated June 26, 1991 and by
the audited financial statements for the year ended March 31, 1991) contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. To the best of the Company's knowledge, there is no fact peculiar
to the Company which materially adversely affects the business, property or
assets, financial condition or prospects of the Company which has not been set
forth in this Agreement or in the other documents, certificates and written
statements furnished to the Investors by or on behalf of the Company prior to
the date hereof in connection with the transactions contemplated hereby.
11V. Registration Rights. Except as provided in the Registration
Rights Agreement or as disclosed on Schedule 11V, no person has the right to
cause the Company to effect the
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registration under the 1933 Act of any shares of Common Stock or any other
securities (including debt securities) of the Company.
11W. Absence of Foreign or Enemy Status. Neither the Company nor
any of its Subsidiaries is (i) a "national" of a foreign country designated in
Executive Order No. 8389, as amended, or of any "designated enemy country" as
defined in Executive Order No. 9193, as amended, of the President of the United
States of America within the meaning of said Executive Orders, as amended, or
of any regulation issued thereunder, or a "national" of any "designated foreign
country" within the meaning of the Foreign Assets Control regulations, 31 CFR,
Part 500, as amended, or of the Cuban Assets Control Regulations, 31 CFR, Part
515, as amended, of the United States Treasury Department or (ii) an entity
"owned or controlled by" the Government of South Africa, within the meaning of
Executive Order No. 12532, of the President of the United States of America.
12. Representations of the Investors.
12A. Investment: ERISA.
(i) The Investors represent, and in making this sale to the
Investors it is specifically understood and agreed, that the Investors are
acquiring the Securities to be purchased by them hereunder for their own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof; provided, however, that nothing
herein contained shall prevent the Investors from selling or transferring any
Securities in any transaction that, in the opinion of their special counsel, is
exempt from the registration provisions of the 1933 Act.
(ii) The Investors also represent that no part of the funds being
used by them to pay the purchase price of the Securities being purchased by the
Investors hereunder constitutes assets allocated to any separate account
maintained by you in which any employee benefit plan, other than employee
benefit plans identified on a list which has been furnished by the Investors to
the Company, participates to the extent of 5% or more. For the purpose of this
paragraph 12, the terms "separate account" and "employee benefit plan" shall
have the respective meanings specified in section 3 of ERISA.
12B. Authority. Such Investor has full power and authority to
enter into and perform this Agreement in accordance with its terms. Any
investor which is a corporation, partnership or trust represents that it has
not been organized, reorganized or recapitalized specifically for the purpose
of investing in the Company.
13. Exercise of Warrants.
13A. Exercise Price and Method of Payment. Subject to and upon
compliance with the provisions hereof, the holder of any Warrant shall have the
right on or before June 30, 2001, at such holder's option, at any time or, in
the event that any Warrant has been called for redemption pursuant to paragraph
6, then until, but (unless the Company shall default in the payment due
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upon the redemption date) not after, the close of business on the last Business
Day before the date fixed for redemption, to exercise all or any part of such
Warrants into Common Stock at (i) a price equal to the lower of (a) $5.00 per
share or (b) 70% of the cash purchase price before paid per share deductions
for underwriting discounts and commissions in an Initial Public Offering or
(ii) in case an adjustment of such price has taken place pursuant to the
further provisions of this paragraph 11, then at the price as last adjusted and
in effect at the date such Warrant is surrendered for exercise (such price, as
adjusted, the "Exercise Price"). In order to exercise such right, the holder
thereof shall surrender (in person or by mail) such Warrant to the Company at
its office at 1050 Cambridge Square, Suite C, Alpharetta, Georgia 30201, ATTN:
Treasurer (or such other office or agency as the Company may designate by
notice in writing to the holders of the Warrants), together with a written
notice that the holder elects to exercise such Warrants, or a specified
principal amount thereof, in accordance with the provisions of this paragraph
13, Such notice shall also state the name or names (with addresses) in which
the certificate or certificates for Common Stock shall be issued. Together
with such notice there shall be paid an amount equal to the Exercise Price
times the number of shares of Common Stock as to which the Warrant is being
exercised. Such payment shall be by (i) certified or bank cashier's check, or
(ii) the delivery and surrender to the Company of Notes in an aggregate
principal amount equal to the amount of such payment. If Notes are so
delivered and surrendered, the Company shall pay to the holder thereof accrued
and unpaid interest on such Notes to the date of such delivery and surrender.
13B. Issuance of Certificates; When Exercise Effected. Promptly
after the receipt of the written notice referred to in paragraph 13A and
surrender of such Warrants as aforesaid, the Company shall issue and deliver to
such holder registered in such name or names as such holder may direct, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the exercise of such Warrant (or specified portion thereof),
bearing any appropriate restrictive legend. To the extent permitted by law,
such exercise shall be deemed to have been effected and the Exercise Price
shall be determined as of the close of business on the date by which both (i)
such written statement shall have been received by the Company and (ii) such
Warrant shall have been surrendered as aforesaid, and at such time the rights
of the holder of such Warrant (or specified portion thereof), as such holder
shall cease, and the Person or Persons in whose name or names any certificate
or certificates for shares of Common Stock shall then be issuable upon such
exercise shall be deemed to have become the holder or holders of record of the
shares of Common Stock represented thereby.
13C. Fractional Shares; Accrued Interest; Partial Exercise. No
fractional shares shall be issued upon exercise of Warrants and no payment or
adjustment shall be made upon any exercise on account of any cash dividends on
the Common Stock issued upon such exercise. In the case of any Warrant which
is exercised in part only the Company shall, upon such exercise, execute and
deliver to the holder thereof, at the expense of the Company, a new Warrant or
Warrants of authorized denominations in principal amount equal to the
unexercised portion of such Warrant, If any fractional interest in a share of
Common Stock would, except for the provisions of the first sentence of this
paragraph 13C, be deliverable upon the exercise of any
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Warrant, the Company shall, in lieu of delivering the fractional share
therefor, pay to the holder surrendering such Warrant an amount in cash equal
to the market price of such fractional interest.
13D. Adjustment of Price upon Issuance of Common Stock. If and
whenever the Company shall issue or sell any shares of its Common Stock
(except, for purposes of this paragraph 13D and for all of its subsections, as
provided in paragraph 13G) for a consideration per share less than the Exercise
Price, on the date of such issue or sale, then, forthwith upon such issue or
sale, the Exercise Price shall be reduced to the lowest consideration
(calculated to the nearest cent) per share received or deemed received by the
Company upon the date of such issue or sale of shares of Common Stock.
No adjustment of the Exercise Price shall be made in an amount less
than $.Ol per share, but any such lesser adjustment shall be carried forward
and shall be made at the time and together with the next subsequent adjustment
which together with any adjustments so carried forward shall amount to $.0l per
share or more.
For the purposes of this paragraph 13D, the following subparagraphs
13D(l) to 13D (6) inclusive, also shall be applicable:
13D(l). Issuance of Convertible Securities. If at any time the
Company shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any options
or warrants for the purchase of Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called "Convertible Securities"),
whether or not such rights or options or warrants or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights or options or warrants or upon conversion or exchange of such
Convertible Securities (determined by dividing (a) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
rights or options or warrants, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such rights or
options or warrants, plus, in the case of such rights or options or warrants
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (b) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or warrants or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such rights or
options or warrants) shall be less than the Exercise Price determined as of the
date of granting such rights or options or warrants for each such grant, then
the total maximum number of shares of Common Stock issuable upon the exercise
of such rights or options or warrants or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such rights or options or warrants shall (as of the date of granting of such
rights or options or warrants) be deemed to be outstanding and to have been
issued for such price per share. If any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or to purchase
or any option or warrant to purchase any such Convertible Securities
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for which adjustments of the Exercise Price have been or are to be made
pursuant to other provisions of this subparagraph 13D, no further adjustment of
the Exercise Price shall be made by reason of such issue or sale. Except as
provided in subparagraph 13D(2) below, no adjustment of the Exercise Price
shall be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or warrants or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
13D(2). Change in Option Price or Conversion Rate. Upon the happening
of any of the following events, namely, if the purchase price provided for in
any right or option or warrant referred to in subparagraph 13D(l), the
additional consideration, if any, payable upon the conversion or exchange of
any Convertible Security referred to in subparagraph 13D (1), or the rate at
which any Convertible Securities referred to in subparagraph 13D(l) are
convertible into or exchangeable for Common Stock, shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Exercise Price which would have been in effect
at such time had such rights, options, warrants or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued
or sold, and on the expiration of any such right to convert or exchange such
Convertible Securities, the Exercise Price then in effect hereunder shall
forthwith be increased to the Exercise Price which would have been in effect at
the time of such expiration or termination had such right, option, warrant or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase price
provided for in any right, option or warrant referred to in subparagraph 13D(l)
or the rate at which any Convertible Securities referred to in subparagraph
13D(l) is convertible into or exchangeable for Common Stock, shall decrease at
any time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common Stock upon the
exercise of any such right, option, warrant, or upon conversion or exchange of
any such Convertible Securities, the Exercise Price then in effect hereunder
shall forthwith be adjusted to such respective amount as would have obtained
had such right, option, warrant or Convertible Security never been issued as to
such Common Stock and had adjustments been made upon the issuance of the shares
of Common Stock delivered as aforesaid, but only if as a result of such
adjustment the Exercise Price then in effect hereunder is thereby decreased.
13D(3). Stock Dividends. In case the Company shall declare a dividend
or make any other distribution upon any stock of the Company payable in Common
Stock or Convertible Securities, the Exercise Price then in effect shall be
reduced by multiplying such price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares constituting such dividend
or other distribution.
13D(4). Consideration for Stock. In case any shares of Common Stock
or Convertible Securities or any rights, options or warrants to purchase any
such Common Stock or Convertible
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Securities shall be issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the Company therefor,
without deduction therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or Convertible Securities or any
rights, options or warrants to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the Board of
Directors of the Company in good faith, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights, options or warrants to purchase such
Common Stock or Convertible Securities shall be issued in connection with any
merger of another corporation into the Company in which the Company is the
surviving corporation, the amount, of consideration therefor shall be deemed to
be the fair value, as determined by the Board of Directors of the Company in
good faith of such portion of the assets of the nonsurviving corporation or
corporations as such Board shall determine to be attributable to such Common
Stock, Convertible Securities, rights, options or warrants, as the case may be.
In the event of any consolidation or merger of the Company in which the Company
is not the surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation or in connection with which the Company shall be the survivor
but in which the shares of outstanding Common Stock shall be changed into stock
or other securities of another corporation, the Company shall be deemed to have
issued a number of shares of its Common Stock for stock or securities of the
other corporation computed on the basis of the actual exchange ratio on which
the transaction was predicated and for a consideration equal to the fair market
value on the date of such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment of the Exercise
Price, the determination of the number of shares of Common Stock receivable
upon exercise of the Warrants immediately prior to such merger, consolidation
or sale, for purposes of paragraph 136, shall be made after giving effect to
such adjustment of the Exercise Price.
13D(5). Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities, or (b) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issue
or sale of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
13D(6). Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this paragraph
13D.
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13E. Subdivision or Combination of Stock. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased.
13F. Adjustment of Number of Shares Subject to the Warrants.
(a) If the Company shall pay a dividend in shares of its Common
Stock, subdivide (split) its outstanding shares of Common Stock, combine
(reverse split or stock consolidation) its outstanding shares of Common Stock,
issue by reclassification of its shares of Common Stock any shares or other
securities of the Company, or distribute to holders of its Common Stock any
securities of the Company or of another entity, the number of shares of Common
Stock or other securities the holder of a Warrant is entitled to purchase
pursuant to such Warrant immediately prior thereto shall be adjusted so that
such holder shall be entitled to receive upon exercise the number of shares of
Common Stock or other securities of the Company which he or she would have
owned or would have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised immediately prior to the
happening of such event and the Exercise Price per share shall be
correspondingly adjusted; provided, however, that no adjustment in the number
of shares and/or the Exercise Price shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in such
number of shares and/or price; and provided further, however, that any
adjustments which by reason of this paragraph 13F are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
An adjustment made pursuant to this paragraph 13F shall become effective
immediately after the record date in the case of the stock dividend or other
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. The holder of such
Warrant shall be entitled to participate in any subscription or other rights
offering made to holders of Common Stock to the same extent as though the
holder had purchased the full number of shares as to which such Warrant remains
unexercised immediately prior to the record date for such rights offering. If
the Company is consolidated or merged with or into another corporation or if
all or substantially all of its assets are conveyed to another corporation,
such Warrant shall thereafter be exercisable for the purchase of the kind and
number of shares of stock or other securities or property, if any, receivable
upon such consolidation, merger or conveyance by a holder of the number of
shares of Common Stock of the Company which could have been purchased on the
exercise of such Warrant immediately prior to such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interest thereafter of the holder of
such Warrant to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the number of
shares of Common Stock the holder of such Warrant is entitled to purchase)
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the exercise
of such Warrant. Upon any adjustment of the number of shares of Common Stock
or other securities the holder
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of such Warrant is entitled to purchase, and of any change in Exercise Price
per share, then in each such case the Company shall give written notice thereof
to the then registered holder of such Warrant at the address of such holder as
shown on the books of the Company, which notice shall state such change and set
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Upon the request of any such holder there shall be
transmitted promptly to all holders a statement of the firm of independent
certified public accountants retained to audit the financial statements of the
Company to the effect that such firm concurs in the Company's calculation of
the change.
(b) Upon each adjustment of the Exercise Price, each Warrant
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
shares (calculated to the nearest whole share) obtained by (i) multiplying the
number of shares covered by a Warrant immediately prior to this adjustment by
the Exercise Price in effect immediately prior to such adjustment of the
Exercise Price, and (ii) dividing the product so obtained by the Exercise Price
in effect immediately after such adjustment of the Exercise Price.
13G. Certain Issues of Common Stock Excepted. Anything herein to
the contrary notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price in the case of (i) the issuance of the
Securities pursuant to this Agreement; (ii) the issuance of shares of capital
stock of the Company upon exercise of the Warrants; (iii) the issuance of up to
1,020,000 shares of Common Stock upon conversion of the Company's Cumulative
Convertible Preferred Stock issued and outstanding as of the Closing Date; and
(iv) the issuance of shares of Common Stock upon the exercise of existing stock
options granted prior to the Closing and the issuance of shares of Common Stock
after the Closing to employees, consultants or directors (and the grant of
options therefor) so long as such shares in the aggregate do not exceed at any
time 10% of the total number of shares of the Company's Common Stock on a fully
diluted basis (as adjusted for stock splits, stock dividends,
reclassifications, recharacterizations or similar events) and the exercise
price of the options is equal to or greater than the then Exercise Price. If
an option to an employee, director or consultant shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares shall
again be available for subsequent option grants and such shares shall be
considered as having been issued only one time.
13H. Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification or change of the
outstanding capital stock of the Company, or any consolidation or merger of the
Company with another corporation, or the sale of all or substantially all of
its assets to another corporation, shall be effected in such a way that holders
of Common Stock shall be entitled to receive any stock, securities or assets
with respect to or in exchange for Common Stock, then, as a condition of such
reorganization, adequate provision shall be made whereby each holder of any
Warrant shall thereafter have the right to receive upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of the Common
Stock of the Company immediately theretofore receivable upon the exercise of
such Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of
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shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, change, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of such holder to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the Exercise Price and the provisions of paragraph 13) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights
(including an immediate adjustment, by reason of such consolidation or merger,
of the Exercise Price to the value of the Common Stock reflected by the terms
of such consolidation or merger if the value so reflected is less than the
Exercise Price in effect immediately prior to such consolidation or merger).
The Company shall not effect any such reorganization, reclassification, change,
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets or the
corporation issuing the securities into which such shares of Common Stock shall
be changed (if other than the Company) shall assume by written instrument
executed and mailed or delivered to each holder of any Warrant the obligation
to deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive. If a purchase, tender or exchange offer is made to and accepted by
the holders of more than 50% of the outstanding shares of Common Stock of the
Company, the Company shall not effect any consolidation, merger or sale with
the Person having made such purchase, tender or exchange offer or with any
Affiliate of such Person, unless prior to the consummation of such
consolidation, merger or sale, each holder of any Warrant shall have been give
a reasonable opportunity to then elect to receive on exercise of any Warrant
held by such holder either the stock, securities or assets then issuable with
respect to the Common Stock of the Company or the stock, securities or assets
issued to previous holders of the Common Stock in accordance with such
purchase, tender or exchange offer.
13I. Notice of Adjustment. Upon any adjustment of the Exercise
Price then and in each such case the Company shall give written notice thereof
to the holder of each Warrant which notice shall state the Exercise Price
resulting from such adjustment, and shall set forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
13J. Other Notices. In case at any time:
(a) the Company shall declare any dividend upon its Common Stock
payable in stock;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights;
(c) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another
corporation; or
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(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give to the holder of
each Warrant (i) at least 20 days' prior written notice of the date on which a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least
20 days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, as the case may be.
13K. Stock to be Reserved. The Company will at all times keep
available, out of its authorized Common Stock, solely for the purpose of issue
upon the exercise of Warrants as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of all outstanding
Warrants. The Company covenants and agrees that all shares of Common Stock
which shall be so issuable will, upon issuance, be duly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof. The Company will not take any action which
results in any adjustment of the Exercise Price if the total number of shares
of Common Stock issuable after such action upon exercise of the Warrants (a)
would exceed the total number of shares of Common Stock then authorized by the
Company's Certificate of Incorporation or (b) would conflict with, or result in
any violation of, or require the consent or approval (unless the same shall be
obtained) of any court or administrative or governmental body pursuant to, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, the Certificate of Incorporation or By-Laws of the Company or
any of its Subsidiaries or any agreement or instrument to which the Company or
any of its Subsidiaries is then subject. The Company will take all such action
as may be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable requirements of any exchange upon
which the Common Stock of the Company may be listed or in respect of which the
Common Stock has qualified for unlisted trading privileges.
13L. Issuance Tax. The issuance of certificates for shares of
Common Stock upon the exercise of any Warrant shall be made without charge to
the holder of such Warrant for any issuance tax in respect thereto; provided
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Warrant exercised.
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13M. Listing. If any shares of Common Stock issuable upon exercise
of Warrants hereunder require listing on any securities exchange, before such
shares may be issued upon exercise the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
listed on such securities exchange immediately prior to the issuance of such
shares.
13N. Closing of Books. The Company will not close its books
against the issuance or transfer of any shares of Common Stock issuable upon
exercise of the Warrants.
14. Definitions. For the purpose of this Agreement, and in
addition to terms defined elsewhere in this Agreement, the following terms
shall have the following meanings. In addition, all terms of an accounting
character not specifically defined herein shall have the meanings assigned
thereto by accounting principles generally accepted in the United States of
America.
"Affiliate" shall mean, with respect to any Person, a Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person, except a Subsidiary of such Person. A
Person shall be deemed to control a corporation if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Bankruptcy Law" shall have the meaning specified in clause (viii) of
paragraph 10A.
"Board" shall mean the Board of Directors of the Company or a committee
of directors lawfully exercising the relevant powers of the Board.
"Business Day" shall mean any day which is not a Saturday, Sunday or
day on which banks are authorized by law to close in the State of New York.
"Capital Asset" shall mean each asset of the Company or its
Subsidiaries which is not classified as a current asset under GAAP and each
operating business of the Company or its Subsidiaries (including the current
assets thereof).
"Capitalized Lease Obligation" shall mean any rental obligation which,
under GAAP in effect on the day such obligation is incurred, is required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance
with such principles.
"Change of Control" shall mean any event the effect of which is to
cause any Person or group of Persons acting in concert (other than the
Investors and shareholders of the Company on the date hereof, or Affiliates
thereof) to own more than 49.9% of the then outstanding Common Stock on a
fully diluted basis other than (i) the issuance of securities pursuant to an
offering which is the subject of a Registration Statement filed pursuant to
the 1933 Act, (ii) private sales of equity or equity-related securities by the
Company to institutional or qualified investors for
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investment purposes only and not with any intent to effect a change of control
of the Company, (iii) sales of Notes or shares of Common Stock issuable upon
conversion of the Notes or exercise of the Warrants or (iv) any distribution to
the constituent partners of Investech, L.P. as contemplated under the
Coinvestors Agreement.
"Code" shall mean the Internal Revenue Code of 1986 or any successor
or amendatory provision thereto.
"Coinvestors Agreement" shall mean the Coinvestors Agreement in the
form attached hereto as Exhibit E.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Common Stock" shall mean any of the shares of Common Stock of the
Company.
"Company" shall mean the corporation that originally executed this
Agreement as borrower until any corporation becomes a successor or transferee
in a transaction permitted by paragraph 86, and thereafter shall mean any such
successor or transferee corporation.
"Convertible Securities" shall have the meaning specified in paragraph
13D (1).
"Cumulative Convertible Preferred Stock" shall mean any of the shares
of the Cumulative Convertible Preferred Stock of the Company.
"Designee" shall have the meaning specified in paragraph 2.
"Dollars" and the sign "$" shall mean such coin or currency of the
United States of America as is, at the relevant time, legal tender for the
payment of public and private debts.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA as in
effect at the date of this Agreement and any subsequent provisions of ERISA
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the Company
would be deemed to be a "single employer" within the meaning of Section 4001 of
ERISA immediately following the Closing.
"Event of Default" shall mean any of the events specified in paragraph
10, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "Default" shall mean any of such
events, whether or not any such requirement has been satisfied.
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"Exercise Price" shall mean the price at which the Warrants are
convertible into shares of Common Stock as determined in accordance with
paragraph 13.
"GAAP" shall mean generally accepted accounting principles
consistently applied throughout the period or periods in question.
"Indebtedness" of any Person as of any date shall mean and include (i)
all indebtedness for money borrowed of such Person or evidenced by notes,
bonds, debentures or similar evidences of indebtedness of such Person, (ii)
indebtedness of such Person under leases which are capitalized under GAAP as of
the time they were entered into, (iii) indebtedness of such Person representing
the deferred and unpaid purchase price of any property or business (excluding
in any event trade and service payables incurred in the ordinary course of
business and constituting current liabilities), (iv) all guarantees by such
Person of Indebtedness of others (including repurchase arrangements and
financial condition or liquidity maintenance arrangements), (v) all obligations
of such Person in respect of interest rate protection agreements and foreign
currency hedging arrangements and (vi) all obligations of such Person as an
account party in respect of letters of credit (other than documentary letters
of credit) and in respect of banker's acceptances, in the case of each of the
foregoing clauses, in the principal amount that such indebtedness would be
shown on a balance sheet of such Person prepared as of such date in accordance
with GAAP.
"Initial Public Offering" shall mean the Company 5 initial public
offering of equity securities pursuant to a registration statement under the
1933 Act as declared effective by the Commission.
"Interest Coverage Ratio" shall mean for any period the ratio of (i)
the sum of, without duplication, (a) Net Income for such period and before
gains and losses on sale of Capital Assets realized during such period and
taxes incurred in respect of such dispositions ("Adjusted Net Income"), plus
(b) provision for taxes based on income or profits to the extent such taxes
were paid on, or accruals therefor were taken into account in, income or
profits included in computing Adjusted Net Income for such period, plus (c)
consolidated interest expense (including amortization of original issue
discount and non-cash interest payments or accruals and the interest component
of capital leases) to the extent such expenses were paid on, or accruals
therefor were taken into account in, Adjusted Net Income for such period, plus
(d) all non-cash charges (including depreciation, depletion and amortization)
deducted from consolidated revenues in determining Adjusted Net Income for such
period over (ii) consolidated interest expense of the Company and its
Subsidiaries (including amortization of original issue discount and non-cash
interest, payments or accruals and the interest component of capital leases).
"Investment" shall mean any stock or other security, any loan, advance,
contribution to capital, extension of credit (except for deferred franchise
fees and trade and customer accounts receivable for inventory sold or services
rendered in the ordinary course of business and payable in accordance with
customary trade terms), any acquisitions of real or personal property (other
than real and personal property acquired in the ordinary course of business)
and any purchase or
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commitment or option to purchase stock or other securities of or any interest
in another Person or any integral part of any business or the assets comprising
such business or part thereof if the aggregate consideration for such purchase,
commitment or option was in excess of $10,000, or any other investment, and
whether existing on the date of this Agreement or hereafter made.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction).
"Multiemplover Plan" shall mean a plan defined as such in Section 3
(37) of ERISA to which contributions have been made by the Company or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations System.
"Net Income" shall mean consolidated gross revenues (excluding
extraordinary gains) of the Company and its Subsidiaries less all operating and
non-operating expenses (including extraordinary losses) of the Company and its
Subsidiaries including, without limitation, all charges of a proper character
(including current and deferred taxes on income and current additions to
reserves) but not including in net revenues any gains (net of expenses and
taxes applicable thereto) in excess of losses resulting from the sale,
conversion or other disposition of assets other than current assets, any gains
resulting from the write-up of assets, any equity of the Company or any
Subsidiary in the unremitted earnings of any corporation which is not a
Subsidiary, any earnings of any Person acquired by the Company or any
Subsidiary through purchase, merger or consolidation or otherwise for any year
prior to the year of acquisition or any deferred credit representing the excess
of equity in any Subsidiary at the date of acquisition over the cost of the
investment in such Subsidiary, all determined in accordance with GAAP.
"1934 Act" shall mean the Securities Exchange Act of 1934.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Note" and "Notes" shall have the meaning specified in paragraph 1.
"Officer's Certificate" shall mean a certificate signed in the name of
the Company, by its President, one of its Vice Presidents or its Treasurer.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor entity thereto.
"Pension Plan" shall mean any employee benefit or other plan, other
than a Multiemployer Plan, as defined in Section 4001 of ERISA and subject to
Title IV of ERISA, which is
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maintained after the Closing for employees of the Company, any of its
Subsidiaries or any ERISA Affiliates.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement in the form attached hereto as Exhibit D.
"Reportable Event" shall mean an event described in Section 4043(b) of
ERISA with respect to which the 30-day notice requirement has not been waived
by the PBGC.
"Restricted Payment" shall mean (i) any dividend or other distribution
(including, but not limited to, any payments made with respect to the capital
stock of the Company upon the dissolution, liquidation or winding up of the
Company) on any shares of capital stock (except dividends or distributions
payable solely in shares of such capital stock) of the Company; and (ii) any
payment on account of the purchase, redemption, retirement or other acquisition
of (a) any shares of capital stock of the Company or (b) any option, warrant,
convertible security or other right to purchase or acquire shares of capital
stock of the Company, other than (i) repurchases of shares of Common Stock from
employees or consultants of the Company upon termination of their employment or
consulting pursuant to written agreements, and (ii) repurchases of the
Warrants.
"Securities" shall mean the securities evidencing the Notes and the
Warrants.
"Senior Debt" shall mean all obligations (whether now outstanding or
hereafter incurred) for the payment of which the Company is responsible or
liable as obligor, guarantor or otherwise in respect of the principal, premium
(if any), and unpaid interest on, and all other amounts due with respect to (i)
any Indebtedness for money borrowed or evidenced by bonds, notes, debentures,
or similar instruments whether now existing or hereafter arising, absolute or
contingent, direct or indirect, due or to become due, (ii) Indebtedness under
leases which are capitalized under GAAP, (iii) any Indebtedness representing
the deferred and unpaid purchase price of any property or business, and (iv)
all deferrals, renewals, extensions and refundings of any such Indebtedness or
obligations; provided, that the following shall not constitute Senior Debt: (a)
Indebtedness evidenced by the Notes or any extension or refunding thereof, (b)
Indebtedness which is expressly made equal in right of payment with the Notes
or subordinate and subject in right of payment to the Notes, (c) Indebtedness
for goods or materials purchased in the ordinary course of business or (d)
Indebtedness which purports to be senior to Subordinated Debt, including the
Notes, and subordinate to the Indebtedness described in clauses (i) through
(iv) above.
"Senior Debt Agreement" shall mean any agreement pursuant to which
Senior Debt is incurred.
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"Shareholders Equity" shall mean shareholders' equity as the same
would be shown on a consolidated balance sheet of the Company prepared in
accordance with GAAP.
"Single-Employer Pension Plan" shall mean a Pension Plan which is a
"single-employer plan" as defined in Section 4001 of ERISA.
"Subordinated Debt" shall mean Indebtedness evidenced by the Notes.
"Subordinated Debt Agreement" shall mean any agreement pursuant to
which Subordinated Debt is incurred.
"Subsidiary" shall mean any corporation or similar entity, which at the
time as of which any determination is being made, would be consolidated under
GAAP.
"Warrants" shall have the meaning specified in paragraph I.
15. Miscellaneous.
15A. Home Office Payment. The Company agrees that, so long as the
Investors shall hold any Registered Note in registered form (or any Note in
order form with respect to which such Investors shall have requested in writing
that the provisions of this paragraph 15A shall apply), it will make payments
of principal of, premium (if any), interest and redemption payments on such
Notes not later than 12:00 o'clock noon, New York time, on the date such
payment is due, by transfer of immediately available funds (or by check, if
acceptable to the Investor receiving such payment) for credit to the Investors.
Payments shall be made to the account of the Investors specified in the
Purchaser Schedule attached hereto or such other account in the United States
as the Investors may designate in writing, notwithstanding any contrary
provision contained herein or in the Notes with respect to the place of
payment. The Investors agree that, before disposing of any Note, they will
make a notation thereon of all principal payments previously made thereon and
of the date to which interest thereon has been paid. The Company agrees to
afford the benefits of this paragraph 15A to any institutional investor of
recognized standing which is the direct or indirect transferee of any Note and
which, in the case of the transferee of any Note, has made the same agreement
relating to such Note as the Investors have made in this paragraph 15A.
15B. Expenses; Indemnification. The Company agrees, whether or not
the transactions hereby contemplated shall be consummated, to pay, and save the
Investors harmless against liability for the payment of, all reasonable out-
of-pocket expenses arising in connection with the transactions and other
agreements and instruments contemplated by this Agreement, including (i) travel
and travel-related expenses, including travel by and hotel accommodations for
any officer of Pecks Management Partners Ltd. in connection with conducting due
diligence inspections of the Company, attending board or shareholder meetings
or inspecting any properties of the Company or any Subsidiary following an
Event of Default; (ii) fees and expenses of Willkie Farr & Gallagher, special
counsel to the Investors in connection with this Agreement, including fees
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and expenses of such counsel incurred in connection with the exercise, call,
exchange and conversion provisions of this Agreement, any other agreement or
instrument to be executed and delivered in connection with this Agreement, and
any subsequent modification hereof or thereof or consent hereunder or
thereunder regardless of whether any such modification or consent becomes
effective; and (iii) the cost and expenses, including reasonable attorneys fees
(which shall include allocated costs of in-house counsel of the Investors),
incurred by any Investor in enforcing any of its rights hereunder or
thereunder, including without limitation costs and expenses incurred in any
bankruptcy case. The Company agrees to indemnify the Investors and hold the
Investors harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind (including, without limitation, the reasonable
fees and disbursements of the Investors' special counsel in connection with any
investigative, administrative or judicial proceeding, whether or not the
Investors shall be designated a party thereto) which may be incurred by the
Investors, relating to or arising out of this Agreement, the Securities, or any
actual or proposed use of the proceeds of the sale of the securities hereunder,
provided that the Investors shall not have the right to be indemnified
hereunder for their own gross negligence or willful misconduct as determined by
a court of competent jurisdiction. The obligations of the Company under this
paragraph 15B shall survive the transfer of any of the Securities and the
payment of any Note.
15C. Consent to Amendments. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act of the holder
or holders of not less than 510-aggregate principal amount of Notes at the
time outstanding. Each holder of any Note or any Warrant, as the case may be,
at the time or thereafter outstanding shall be bound by any consent authorized
by this paragraph 15C, whether or not such Note or such Warrant, as the case
may be, shall have been marked to indicate such consent; provided that
notwithstanding anything in this paragraph 15C to the contrary, without the
written consent of the holder or holders of all Notes at the time outstanding,
no consent, amendment or waiver to or under this Agreement shall (i) extend or
reduce the maturity of any Note, or reduce the rate or affect the time of
payment of interest or any premium payable with respect to any Note, or affect
the time, amount or allocation of any required or optional prepayments, or
reduce the proportion of the principal amount of the Notes required with
respect to any consent, amendment or waiver; (ii) change the terms on which the
Warrants are exercisable as provided in paragraph 13; or (iii) amend the
provisions of this paragraph 15C. The Company shall promptly send copies of
any amendment, waiver or consent (and any request for any such amendment,
waiver or consent) relating to this Agreement or the Securities to each holder
of the Securities and, to the extent practicable, shall consult with each
Investor and such other holders in connection with each such amendment, consent
and waiver. No course of dealing between the Company and the holder of any
Note or any Warrant, as the case may be, nor any delay in exercising any rights
hereunder or under any Note or any Warrant, as the case may be, shall operate
as a waiver of any rights of any holder of such Note or such Warrant, as the
case may be. As used herein and in the Note and the Warrant, the term "this
Agreement" and references thereto shall mean this Agreement as it may, from
time to time, be amended or supplemented.
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15D. Form, Registration, Transfer and Exchange of Notes or
Warrants; Lost Notes or Warrants. The Notes and Warrants are issuable as
Registered Notes and Registered Warrants, respectively, each transferable by
endorsement and delivery, and the Notes without coupons in the denominations of
$1,000 and any larger integral multiple of $1,000 and the Warrants in multiples
representing 200 shares of Common Stock. The Company shall keep at its
principal offices registers in which the Company shall provide for the
registration of the Notes and the Warrants, respectively. Upon surrender for
registration of transfer of any Registered Note or Registered Warrant at such
office, the Company shall, at its expense, execute and deliver one or more
replacing Notes or Warrants, as the case may be, of like tenor and of a like
aggregate principal amount or representing a like amount of shares of Common
Stock, as the case may be, which replacing Notes shall, at the option of such
holder and subject to the following provisions of this paragraph 15D, be
Registered Notes. At the option of the holder of any Note or Warrant, as the
case may be, such Note or Warrant may be exchanged for other Notes or Warrants,
as the case may be, of any authorized denominations, of a like tenor, of a like
aggregate principal amount or representing a like amount of shares of Common
Stock, as the case may be, and, in the case of Notes, subject to the following
provisions of this paragraph 15D, upon surrender of the Note or Warrant, as the
case may be, to be exchanged at the office of the Company. Whenever any Notes
or Warrants, as the case may be, are so surrendered for exchange, the Company
shall execute and deliver, at its expense, the Notes or Warrants which the
holder thereof making the exchange is entitled to receive. Every Note or
Warrant presented or surrendered for registration of transfer shall be duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the holder of such Note or Warrant, or his attorney duly authorized in writing.
Any Note issued in exchange for or upon transfer shall carry the rights to
unpaid interest and interest to accrue which were carried by the Note so
exchanged or transferred, so that neither gain nor loss of interest shall
result from any such transfer or exchange. Upon receipt of written notice from
the Investor or other evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of any Note or Warrant, as the case may
be, held by the Investor and, in the case of any such loss, theft or
destruction, upon receipt of its unsecured indemnity agreement, or other
indemnity reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Note or Warrant, as the case
may be, the Company will make and deliver a replacing Note or Warrant, as the
case may be, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note or Warrant.
15E. Provisions Applicable If Any of the Securities Are Sold. In
the event that the Investors should sell or otherwise transfer any Note or
Warrant or any part thereof to any Person other than the Company, the following
provisions shall apply:
15E(1). Notices to Subsequent Holder. If any Note or Warrant shall
have been transferred to another holder and such holder shall have designated
in writing the address to which communications with respect to such Note or
Warrant, as the case may be, shall be mailed, all notices, certificates,
requests, statements and other documents required to be delivered to the
transferring Investors by any provision hereof by reason of the holding of the
transferred Securities shall also be delivered to such holder, except that
financial statements and other
45
<PAGE> 47
documents provided for in paragraph 7A need be delivered only to any such
holder holding at least 5% of the aggregate principal amount of the Notes or 5%
of the aggregate number of Warrants then outstanding.
15E(2). Pro Rata Payments. All interest payments and payments or
prepayments of principal and premium (if any) on the Notes shall be made and
applied pro rata on all Notes outstanding including, for the purposes of this
paragraph 15E(2) only, all Notes acquired by the Company or any Affiliate of
the Company or any of its Subsidiaries other than by prepayment in accordance
with the terms of this Agreement.
15F. Registration Rights. The Company covenants that it will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted in the Registration Rights Agreement. The
Company further covenants that it will not grant any registration rights
relating to any shares of its stock or any other of its securities to any
Person, which are more favorable than the rights granted in the Registration
Rights Agreement.
15G. Restrictive Legend. Each Security and any Security issued in
exchange therefor shall bear the following (or substantially equivalent) legend
thereon;
"The transfer of these securities is subject to certain restrictions
set forth in a Securities Purchase Agreement, dated as of July 23,
1991, and any amendments thereto. The securities represented hereby
have not been registered under the Securities Act of 1933, as amended,
or applicable state securities laws, and the securities 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."
15H. Persons Deemed Owners. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Registered Note or Registered Warrant, as the case may be, is registered as the
owner and holder of such Note or Warrant, as the case may be, for the purpose
of receiving payment of principal of (and premium, if any) and interest on such
Note or all such rights under such Warrant, and for all other purposes
whatsoever, whether or not, in the case of such Note, such Note shall be
overdue, and the Company shall not be affected by notice to the contrary.
15I. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by or on
behalf of any party to this Agreement in connection herewith shall survive the
execution and delivery of this Agreement, regardless of any investigation made
by the Investors or on their behalf.
15J. Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto,
whether so expressed or not.
46
<PAGE> 48
15K. Notices. All communications provided for hereunder shall be
sent by first class mail or nationwide overnight delivery services (with
charges prepaid) and, if to the Investors, addressed to the Investors in the
manner (except as otherwise provided in paragraph 15A with respect to payments
of principal of, premium (if any), and interest on the Notes) in which its
address appears in the Purchaser Schedule attached hereto, with a copy to
William J. Grant, Jr., Esq., at Willkie Farr & Gallagher, One Citicorp Center,
153 East 53rd Street, New York, New York 10022, if to the Company, addressed to
it at 1050 Cambridge Square, Suite C, Alpharetta, Georgia 30201, Attn:
President, with a copy to Morris C. Brown, Esq., at Morgan, Lewis & Bockius,
5300 Southeast Financial Center, 200 South Biscayne Boulevard, Miami, Florida
33131, or to such other address with respect to any party as such party shall
notify the other in writing; provided, however, that the Company may also, at
the option of the Investors, have any such communication be either delivered to
the Company at the Company's address set forth above or to any officer of the
Company.
15L. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
15M. Satisfaction Requirement. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to the Investors, the determination of
such satisfaction shall be made by the Investors in their sole and exclusive
judgment exercised in good faith. Unless otherwise provided, holders of at
least 510- of the principal amount of the then outstanding Notes shall have the
power to make such determination.
15N. Governing Law, Consent to Jurisdiction. This Agreement is
being executed by the Investors in the State of New York, and shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of such State. Any legal action or proceeding with
respect to this Agreement shall be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, the Company hereby accepts
for itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Company irrevocably consents to the
service of process out of any of the aforementioned courts in any such action
or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its address, such service to become
effective 30 days after such mailing. Nothing herein shall affect the right of
the Investors or any holder of a Note or Warrant to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against the Company in any other jurisdiction.
15O. Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the Company
or any Investor, the Company or the Investors (or any of them), as applicable,
may proceed to protect and enforce its or their rights either by suit in equity
and/or by action at law, including, but not limited to, an action for damages
as a result of any such breach and/or an action for specific performance of any
such covenant or agreement contained in this Agreement. The Company or an
Investor acting pursuant
47
<PAGE> 49
to this paragraph 15O shall be indemnified against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal and accounting fees and expenses) in accordance
with paragraph 15B.
15P. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior and contemporaneous arrangements or understandings with respect thereto.
15Q. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15R. Amendments. This Agreement may not be changed orally, but
(subject to the provisions of paragraphs 15C) only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
15S. Payment Date. Notwithstanding any provision of this Agreement
to the contrary, any payment on account of principal of or premium, if any, or
interest on any Note which is due on a date which is not a Business Day shall
be paid on the next succeeding Business Day, and the amount of interest
included in any such payment shall be computed to the date on which such
payment is actually made.
15T. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
15U. Confidentiality. Each Investor agrees that he or it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Investor may obtain from the Company pursuant to
this Agreement and which the Company has advised the Investor is protected
information, unless such information is known, or until such information
becomes known, to the public; provided, however, that such information may be
disclosed by the Investor to comply with applicable laws or governmental
regulations, in any court proceeding, in any action the Investor must take to
protect and enforce its rights under this Agreement if any Event of Default
shall occur and be continuing, or pursuant to an audit, provided that the
Investor provides prior written notice of such disclosure to the Company and
takes reasonable and lawful action to avoid or minimize the extent of such
disclosure; provided further, however, that an Investor may disclose such
information to any Affiliate of such Investor or to a partner or shareholder of
such Investor.
15V. Transfers of Certain Rights. The rights granted to an
Investor under this Agreement may be transferred by such Investor to another
Investor, to any affiliate of the
48
<PAGE> 50
Investor or to any Person or entity, provided, however, that the rights set
forth in paragraphs 7A and 7B may not be transferred to a company in the
business of selling or producing products which the Company in good faith
reasonably determines are competitive with its own products.
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below, whereupon this letter shall become a
binding agreement between the parties hereto.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Authorized Signing Officer
Name: Gary D. Kerber
Title: CEO & Chairman
49
<PAGE> 51
The foregoing Agreement is
hereby accepted as of the
date first above written.
TRUST FOR DEFINED BENEFIT PLAN
OF ICI AMERICAN HOLDING, INC.
By: Pecks Management Partners Ltd.
its Investment Adviser
By:
------------------------------------
Robert J. Cresci Principal Amount of Convertible
Managing Director Subordinated Notes: $1,100,000
Fuelship & Company Warrants to Purchase
---------------------------------- Common Stock: 220,000 Shares
(Name of Designee, if any)
50
<PAGE> 52
The foregoing Agreement is
hereby accepted as of the
date first above written.
STATE EMPLOYEES' RETIREMENT
FUND OF THE STATE OF DELAWARE
By: Pecks Management Partners Ltd.
its Investment Adviser
By:
----------------------------------------
Robert J. Cresci Principal Amount of Convertible
Managing Director Subordinated Notes: $2,900,000
NAP & Company Warrants to Purchase
-------------------------------------- Common Stock: 580,000 Shares
(Name of Designee, if any)
51
<PAGE> 53
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Preliminary Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1A. Authorization of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1B. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of Units; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2A. Purchase and Sale of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2B. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Conditions of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3A. Opinion of the Company's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3B. Representations and Warranties; Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 2
3C. Charter Documents and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3D. Purchase Permitted by Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3E. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3F. Registration Rights and Coinvestors Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3G. Letter of Accountants: Accompanying Officer's Certificate . . . . . . . . . . . . . . . . . . . . . 3
3H. No Adverse U.S. Legislation, Action or Decision . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3I. Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3J. Approval and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3K. Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3L. Compliance with Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3M. Cumulative Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3N. Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Conditions to the Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4A. Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4B. Blue Sky Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4C. Purchase of All Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Prepayments of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5A. Prepayments of Notes in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5B. Mandatory Prepayments of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5C. Optional Prepayments of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Buyback of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6A. Buyback of Warrants in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6B. Put of the Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6C. Call of the Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7A. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7B. Books and Records; Inspection of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7C. Additional Covenants Pending the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7D. Compliance with Laws, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7E. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7F. Corporate Existence; Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7G. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7H. Filing of Reports under the 1934 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7I. 1933 Act Registration Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8A. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8B. Restrictions on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8C. Restrictions on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8D. Loans, Advances and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8E. Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8F. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8G. Merger and Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8H. Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8I. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8J. No Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8K. Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9A. Subordinated Debt Subordinate to Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9B. Suspension of Right to Receive Payments of Subordinated
Debt; Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9B(l). Failure to Pay Principal of or Interest on Senior Debt . . . . . . . . . . . . . . . . . . 17
9B(2). Acceleration of Payment of Senior Debt or Subordinated Debt . . . . . . . . . . . . . . . . 18
9B(3). Bankruptcy or Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9C. Rights of Holders of Senior Debt Not to Be Impaired . . . . . . . . . . . . . . . . . . . . . . . . 19
9D. Company's Obligation Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9E. Payments Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9F. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9G. Reliance by Holders on Final Order or Decree . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10. Events of Default; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10A. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10B. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
11. Representations, Covenants and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11A. Organization; Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11B. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11C. Capital Stock and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11D. Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11E. Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11F. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11G. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11H. Conflicting Acrreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11I. Offering of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11J. Broker's or Finder's Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11K. Regulation G, Etc.; Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11L. Pollution and Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11M. Absence of Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11N. Agreements with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11O. Possession of Franchises, Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11P. Patents, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11Q. Holding Company and Investment Company Status . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11R. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11S. Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11T. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11U. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11V. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11W. Absence of Foreign or Enemy Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12. Representations of the Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12A. Investment: ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12B. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13. Exercise of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13A. Exercise Price and Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13B. Issuance of Certificates; When Exercise Effected . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13C. Fractional Shares: Accrued Interest; Partial Exercise . . . . . . . . . . . . . . . . . . . . . . . 30
13D. Adjustment of Price upon Issuance of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 31
13D(l). Issuance of Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13D(2). Change in Option Price or Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . 32
13D(3). Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13D(4). Consideration for Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13D(5). Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13D(6). Treasury Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13E. Subdivision or Combination of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13F. Adjustment of Number of Shares Subject to the Warrants . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
iii
<PAGE> 56
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
13G. Certain Issues of Common Stock Excepted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13H. Reorganization, Reclassification, Consolidation, Merger or Sale . . . . . . . . . . . . . . . . . . 35
13I. Notice of Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13J. Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13K. Stock to be Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13L. Issuance Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13M. Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13N. Closing of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
14. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15A. Home Office Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15B. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15C. Consent to Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15D. Form, Registration, Transfer and Exchange of Notes or Warrants: Lost Notes or Warrants . . . . . . . 44
15E. Provisions Applicable If Any of the Securities Are Sold . . . . . . . . . . . . . . . . . . . . . . 45
15E(1). Notices to Subsequent Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
15E(2). Pro Rata Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15F. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15H. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15I. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15J. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15K. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15L. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15M. Satisfaction Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15N. Governing Law, Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15O. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15P. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15Q. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15R. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15S. Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15T. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15U. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15V. Transfers of Certain Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
iv
<PAGE> 57
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
============================================================================================================
Aggregate
Principal
Amount of Purchase
Notes to Be Shares of
PURCHASER Purchased Common Stock
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRUST FOR DEFINED BENEFIT PLAN OF ICI AMERICAN $1,100,000 220,000 Shares
HOLDINGS, INC.
(1) The Notes shall be registered in the name of:
Fuelship & Company
- ------------------------------------------------------------------------------------------------------------
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
ABA Routing Number 0110-00028 for Master
Trust/State Street
Acct. JG10
Attn: Al Bovarnick in State Street
Bank & Trust Company
Master Trust Division
P.O. Box 1992
North Quincy, MA 02105
Each such wire transfer shall set forth the name of the
Purchaser, the full title (including the interest rate
and final maturity date) of the Notes, and the due date
and application (as among principal, premium and
interest) of the payment being made.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
============================================================================================================
Aggregate
Principal
Amount of Purchase
Notes to Be Shares of
PURCHASER Purchased Common Stock
- ------------------------------------------------------------------------------------------------------------
<S> <C>
(3) The Notes and Warrants shall be physically
delivered to:
State Street Bank & Trust Company
61 Broadway
TP Concourse Level
New York, New York 10004
Account Name: ICI Americas
#JG10
Attn: Ms. Hiranyaket
- ------------------------------------------------------------------------------------------------------------
(4) Address for all communications and notices:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Robert J. Cresci
Managing Director
============================================================================================================
</TABLE>
<PAGE> 59
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
=========================================================================================================
Aggregate
Principal Warrants to
Amount of Purchase
Notes to Be Shares of
PURCHASER Purchased Common Stock
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
STATE EMPLOYEES' RETIREMENT FUND OF THE STATE OF $2,900,000 580,000 Shares
DELAWARE
(1) The Notes shall be registered in the name of:
NAP & Company
- ---------------------------------------------------------------------------------------------------------
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
ABA Routing Number 052-00618
for State of Delaware Account
Acct. #214380 in
Mercantile Safe Deposit & Trust
Company
2 Hopkins Plaza
Baltimore, Maryland 21201
Attn: Edward Holthause
Each such wire transfer shall set forth the name of the
Purchaser, the full title (including the interest rate
and final maturity date) of the Notes, and the due date
and application (as among principal, premium and
interest) of the payment being made.
- ---------------------------------------------------------------------------------------------------------
(3) The Notes and Warrants shall be physically
delivered to:
Mercantile Safe Deposit & Trust
Company
2 Hopkins Plaza
Baltimore, Maryland 21201
Attn: Edward Holthause
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
================================================================================================================
Aggregate
Principal Warrants to
Amount of Purchase
Notes to Be Shares of
PURCHASER Purchased Common Stock
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
(4) Address for all communications and notices:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Robert J. Cresci
Managing Director
================================================================================================================
</TABLE>
<PAGE> 61
SCHEDULE 8C TO SECURITIES PURCHASE AGREEMENT
(LIENS)
Pledge securing $350,000.00 Note issued in connection
with the acquisition of Meadows College of Business.
<PAGE> 62
SCHEDULE 11C TO SECURITIES PURCHASE AGREEMENT
EDUCATIONAL MEDICAL, INC.
EQUITY OWNERSHIP
AS OF JULY 23, 1991
<TABLE>
<CAPTION>
============================================================================================================
Preferred Common Preferred Common
Stock Stock* Warrants Warrants
----- ------ -------- --------
<S> <C> <C> <C> <C>
Sprout/DLJ 382,500 159,384 21,697 9,041
----------------------------------------------------------------------------------------------------------
LTOS 382,500 159,383 18,768 7,820
----------------------------------------------------------------------------------------------------------
Investech 255,000 106,256 14,466 6,027
----------------------------------------------------------------------------------------------------------
Kerber 0 192,267 0 0
----------------------------------------------------------------------------------------------------------
Davis 0 94,222 0 0
----------------------------------------------------------------------------------------------------------
Pisano 0 92,721 0 0
----------------------------------------------------------------------------------------------------------
Lavery 0 17,499 0 0
----------------------------------------------------------------------------------------------------------
Equitable Securities 0 0 0 16,000
----------------------------------------------------------------------------------------------------------
Corporation
----------------------------------------------------------------------------------------------------------
Other Management 0 2,250 0 0
----------------------------------------------------------------------------------------------------------
TOTAL ISSUED 1,020,000 823,982 54,931 38,888
AND OUTSTANDING
============================================================================================================
</TABLE>
* 18,000 SHARES OF COMMON STOCK ARE RESERVED FOR ISSUANCE PURSUANT TO THE
INCENTIVE COMPENSATION AGREEMENT.
==============================================================================
NOTES:
The Company has agreed to issue to Robert Heidric, an executive search
agent, warrants (the "Heidric Warrants") to purchase 10,000 shares of its
common stock at the offering price of such shares in an Initial Public
Offering, such warrants to have a term of 5 years from the date of such Public
Offering.
The Company is issuing approximately 250,000 shares of common stock to
the holders of its cumulative preferred stock in connection with the
transactions provided for in the Securities Purchase Agreement to which this
Schedule is attached.
<PAGE> 63
SCHEDULE 11D TO SECURITIES PURCHASE AGREEMENT
(ACTIONS PENDING)
1. Richard I. Lyles, Jr. and Richard I. Lyles, III v. Educational
Medical, Inc., a Delaware corporation, et al., Case No.
631689, in the Superior Court of California for the County of
San Diego, filed December 11, 1990.
The sellers of the Maric Schools brought this action against
the Company to enforce payment of Notes (the "Notes") in the principal amount
of $180, 000 issued in connection with the purchase of the Maric Schools by the
Company. The Company has withheld payments on the Notes because of alleged
breaches by the sellers of the agreement pursuant to which the sale occurred,
relating to the notice of deficiency described below, and has asserted such
counterclaims in the litigation. Discovery has not yet been completed, and
although the Company is vigorously pursuing its claims, we are unable to
predict the outcome of the litigation. Substantially all of the payments
provided for in the promissory notes have been placed into escrow and will be
disbursed upon completion of the litigation.
2. Notice of Deficiency from the U.S. Department of Education
with respect to Maric College of San Diego for the period ended June 30, 1985
(see page 10 of the Private Placement Memorandum dated October 24, 1990).
Reaudited results have been filed and the Company is awaiting a response.
<PAGE> 64
SCHEDULE 11E TO SECURITIES PURCHASE AGREEMENT
(OUTSTANDING DEBT OF EDUCATIONAL MEDICAL, INC.
OR ANY OF ITS SUBSIDIARIES)
NONE OTHER THAN DISCLOSED
IN FINANCIAL STATEMENTS.
<PAGE> 65
SCHEDULE 11T TO SECURITIES PURCHASE AGREEMENT
(SUBSIDIARIES OF
EDUCATIONAL MEDICAL, INC.)
1. Andon Colleges, Inc., a California corporation.
a) Dest Education Corporation, a California corporation, a
subsidiary of Andon Colleges, Inc.
2. Maric Learning Systems, a California corporation.
3. Meadows Acquisition Corp., a Delaware corporation.
4. Palo Vista College of Nursing and Allied Health Services, Inc., a
California corporation.
5. Scottsdale Educational Center for Allied Health Careers, Incorporated.
<PAGE> 66
SCHEDULE 11V TO SECURITIES PURCHASE AGREEMENT
(REGISTRATION RIGHTS)
NONE OTHER THAN AS CONTAINED IN OR REFERRED TO IN
THE REGISTRATION RIGHTS AGREEMENT DATED JULY 23, 1991.
<PAGE> 67
EXHIBIT "A"
[Form of Senior Subordinated Note]
THE TRANSFER AND PAYMENT OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY __,
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 ____, 1996
R-_______________ __________________________
$ _______________ [Date]
FOR VALUE RECEIVED, the undersigned, EDUCATIONAL MEDICAL, INC., a
corporation organized and existing under the laws of the State of
_______________ (herein called the "Company"), hereby promises to pay to
__________________ or ________________ registered assigns, the principal sum of
____________________ DOLLARS ($) on July ___, 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%.
Payments of both principal and interest are to be made at the main
office of Chase Manhattan Bank in New York, or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
This Note is issued pursuant to a Securities Purchase Agreement dated
as of July __, 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.
<PAGE> 68
PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY) AND INTEREST IN RESPECT OF
THIS NOTE ARE SUBORDINATE TO SENIOR DEBT (AS DEFINED IN THE AGREEMENT).
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.
Payment of principal, premium (if any) and interest in respect of this
Note are subordinate, to the extent set forth in the Agreement, to all
principal of and interest on Senior Debt (as defined in 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:
-------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE> 69
EXHIBIT "B"
[Form of Warrant Certificate]
Warrant No. R-_____________________________________
THE TRANSFER OF THIS WARRANT IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A
SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 11, 1991, AND ANY AMENDMENTS
THERETO. 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.
WARRANT TO PURCHASE COMMON STOCK OF
EDUCATIONAL MEDICAL, INC.
Exercisable Commencing
------------
Void After
June 30, 2001
THIS CERTIFIES that, for value received, or registered assigns, is
entitled, subject to the terms and conditions set forth in this Warrant
Certificate, to purchase from EDUCATIONAL MEDICAL, INC., a _______________
corporation (the "Company"), _______________ fully paid and non-assessable
shares of Common Stock of the Company (the "Common Stock"), at any time
commencing __________ and continuing up to 5 p.m. New York time on June 30,
2001, originally at a price of $5.00 per share and thereafter at the price
calculated pursuant to the Purchase Agreement (as hereinafter defined) (the
"Exercise Price").
This Warrant is issued pursuant to a Securities Purchase Agreement
dated as of July 1991 (the "Purchase Agreement"), between the Investors listed
on the Purchaser Schedules thereto and the Company. The Purchase Agreement is
hereby incorporated by reference in and made a part of this Warrant and is
hereby referred to for a description of the rights, obligations, duties and
immunities thereunder of the Company and the registered holder or registered
holders of the Warrants (the "Holder(s)"). A copy of the Purchase Agreement
may be obtained by the Holder(s) hereof upon written request directed to the
Company. Capitalized terms used herein shall have the meaning ascribed to them
in the Purchase Agreement.
Warrants may be exercised at such times and in such amounts as are
provided for in the Purchase Agreement, but in no event later than 5:00 p.m.,
New York time, on June 30, 2001.
The Holder(s) of Warrants evidenced by this Warrant Certificate may
exercise them by surrendering this Warrant Certificate, with the form of
election to purchase attached hereto
<PAGE> 70
properly completed and executed, together with payment of the Exercise Price at
the principal office of the Company (or at such other address as the Company
may designate by notice in writing to the Holder(s) hereof at the address of
such Holder(s) appearing on the books of the Company). Payment of the Exercise
Price may be made in cash, by certified check payable to the order of the
Company, or by payment by way of a call on the Notes with a concurrent
direction to the Company to credit such amount in payment of the Exercise
Price, or any combination thereof. In the event that upon any exercise of
Warrants evidenced hereby, the number of Warrants exercised shall be less than
the total number of Warrants evidenced hereby, there shall be issued to the
Holder(s) hereof or the assignee of the Holder (s), without charge, a new
Warrant Certificate evidencing the number of Warrants not exercised.
The Purchase Agreement provides that upon the occurrence of certain
events, the Exercise Price or number of shares of Common Stock set forth on the
face hereof may be adjusted, subject to certain conditions. "No fractions of a
share of Common Stock shall be issued upon the exercise of any Warrant, but the
Company shall pay the cash value thereof determined as provided in the Purchase
Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered Holder(s) thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Purchase Agreement, but without
payment of any service charge, for another Warrant Certificate of like tenor
evidencing in the aggregate a like number of Warrants.
The Company agrees to provide the Holder(s) hereof with written notice
of the expiration of the Warrants at least sixty days prior to the date of
expiration. Such notice shall be sent by first class mail or nationwide
overnight delivery services (with charges prepaid) to the Holder(s) hereof at
the address of such Holder(s) appearing on the books of the Company.
Upon due presentation for registration of a transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants will be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided in the Purchase Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the Holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereof made by anyone), for the purpose of any exercise
hereof, of any distribution to the Holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Except as otherwise referred to in the Purchase Agreement, neither the Warrants
nor this Warrant Certificate entitles any Holder(s) hereof to any rights of a
stockholder of the Company.
The Warrants are callable by the Company and redeemable at certain
times and in certain events.
This Warrant Certificate 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.
<PAGE> 71
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer on this _____ day of July, 1991.
EDUCATIONAL MEDICAL, INC.
By:
-------------------------------------------------
Name:
-----------------------------------------------
Title:
<PAGE> 72
FORM OF ELECTION TO PURCHASE
TO: EDUCATIONAL MEDICAL, INC.
The undersigned holder of this Warrant (1) hereby irrevocably elects
to exercise the right to purchase hereunder (______________ ) fully-paid shares
of the Common Stock of EDUCATIONAL MEDICAL, INC., (2) makes paint in full of
the purchase price of such shares, (3) requests that certificates for such
shares be issued in the name of ___________
_________________________________________________ and (4) if said number of
shares shall not be all the shares the holder is entitled to purchase under
this Warrant, requests that a new warrant for the unexercised portion of this
Warrant be issued. If payment is being made by delivery of 13% Senior
Subordinated Notes due July _____, 1996 to the Company, the undersigned hereby
directs the Company to apply such payment on the Notes on account of the
Exercise Price.
Dated:________________________
__________________________________________________
(SIGNATURE)
<PAGE> 73
EXHIBIT "C"
[Form of Opinion of Company Counsel]
July 1991
State Employees' Retirement Fund
of the State of Delaware
Baltimore, Maryland
Trust for Defined Benefit Plan
of ICI American Holdings Inc.
New York, New York
Willkie Farr & Gallagher
New York, New York
Re: Educational Medical, Inc.
13% Senior Subordinated Notes and
Warrants to Purchase Common Stock
Gentlemen:
We refer to the Securities Purchase Agreement (the "Securities
Purchase Agreement") dated July 23, 1991 by and among Educational Medical, Inc.
(the "Company"), a Delaware corporation, and the investors listed on the
Purchaser Schedules thereto (the "Investors"), which provides for the issuance
and sale by the Company to the Investors of 4,000 Units (the "Units"), each
Unit comprising (i) $1,000 principal amount of 13% Senior Subordinated
Promissory Notes of the Company (the "Notes") and (ii) warrants to purchase 200
shares of Common Stock (the "Warrants") . This opinion is being rendered to you
pursuant to Paragraph 3A of the Securities Purchase Agreement. Capitalized
terms used herein without definition have the respective meanings ascribed to
such terms in the Securities Purchase Agreement.
We have acted as counsel to the Company in connection with the
issuance and sale to the Investors of the Units pursuant to the Securities
Purchase Agreement. In connection with the foregoing, we have examined
originals or copies satisfactory to us of: (i) the Securities Purchase
Agreement and the schedules and exhibits thereto, (ii) the Restated Certificate
of Incorporation of the Company, (iii) the By-laws of the Company, (iv) the
Registration Rights Agreement, (v) the Coinvestors Agreement, (vi) the form of
Note and (vii) the form of Warrant.
We have also examined originals or copies satisfactory to us of all
such corporate records and of all such agreements, certificates, governmental
orders and permits and other documents as we have deemed relevant and necessary
as a basis for the opinions hereinafter expressed. In our examination we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with the original documents of
all documents submitted to us as copies. As to any facts material to such
opinions, we have, to the
<PAGE> 74
<TABLE>
<S> <C>
State Employees' Retirement Fund Trust for Defined Benefit Plan
of the State of Delaware of ICI American Holdings Inc.
Baltimore, Maryland New York, New York
Willkie Farr & Gallagher July ______, 1993
New York, New York Page 2
</TABLE>
extent that such facts were not independently established by us, relied upon
certificates of public officials and officers of the Company.
Based upon the foregoing, we are of the opinion that:
The Company is a corporation, duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. The Company is duly
qualified to do business as a foreign corporation and in good standing in each
jurisdiction in which the character of its properties or the nature of its
business makes such qualification necessary. Each of the Company's
Subsidiaries is duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, and each of the Company's
Subsidiaries is duly qualified to do business as a foreign coloration and in
good standing in each jurisdiction in which the character of its properties or
the nature of its business makes such qualification necessary. The Company and
each of its Subsidiaries have all requisite corporate power and authority to
own, and in all material respects to operate, their respective properties and
to carry on their respective businesses as now conducted in all material
respects.
The Company has all requisite corporate power and authority to enter
into and carry out the transactions contemplated by the Securities Purchase
Agreement and each agreement executed by the Company pursuant thereto and to
issue and sell the Units and to issue Common Stock upon exercise of the
Warrants. The execution, delivery and performance of the Securities Purchase
Agreement, the Shareholders Agreement and the Registration Rights Agreement
have been duly authorized by all necessary corporate action on the part of the
Company, and such Agreements have been duly executed and delivered by the State
Employees' Retirement Fund of the Company and constitute legal, valid and
binding obligations of the Company, enforceable against it in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization and other laws relating to
or affecting the enforcement of the rights and remedies of creditors generally
and by general principles of equity. The Company's authorized capital stock is
as set forth in Section 11C of the Securities Purchase Agreement.
The Warrants to be issued and sold on the Closing Date have been
issued and sold by the Company pursuant to the Securities Purchase Agreement.
The shares of Common Stock issuable upon exercise of the Warrants have been
duly authorized by all necessary corporate action on the part of the Company
and have been validly reserved for issuance upon such exercise; such shares,
when issued upon such exercise, will be validly issued, fully paid and
nonassessable. Neither the issuance, sale and delivery of the Warrants nor the
issuance of the Common Stock issuable upon exercise of the Warrants is subject
to any applicable preemptive rights of shareholders of the
<PAGE> 75
<TABLE>
<S> <C>
State Employees' Retirement Fund Trust for Defined Benefit Plan
of the State of Delaware of ICI American Holdings Inc.
Baltimore, Maryland New York, New York
Willkie Farr & Gallagher July ______, 1993
New York, New York Page 3
</TABLE>
Company which have not been waived or, to our best knowledge, after due
inquiry, to any right of first refusal or other similar right in favor of any
person or entity.
To the best of our knowledge after due inquiry, and except as set
forth in Schedule 11D of the Securities Purchase Agreement, there is no action,
suit, investigation or proceeding pending or threatened against the Company or
any of its Subsidiaries or any of their properties by or before any court,
arbitrator or administrative or governmental body.
To the best of our knowledge after due inquiry, except as set forth on
Schedule 11D of the Securities Purchase Agreement, there exists no default,
which has not been waived or cured, under the provisions of any instrument of
which we have actual knowledge evidencing Indebtedness of the Company or any of
its Subsidiaries or of any agreement of which we have actual knowledge relating
thereto.
To the best of our knowledge after due inquiry, and except as
otherwise disclosed in the Securities Purchase Agreement, neither the execution
nor the delivery of State Employees' Retirement Fund of the Securities Purchase
Agreement, the Registration Rights Agreement, the Co investors Agreement or
fulfillment of or compliance with the terms and provisions of any thereof,
including, without limitation, the exercise of Warrants for Common Stock, will
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries pursuant to, the Amended and Restated Certificate of
Incorporation or By-Laws of the Company or any of its Subsidiaries, any award
of any arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment or decree, statute, law, rule or regulation to
which the Company or any of its Subsidiaries is subject, and neither the
Company nor any of its Subsidiaries is a party to, or otherwise subject to any
provision contained in, any instrument evidencing indebtedness for borrowed
money of the Company or any of its Subsidiaries, any agreement relating thereto
or any other contract or agreement (including its Amended and Restated
Certificate of Incorporation) which contains dividend or redemption limitations
on any capital stock of the Company, except for the Securities Purchase
Agreement, the Notes and the Warrants.
To the best of our knowledge, the Company and its Subsidiaries possess
all franchises, certificates, licenses, permits and other authorizations from
governmental political subdivisions or regulatory authorities that are
necessary in any material respect for the ownership, maintenance and operation
of its properties and assets when taken as a whole.
<PAGE> 76
<TABLE>
<S> <C>
State Employees' Retirement Fund Trust for Defined Benefit Plan
of the State of Delaware of ICI American Holdings Inc.
Baltimore, Maryland New York, New York
Willkie Farr & Gallagher July ______, 1993
New York, New York Page 4
</TABLE>
Neither the Company nor any of its Subsidiaries is, or upon the sale
of the Units will be, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or an "investment advisor" within the meaning of the Investment
Advisors Act of 1940, as amended.
The offer, issue, sale and delivery of the Units under the
circumstances contemplated by the Securities Purchase Agreement do not require
registration under the Securities Act of 1933, as amended. The Company is not
required to file, nor has the Company filed, pursuant to Section 12 of the
Securities Exchange Act of 1934, a registration statement relating to any class
of debt or equity securities.
This opinion is furnished solely to you and may not be relied upon by
any other party and may not be quoted or referred to without our prior written
approval.
Very truly yours,
MORGAN, LEWIS & BOCKIUS
<PAGE> 1
EXHIBIT 10.3
THE TRANSFER AND PAYMENT OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 23,
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 23, 1996
R-003 July 23, 1991
$603,000
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 Fuelship & Company or
registered assigns, the principal sum of SIX HUNDRED THREE THOUSAND DOLLARS on
July 23, 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 23, 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).
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:
--------------------------
Name: Gary D. Kerber
Title: Chairman and Chief
Executive Officer
<PAGE> 1
EXHIBIT 10.4
THE TRANSFER AND PAYMENT OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 23,
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 23, 1996
R-004 July 23, 1991
$497,000
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 Fuelship & Company or
registered assigns, the principal sum of FOUR HUNDRED NINETY-SEVEN THOUSAND
DOLLARS on July 23, 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 23, 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).
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:
--------------------------------
Name: Gary D. Kerber
Title: Chairman and Chief
Executive Officer
<PAGE> 1
EXHIBIT 10.5
ALLONGE
The 13% Senior Subordinated Note, dated July 16, 1991, issued by
Educational Medical, Inc. ("Company") to State Employees' Retirement Fund of
the State of Delaware (the "Retirement Fund") and NAP & Company, its Registered
Nominee, pursuant to the Securities Purchase Agreement (the "Purchase
Agreement") dated April 16, 1993, among the Retirement Fund, Trust for Defined
Benefit Plan of ICI American Holdings, Inc. and the Company, in the original
principal sum of Two Million Nine Hundred Thousand and 00/100 Dollars
($2,900,000.00) (the "Note") is hereby amended to provide that, instead of
paying interest quarterly and the entire unpaid principal amount of the Note on
July 16, 1996 as provided in the Note, the Company shall pay an installment of
principal in the amount of Seventy-Two Thousand Five Hundred and 00/100 Dollars
($72,500.00), with interest (computed for the actual number of days elapsed on
the basis of a 365 day year) on the unpaid principal balance outstanding from
time to time at the rate of thirteen percent (13%) per annum, quarterly on the
last day of March, June, September and December in each year, until (x) the
Note has been paid in full or (y) all obligations of the Company to Sirrom
Capital Corporation ("Sirrom") pursuant to the Loan Agreement between the
Company and Sirrom dated March 31, 1995 have been paid in full (the "Sirrom
Satisfaction"). On the last day of the first full calendar month following the
Sirrom Satisfaction, fifteen percent of the unpaid principal balance
outstanding (the "Outstanding Balance") and all related interest shall be due
and payable, and additional payments of twenty percent of the Outstanding
Balance, twenty-five percent of the Outstanding Balance and the remainder of
the Outstanding Balance, and all related interest, shall be due and payable on
the last day of the following second, third and fourth calendar months.
Further, Section 9 of the Purchase Agreement is hereby amended to read
as follows:
(d) All notices given pursuant to this Paragraph 9 shall be sent
by first class mail or by a reputable overnight nationwide delivery
service (with charges prepaid) to the holders of the Notes or to the
holders of the Senior Debt, as applicable, at the following addresses:
If to the holders of the Notes, to them, in care of their
representative at:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Mr. Robert J. Cresci
If to the holders of the Senior Debt, to them, in care of
their representative at:
Sirrom Capital Corporation
511 Union Street
Suite 2310
Nashville, Tennessee 37219
All notices given pursuant to this Paragraph 9 shall be deemed to be
given three (3) days following deposit in the mail, if sent by mail,
and one (1) day following delivery to an overnight delivery service,
if sent by overnight courier, or, if earlier, upon actual receipt by
the intended recipient.
Except as specifically provided for in this Allonge, the terms of the
Note and the Purchase Agreement shall remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Allonge as of the _____ day of _____________, 1995.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------
Name:
Title:
STATE EMPLOYEES' RETIREMENT FUND OF THE
STATE OF DELAWARE AND NAP & COMPANY,
ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
--------------------------------
Robert J. Cresci
Managing Director
<PAGE> 1
EXHIBIT 10.6
A L L O N G E
The 13% Senior Subordinated Note, dated July 23, 1991, issued by
Educational Medical, Inc. ("Company") to Trust for Defined Benefit Plan of ICI
American Holdings, Inc. (the "Benefit Plan") and Fuelship & Company, its
Registered Nominee, pursuant to the Securities Purchase Agreement (the
"Purchase Agreement") dated April 16, 1993, among the Benefit Plan, State
Employees' Retirement Fund of the State of Delaware and the Company, in the
original principal sum of Six Hundred Three Thousand and 00/100 Dollars
($603,000.00) (the "Note") is hereby amended to provide that, instead of paying
interest quarterly and the entire unpaid principal amount of the Note on July
23, 1996 as provided in the Note, the Company shall pay an installment of
principal in the amount of Fifteen Thousand Seventy-Five and 00/100 Dollars
($15,075.00), with interest (computed for the actual number of days elapsed on
the basis of a 365 day year) on the unpaid principal balance outstanding from
time to time at the rate of thirteen percent (13%) per annum, quarterly on the
last day of March, June, September and December in each year, until (x) the
Note has been paid in full or (y) all obligations of the Company to Sirrom
Capital Corporation ("Sirrom") pursuant to the Loan Agreement between the
Company and Sirrom dated March 31, 1995 have been paid in full (the "Sirrom
Satisfaction"). On the last day of the first full calendar month following the
Sirrom Satisfaction, fifteen percent of the unpaid principal balance
outstanding (the "Outstanding Balance") and all related interest shall be due
and payable, and additional payments of twenty percent of the Outstanding
Balance, twenty-five percent of the Outstanding Balance and the remainder of
the Outstanding Balance, and all related interest, shall be due and payable on
the last day of the following second, third and fourth calendar months.
Further, Section 9 of the Purchase Agreement is hereby amended to read
as follows:
(d) All notices given pursuant to this Paragraph 9 shall be sent
by first class mail or by a reputable overnight nationwide delivery
service (with charges prepaid) to the holders of the Notes or to the
holders of the Senior Debt, as applicable, at the following addresses:
If to the holders of the Notes, to them, in care of their
representative at:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Mr. Robert J. Cresci
If to the holders of the Senior Debt, to them, in care of
their representative at:
Sirrom Capital Corporation
511 Union Street
Suite 2310
Nashville, Tennessee 37219
All notices given pursuant to this Paragraph 9 shall be deemed to be
given three (3) days following deposit in the mail, if sent by mail,
and one (1) day following delivery to an overnight delivery service,
if sent by overnight courier, or, if earlier, upon actual receipt by
the intended recipient.
Except as specifically provided for in this Allonge, the terms of the
Note, and the Purchase Agreement shall remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Allonge as of the day of , 1995.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------
Name:
Title:
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. and FUELSHIP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners,
Ltd., its Investment Adviser
By:
----------------------------------
Robert J. Cresci
Managing Director
<PAGE> 1
EXHIBIT 10.7
A L L O N G E
The 13% Senior Subordinated Note, dated July 23, 1991, issued by
Educational Medical, Inc. ("Company") to Trust for Defined Benefit Plan of ICI
American Holdings, Inc. (the "Benefit Plan") and Fuelship & Company, its
Registered Nominee, pursuant to the Securities Purchase Agreement (the
"Purchase Agreement") dated April 16, 1993, among the Benefit Plan, State
Employees' Retirement Fund of the State of Delaware and the Company, in the
original principal sum of Four Hundred Ninety-Seven Thousand and 00/100 Dollars
($497,000.00) (the "Note") is hereby amended to provide that, instead of paying
interest quarterly and the entire unpaid principal amount of the Note on July
23, 1996 as provided in the Note, the Company shall pay an installment of
principal in the amount of Twelve Thousand Four Hundred Twenty-Five and 00/100
Dollars ($12,425.00), with interest (computed for the actual number of days
elapsed on the basis of a 365 day year) on the unpaid principal balance
outstanding from time to time at the rate of thirteen percent (13%) per annum,
quarterly on the last day of March, June, September and December in each year,
until (x) the Note has been paid in full or (y) all obligations of the Company
to Sirrom Capital Corporation ("Sirrom") pursuant to the Loan Agreement between
the Company and Sirrom dated March 31, 1995 have been paid in full (the "Sirrom
Satisfaction"). On the last day of the first full calendar month following the
Sirrom Satisfaction, fifteen percent of the unpaid principal balance
outstanding (the "Outstanding Balance") and all related interest shall be due
and payable, and additional payments of twenty percent of the Outstanding
Balance, twenty-five percent of the Outstanding Balance and the remainder of
the Outstanding Balance, and all related interest, shall be due and payable on
the last day of the following second, third and fourth calendar months.
Further, Section 9 of the Purchase Agreement is hereby amended to read
as follows:
(d) All notices given pursuant to this Paragraph 9 shall be sent
by first class mail or by a reputable overnight nationwide delivery
service (with charges prepaid) to the holders of the Notes or to the
holders of the Senior Debt, as applicable, at the following addresses:
If to the holders of the Notes, to them, in care of their
representative at:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Mr. Robert J. Cresci
<PAGE> 2
If to the holders of the Senior Debt, to them, in care of
their representative at:
Sirrom Capital Corporation
511 Union Street
Suite 2310
Nashville, Tennessee 37219
All notices given pursuant to this Paragraph 9 shall be deemed to be
given three (3) days following deposit in the mail, if sent by mail,
and one (1) day following delivery to an overnight delivery service,
if sent by overnight courier, or, if earlier, upon actual receipt by
the intended recipient.
Except as specifically provided for in this Allonge, the terms of the
Note shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Allonge as of the day of , 1995.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------
Name:
Title:
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. and
FUELSHIP & COMPANY, ITS REGISTERED
NOMINEE
By: Pecks Management Partners,
Ltd., its Investment Adviser
By:
-----------------------------------
Robert J. Cresci
Managing Director
-2-
<PAGE> 1
Warrant No. R-001 EXHIBIT 10.8
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
CERTAIN RESTRICTIONS SET FORTH IN A
SECURITIES PURCHASE AGREEMENT, DATED AS OF
JULY 16, 1991, AND ANY AMENDMENTS THERETO.
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.
WARRANT TO PURCHASE COMMON STOCK OF
EDUCATIONAL MEDICAL, INC.
Exercisable Commencing
July 16, 1991
Void After
June 30, 2001
THIS CERTIFIES that, for value received, Fuelship & Company, 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 "Company"), 220,000 fully paid and non-assessable
shares of Common Stock of the Company (the "Common Stock"), at any time
commencing July 16, 1991 and continuing up to 5 p.m. New York time on June 30,
2001, originally at a price of $5.00 per share and thereafter at the price
calculated pursuant to the Purchase Agreement (as hereinafter defined) (the
"Exercise Price").
This Warrant is issued pursuant to a Securities Purchase Agreement
dated as of July 16, 1991 (the "Purchase Agreement"), between the Investors
listed on the Purchaser Schedules thereto and the Company. The Purchase
Agreement is hereby incorporated by reference in and made a part of this Warrant
and is hereby referred to for a description of the rights, obligations, duties
and immunities thereunder of the Company and the registered holder or registered
holders of the Warrants (the "Holder(s)"). A copy of the Purchase Agreement may
be obtained by the Holder(s) hereof upon written request directed to the
Company. Capitalized terms used herein shall have the meaning ascribed to them
in the Purchase Agreement.
<PAGE> 2
Warrants may be exercised at such times and in such amounts as are
provided for in the Purchase Agreement, but in no event later than 5:00 p.m.,
New York time, on June 30, 2001.
The Holder(s) of Warrants evidenced by this Warrant Certificate may
exercise them by surrendering this Warrant Certificate, with the form of
election to purchase attached hereto properly completed and executed, together
with payment of the Exercise Price at the principal office of the Company (or at
such other address as the Company may designate by notice in writing to the
Holder(s) hereof at the address of such Holder(s) appearing on the books of the
Company). Payment of the Exercise Price may be made in cash, by certified check
payable to the order of the Company, or by payment by way of a call on the Notes
with a concurrent direction to the Company to credit such amount in payment of
the Exercise Price, or any combination thereof. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the Holder(s) hereof or the assignee of the Holder(s), without charge, a new
Warrant Certificate evidencing the number of Warrants not exercised.
The Purchase Agreement provides that upon the occurrence of certain
events, the Exercise Price or number of shares of Common Stock set forth on the
face hereof may be adjusted, subject to certain conditions. No fractions of a
share of Common Stock shall be issued upon the exercise of any Warrant, but the
Company shall pay the cash value thereof determined as provided in the Purchase
Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered Holder(s) thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Purchase Agreement, but without payment of
any service charge, for another Warrant Certificate of like tenor evidencing in
the aggregate a like number of Warrants.
The Company agrees to provide the Holder(s) hereof with written notice
of the expiration of the Warrants at least sixty days prior to the date of
expiration. Such notice shall be sent by first class mail or nationwide
overnight delivery services (with charges prepaid) to the Holder(s) hereof at
the address of such Holder(s) appearing on the books of the Company.
Upon due presentation for registration of a transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants will be
-2-
<PAGE> 3
issued to the transferee(s) in exchange for this Warrant Certificate, subject to
the limitations provided in the Purchase Agreement, without charge except for
any tax or other governmental charge imposed in connection therewith.
The Company may deem and treat the Holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereof made by anyone), for the purpose of any exercise hereof,
of any distribution to the Holder(s) hereof, and for all other purposes, and the
Company shall not be affected by any notice to the contrary. Except as
otherwise referred to in the Purchase Agreement, neither the Warrants nor this
Warrant Certificate entitles any Holder(s) hereof to any rights of a stockholder
of the Company.
The Warrants are callable by the Company and puttable at certain times
and in certain events.
This Warrant Certificate 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.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer on this 16th day of July, 1991.
EDUCATIONAL MEDICAL, INC.
By: Gary D. Kerber
----------------------------------
Name: Gary D. Kerber
Title: CEO
-3-
<PAGE> 4
FORM OF ELECTION TO PURCHASE
TO EDUCATIONAL MEDICAL, INC.:
The undersigned holder of this Warrant (1) hereby irrevocably elects
to exercise the right to purchase hereunder ____ fully paid shares of the Common
Stock of EDUCATIONAL MEDICAL, INC., (2) makes payment in full of the purchase
price of such shares, (3) requests that certificates for such shares be issued
in the name of _______________ , and (4) if said number of shares shall not be
all the shares the holder is entitled to purchase under this Warrant, requests
that a new warrant for the unexercised portion of this Warrant be issued. If
payment is being made by delivery of 13% Senior Subordinated Notes due July 16,
1996 to the Company, the undersigned hereby directs the Company to apply such
payment on the Notes on account of the Exercise Price.
Dated:______________
____________________
(SIGNATURE)
<PAGE> 1
Warrant No. R-002 EXHIBIT 10.9
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
CERTAIN RESTRICTIONS SET FORTH IN A
SECURITIES PURCHASE AGREEMENT, DATED AS OF
JULY 16, 1991, AND ANY AMENDMENTS THERETO.
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.
WARRANT TO PURCHASE COMMON STOCK OF
EDUCATIONAL MEDICAL, INC.
Exercisable Commencing
July 16, 1991
Void After
June 30, 2001
THIS CERTIFIES that, for value received, NAP & Company, 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 "Company"), 580,000 fully paid and non-assessable shares of
Common Stock of the Company (the "Common Stock"), at any time commencing July
16, 1991 and continuing up to 5 p.m. New York time on June 30, 2001, originally
at a price of $5.00 per share and thereafter at the price calculated pursuant to
the Purchase Agreement (as hereinafter defined) (the "Exercise Price").
This Warrant is issued pursuant to a Securities Purchase Agreement
dated as of July 16, 1991 (the "Purchase Agreement"), between the Investors
listed on the Purchaser Schedules thereto and the Company. The Purchase
Agreement is hereby incorporated by reference in and made a part of this Warrant
and is hereby referred to for a description of the rights, obligations, duties
and immunities thereunder of the Company and the registered holder or registered
holders of the Warrants (the "Holder(s)"). A copy of the Purchase Agreement may
be obtained by the Holder(s) hereof upon written request directed to the
Company. Capitalized terms used herein shall have the meaning ascribed to them
in the Purchase Agreement.
<PAGE> 2
Warrants may be exercised at such times and in such amounts as are
provided for in the Purchase Agreement, but in no event later than 5:00 p.m.,
New York time, on June 30, 2001.
The Holder(s) of Warrants evidenced by this Warrant Certificate may
exercise them by surrendering this Warrant Certificate, with the form of
election to purchase attached hereto properly completed and executed, together
with payment of the Exercise Price at the principal office of the Company (or at
such other address as the Company may designate by notice in writing to the
Holder(s) hereof at the address of such Holder(s) appearing on the books of the
Company). Payment of the Exercise Price may be made in cash, by certified check
payable to the order of the Company, or by payment by way of a call on the Notes
with a concurrent direction to the Company to credit such amount in payment of
the Exercise Price, or any combination thereof. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the Holder(s) hereof or the assignee of the Holder(s), without charge, a new
Warrant Certificate evidencing the number of Warrants not exercised.
The Purchase Agreement provides that upon the occurrence of certain
events, the Exercise Price or number of shares of Common Stock set forth on the
face hereof may be adjusted, subject to certain conditions. No fractions of a
share of Common Stock shall be issued upon the exercise of any Warrant, but the
Company shall pay the cash value thereof determined as provided in the Purchase
Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered Holder(s) thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Purchase Agreement, but without payment of
any service charge, for another Warrant Certificate of like tenor evidencing in
the aggregate a like number of Warrants.
The Company agrees to provide the Holder(s) hereof with written notice
of the expiration of the Warrants at least sixty days prior to the date of
expiration. Such notice shall be sent by first class mail or nationwide
overnight delivery services (with charges prepaid) to the Holder(s) hereof at
the address of such Holder(s) appearing on the books of the Company.
Upon due presentation for registration of a transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants will be
-2-
<PAGE> 3
issued to the transferee(s) in exchange for this Warrant Certificate, subject to
the limitations provided in the Purchase Agreement, without charge except for
any tax or other governmental charge imposed in connection therewith.
The Company may deem and treat the Holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereof made by anyone), for the purpose of any exercise hereof,
of any distribution to the Holder(s) hereof, and for all other purposes, and the
Company shall not be affected by any notice to the contrary. Except as
otherwise referred to in the Purchase Agreement, neither the Warrants nor this
Warrant Certificate entitles any Holder(s) hereof to any rights of a stockholder
of the Company.
The Warrants are callable by the Company and puttable at certain times
and in certain events.
This Warrant Certificate 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.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer on this 16th day of July, 1991.
EDUCATIONAL MEDICAL, INC.
By: Gary D. Kerber
----------------------------
Name: Gary D. Kerber
Title: CEO
-3-
<PAGE> 4
FORM OF ELECTION TO PURCHASE
TO EDUCATIONAL MEDICAL, INC.:
The undersigned holder of this Warrant (1) hereby irrevocably elects
to exercise the right to purchase hereunder ______ fully paid shares of the
Common Stock of EDUCATIONAL MEDICAL, INC., (2) makes payment in full of the
purchase price of such shares, (3) requests that certificates for such shares be
issued in the name of _______________ , and (4) if said number of shares shall
not be all the shares the holder is entitled to purchase under this Warrant,
requests that a new warrant for the unexercised portion of this Warrant be
issued. If payment is being made by delivery of 13% Senior Subordinated Notes
due July 16, 1996 to the Company, the undersigned hereby directs the Company to
apply such payment on the Notes on account of the Exercise Price.
Dated:____________________
____________________________
(SIGNATURE)
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT TO
SECURITIES PURCHASE AGREEMENT
FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT, dated as of March
31, 1995 executed by EDUCATIONAL MEDICAL, INC., a Delaware corporation (the
"Company") and the parties named in Schedule I attached to this Amendment.
PRELIMINARY STATEMENT
WHEREAS, the Trust for Defined Benefit Plan of ICI American Holdings,
Inc. and Fuelship & Company, its Registered Nominee, the holder of the
Company's Warrant No. R-001 dated July 16, 1991 and the Payee under the 13%
Senior Subordinated Note dated July 23, 1991 in the original principal sum of
$497,000.00 executed by the Company and the Payee under the 13% Senior
Subordinated Note dated July 23, 1991 in the original principal sum of
$603,000.00 executed by the Company, the State Employees' Retirement Fund of
the State of Delaware and NAP & Company, its Registered Nominee, the holder of
the Company's Warrant No. R-002 dated July 16, 1991 and the Payee under the 13%
Senior Subordinated Note dated July 16, 1991 in the original principal sum of
$2,900,000.00 executed by the Company, and the Company desire to amend the
Educational Medical, Inc. Securities Purchase Agreement (the "Securities
Purchase Agreement") dated as of July 23, 1991 to add a new clause to Section
13G of the Securities Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, and intending to
be legally bound, the undersigned parties agree to amend Section 13G of the
Securities Purchase Agreement to read as follows:
"13G. Certain Issues of Common Stock Excepted. Anything
herein to the contrary notwithstanding, the Company shall not
be required to make any adjustment of the Exercise Price in
the case of (i) the issuance of the Securities pursuant to
this Agreement; (ii) the issuance of shares of capital stock
of the Company upon exercise of the Warrants; (iii) the
issuance of up to 1,020,000 shares of Common Stock upon
conversion of the Company's Cumulative Convertible Preferred
Stock issued and outstanding as of the Closing Date; (iv) the
issuance of shares of Common Stock upon the exercise of
existing stock options granted prior to the Closing and the
issuance of shares of Common Stock after the Closing to
employees, consultants or directors (and the grant of options
therefor) so long as such shares in the aggregate do not
exceed at any time 10% of the total number of shares of the
<PAGE> 2
Company's Common Stock on a fully diluted basis (as adjusted
for stock splits, stock dividends, reclassifications,
recharacterizations or similar events) and the exercise price
of the options is equal to or greater than the then Exercise
Price; and (v) any and all Common Stock issued upon exercise
of the Stock Purchase Warrant dated as of March 31, 1995
between the Company and Sirrom Capital Corporation. If an
option to an employee, director or consultant shall expire or
terminate for any reason without having been exercised in
full, the unpurchased shares shall again be available for
subsequent option grants and such shares shall be considered
as having been issued only one time."
Except as specifically amended hereby, all provisions of the
Securities Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned parties have caused this First
Amendment to be executed and delivered by their respective officers thereunto
duly authorized as of the date first above written.
EDUCATIONAL MEDICAL, INC.
By:
-------------------------------------
Authorized Signatory
STATE EMPLOYEES' RETIREMENT FUND OF THE
STATE OF DELAWARE AND NAP & COMPANY,
ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:
----------------------------
Robert J. Cresci, Managing
Director
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. AND FUELSHIP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:
--------------------------
Robert J. Cresci, Managing
Director
<PAGE> 3
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. AND FUELSHIP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:
--------------------------
Robert J. Cresci, Managing
Director
-3-
<PAGE> 1
EXHIBIT 10.13
March 31, 1995
Sirrom Capital Corporation
511 Union Street
Suite 2310
Nashville, TN 37219
RE: LOAN TO EDUCATIONAL MEDICAL, INC. AND ITS SUBSIDIARIES
Ladies and Gentlemen:
This letter is an addendum (the "Addendum") to the Loan Agreement dated
March 31, 1995 (the "Loan Agreement") between Educational Medical, Inc., ("EMI")
and its subsidiaries (the "Borrowers") and Sirrom Capital Corporation
("Sirrom"), providing for a loan (the "Loan") to the Borrowers by Sirrom of up
to $2,200,000.
The representations of the Borrowers contained in the Loan Agreement
are subject to the following exceptions.
1. OIOPT Acquisition Corp. ("OIOPT"), one of the Borrowers, is
prohibited from encumbering its assets or allowing the pledge of its own stock
pursuant to an agreement with Bank One, Dayton, N.A. ("Bank One") pursuant to
which OIOPT and EMI have borrowed money. In order to avoid a default under that
agreement, the security interests provided for in the Loan Agreement will only
become effective with respect to OIOPT upon receipt of consent from Bank One.
EMI agrees to use its best efforts to secure such consent as promptly as
possible and knows of no reason why such consent should be withheld.
2. The Borrowers are parties to a loan agreement and a certain
equipment lease with Bank South, N.A. ("Bank South") and Bank South Leasing,
Inc. ("BSLI") pursuant to which Bank South and BSLI have prior liens on all of
the assets of the Borrowers. EMI has agreed that you may withhold amounts up to
$446,000 sufficient to pay off all of their obligations to Bank South and BSLI
in order to insure your prior position.
3. In the course of conducting UCC searches, you have discovered an
unsatisfied tax lien relating to the Borrower's Arizona operations. The
Borrowers believe that the claim pursuant to which such lien was filed has been
satisfied, and agree to cause such lien to be removed as promptly as possible.
<PAGE> 2
If the foregoing reflects your understanding, please indicate by
executing and returning the enclosed copy of this letter.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Title:
------------------------------
AGREED AND ACCEPTED
ON ____ DAY OF MARCH, 1995
SIRROM CAPITAL CORPORATION
By:
--------------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT 10.16
STOCK PURCHASE WARRANT
This Warrant is issued this 31st day of March, 1995, by EDUCATIONAL
MEDICAL, INC., a Delaware corporation (the "Company"), to SIRROM CAPITAL
CORPORATION, a Tennessee corporation (SIRROM CAPITAL CORPORATION and any
subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT: TERM. For and in consideration of SIRROM
CAPITAL CORPORATION making a loan to the Company in an amount of Two Million Two
Hundred Thousand and no/100ths Dollars ($2,200,000.00) pursuant to the terms of
a secured promissory note of even date herewith (the "Note") and related loan
agreement of even date herewith (the "Loan Agreement"), and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to purchase 85,000
shares (the "Shares") of the Company's common stock (the "Common Stock"),
provided that in the event that the indebtedness evidenced by the Note is
outstanding on the following dates, the Base Amount shall be increased to the
corresponding number set forth below:
<TABLE>
<CAPTION>
Date Base Amount
--------------------------- ------------------------------------
<S> <C>
March __, 1999 135,000 shares
March __, 2000 185,000 shares
</TABLE>
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from the date hereof until April 30, 2000.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
share for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant shall be One Cent ($.01).
3. EXERCISE. This Warrant may be exercised by the Holder hereof
(but only on the conditions hereinafter set forth) as to all or any increment
or increments of One Hundred (100) Shares (or the balance of the Shares if less
than such number), upon delivery of written notice of intent to exercise to the
Company at the following address: 1327 North Meadow Parkway, Suite 132, Roswell,
Georgia 30076 or such other address as the Company shall designate in a written
notice to the Holder hereof, together with this Warrant and payment to the
Company of the aggregate Exercise Price of the Shares so purchased. The
Exercise Price shall be payable, at the option of the Holder, (i) by certified
or bank check, (ii) by the surrender of the Note or portion thereof having an
outstanding principal balance equal to the aggregate Exercise Price or (iii) by
the surrender of a portion of this Warrant having a fair market value equal to
the aggregate Exercise Price. Upon exercise of this Warrant as aforesaid, the
Company shall as promptly as practicable, and in any event within fifteen (15)
days thereafter, execute and deliver to the Holder
<PAGE> 2
of this Warrant a certificate or certificates for the total number of whole
Shares for which this Warrant is being exercised in such names and denominations
as are requested by such Holder. If this Warrant shall be exercised with
respect to less than all of the Shares, the Holder shall be entitled to receive
a new Warrant covering the number of Shares in respect of which this Warrant
shall not have been exercised, which new Warrant shall in all other respects
be identical to this Warrant. The Company covenants and agrees that it will pay
when due any and all state and federal issue taxes which may be payable in
respect of the issuance of this Warrant or the issuance of any Shares upon
exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") or any
state securities laws. ("Blue Sky Laws"). This Warrant has been acquired
for investment purposes and not with a view to distribution or resale and
may not be pledged, hypothecated, sold, made subject to a security
interest, or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws (the Company hereby acknowledges that Bass,
Berry & Sims is acceptable counsel). Transfer of the shares issued upon
the exercise of this Warrant shall be restricted in the same manner and
to the same extent as the Warrant and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT UNDER THE ACT OR SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE
WITH REGARD THERETO, OR (II) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACTS OR SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION
WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents
and instruments as counsel for the Company reasonably deems necessary to
effect the compliance of the issuance of this Warrant and any shares of
Common Stock issued upon exercise hereof with applicable federal and
state securities laws.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens,
2
<PAGE> 3
charges and preemptive rights, if any, with respect thereto or to the
issuance thereof. The Company shall at all times reserve and keep
available for issuance upon the exercise of this Warrant such number of
authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of this Warrant.
(c) The Company covenants and agrees that it shall not sell any
shares of the Company's capital stock at a price below the fair market
value of such shares, without the prior written consent of the Holder
hereof. In the event that the Company sells shares of the Company's
capital stock in violation of this Section 4(c), the number of shares
issuable upon exercise of this Warrant shall be equal to the product
obtained by multiplying the number of shares issuable pursuant to this
Warrant prior to such sale by the quotient obtained by dividing (i) the
fair market value of the shares issued in violation of this Section 4(c)
by (ii) the price at which such shares were sold.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
hereof, this Warrant may be transferred, in whole or in part, to any person or
business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the
Company shall promptly execute and deliver a new Warrant or Warrants in the form
hereof in the name of the assignee or assignees and in the denominations
specified in such instructions. The Company shall pay all expenses incurred by
it in connection with the preparation, issuance and delivery of Warrants under
this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE
RIGHTS. Except as otherwise provided herein, this Warrant does not confer upon
the Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the holders
of the Company's common stock the right to purchase any securities of the
Company, then all shares of Common Stock that are subject to this Warrant shall
be deemed to be outstanding and owned by the Holder and the Holder shall be
entitled to participate in such rights offering. The Company shall not grant
any preemptive rights with respect to any of its capital stock without the prior
written consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive
notice of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity and shall receive a copy of all correspondence and information
delivered to the Company's Board of Directors, from the date hereof until such
time as the indebtedness evidenced by the Note has been paid in full.
3
<PAGE> 4
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization, combination
of shares of the Company, or other similar event, occurring after the date
hereof, then the Holder exercising this Warrant shall receive, for the
aggregate price paid upon such exercise, the aggregate number and class of
shares which such Holder would have received if this Warrant had been exercised
immediately prior to such stock split, stock dividend, recapitalization,
combination of shares, or other similar event. If any adjustment under this
Section 8(a), would create a fractional share of Common stock or a right to
acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares subject to this Warrant shall be the
next higher number of shares, rounding all fractions upward. Whenever there
shall be an adjustment pursuant to this Section 8(a), the Company shall
forthwith notify the Holder or Holders of this Warrant of such adjustment,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event, occurring
after the date hereof, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or another
class or classes of securities of the Company or another entity, then the
Holder exercising this Warrant shall receive, for the aggregate price paid upon
such exercise, the aggregate number and class of shares which such Holder would
have received if this Warrant had been exercised immediately prior to such
merger, consolidation, exchange of shares, separation, reorganization or
liquidation, or other similar event. If any adjustment under this Section 8(b)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares subject to this Warrant shall be the next higher number
of shares, rounding all fractions upward. Whenever there shall be an
adjustment pursuant to this Section 8(b), the Company shall forthwith notify
the Holder or Holders of this Warrant of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated.
9. CERTAIN NOTICES. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock
or make any special dividend or other distribution to the holders of its Common
Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
4
<PAGE> 5
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell of all or substantially
all of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up of
the affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder of
the Warrant, by certified or registered mail, (i) at least twenty (20) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
EDUCATIONAL MEDICAL, INC.,
a Delaware corporation
By: /s/
--------------------------
Title: President
---------------------
SIRROM CAPITAL CORPORATION, a
Tennessee corporation
By: /s/
---------------------------
Title: CPO
----------------------
6
<PAGE> 1
EXHIBIT 10.17
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Agreement") given as of this day of March,
1995, by Educational Medical, Inc., a Delaware corporation (the "Pledgor"), in
favor of Sirrom Capital Corporation, a Tennessee corporation(the "Lender").
W I T N E S S E T H:
WHEREAS, the Lender has entered into that certain Loan Agreement (as
executed on the date hereof and as the same may be amended from time to time,
the "Loan Agreement") by and among Educational Medical, Inc., a Delaware
corporation, Palo Vista College of Nursing and Allied Health Sciences, Inc., a
California corporation, Maric Learning Systems, a California corporation, Andon
Colleges, Inc., a California corporation, Dest Education Corporation, a
California corporation, Meadows Acquisition Corp., a Delaware corporation,
Scottsdale Educational Center for Allied Health Careers, Incorporated, an
Arizona corporation, MTSX Acquisition Corp., a Delaware corporation, California
Academy of Merchandising, Art and Design, Inc., a Delaware corporation, DBS
Acquisition Corp., a Virginia corporation, ICM Acquisition Corp., a Delaware
corporation, and OIOPT Acquisition Corp., a Delaware corporation (collectively,
the "Borrowers") and the Lender, pursuant to which the Lender has agreed to make
a loan in an aggregate principal amount not to exceed $2,200,000 (the "Loan") to
the Borrowers, which Loan is evidenced by a promissory note given by the
Borrowers in favor of the Lender (as executed on the date hereof and as it may
be amended, modified, renewed, or extended from time to time, the "Note"); and
WHEREAS, the Pledgor is the owner of the shares of stock of those
Borrowers (collectively, the "Companies") described in Exhibit "A" attached
hereto and incorporated herein by this reference; and
WHEREAS, to secure the due and punctual payment and performance of all
obligations and indebtedness of the Borrowers under the Note, the Loan
Agreement, and the other Loan Documents, and any and all other obligations and
indebtedness of the Borrowers to the Lender, direct or contingent (including,
but not limited to, obligations incurred as endorser, guarantor or surety),
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 (collectively, "Obligations"), the Pledgor has
agreed to pledge and assign to the Lender all of the Pledgor's right, title, and
interest in and to said shares, together with the other collateral hereinafter
described (collectively, the "Stock");
NOW, THEREFORE, in consideration of the premises, the mutual covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Pledgor and the Lender
hereby agree that all capitalized terms used herein shall have the meanings
ascribed to such terms in the Loan Agreement to the extent not otherwise defined
or limited herein, and further agree as follows:
1. WARRANTY. The Pledgor hereby warrants to the Lender that except for
the securities interests (collectively, "Superior Interests") in the shares of
stock of OIOPT Acquisition Corp., a Delaware corporation, MTSX Acquisition
Corp., a Delaware corporation, and DBS Acquisition Corp., a Virginia corporation
(collectively, the "Previously Pledged Stock") created by the pledge agreements
described in Exhibit "B" attached hereto and incorporated herein (collectively,
the "Superior Pledge Agreements"), and the security interest created hereby, the
Pledgor owns the Stock free and clear of all liens, charges, and encumbrances,
that the Stock is duly issued, fully
<PAGE> 2
paid, and non-assessable, that the Pledgor has the unencumbered and unrestricted
right to pledge the Stock (except for the Previously Pledged Stock, any further
pledge of which may require the consent of the holder of the Superior Pledge
Agreements), and that no consent or approval of any governmental or regulatory
authority, or of any securities exchange, which has not been obtained was or is
necessary to the validity of this pledge.
2. SECURITY INTEREST. The Pledgor hereby grants, conveys, and pledges
to the Lender a security interest in and security title to all of its right,
title, and interest in and to the Stock, and has delivered to and deposited with
the Lender herewith, all of its right, title, and interest in and to, the Stock
presently held by the Pledgor, together with stock powers endorsed in blank by
the Pledgor, as security for (a) all obligations of the Pledgor to the Lender
hereunder; and (b) payment and performance of all other Obligations. The Pledgor
has this date notified each of the Companies of the execution of this Agreement
and the pledge of the Stock to the Lender. The Pledgor agrees that at any time
and from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action that may be necessary, or that the Lender may reasonably request, in
order to perfect and protect the security interest granted hereby or to enable
the Lender to exercise and enforce its rights and remedies hereunder with
respect to all or nay portion of the Stock. The Pledgor hereby irrevocably
appoints the Lender as its attorney-in-fact, with a power of attorney to execute
on behalf of the Pledgor such documents as the Lender may from time to time deem
necessary to protect or perfect the Lender's security interest in the Stock or
to exercise any rights or remedies available to the Lender hereunder. The
Lender's security interest in the Previously Pledged Stock shall be subject and
subordinate to the Superior Interests until the Superior Interests are released
by the holder of the Superior Pledge Agreements. Until the Superior Interests
are released, the respective holders of the Superior Pledge Agreements or their
agent shall be entitled to possess the Previously Pledged Stock as provided in
the Superior Pledge Agreements.
3. ADDITIONAL SHARES. In the event that, during the term of this
Agreement:
(a) any stock dividend, stock split, reclassification,
readjustment, or other change is declared or made in the capital
structure of any of the Companies, all new, substituted, and additional
shares, or other securities, issued by reason of any such change and
received by the Pledgor or to which the Pledgor shall be entitled shall
be immediately delivered to the Lender, together with stock powers
endorsed in blank by the Pledgor, and shall thereupon constitute Stock
to be held by the Lender under the terms of this Agreement; and
(b) any subscriptions, warrants, or any other rights or options
shall be issued in connection with the Stock, all new stock or other
securities acquired through such subscriptions, warrants, rights, or
options by the Pledgor shall be immediately delivered to the Lender and
shall thereupon constitute Stock to be held by the Lender under the
terms of this Agreement.
4. DEFAULT. Upon the occurrence of an Event of Default under the Loan
Agreement or under any other Loan Document, or a default by the Pledgor under
the terms of this Agreement (any of such occurrences being hereinafter referred
to as a "Default") the Lender may sell or otherwise dispose of the Stock or any
portion of the Stock at a public or private sale or make other commercially
reasonable disposition of the Stock or any portion thereof after five days'
notice to the Pledgor, and the Lender may purchase the Stock or any portion
thereof at any public or private sale. The proceeds of the public or private
sale or other disposition shall be applied to the costs incurred in connection
with the sale, expressly including, without limitation, any costs under Section
-2-
<PAGE> 3
6(a) hereof, and to the other Obligations, in such order as the Lender may
determine, and any remaining proceeds shall be paid over to the Pledgor or
others as by law provided. In the event the proceeds of the sale or other
disposition of the Stock are insufficient to pay such expenses, interest,
principal of the Obligations, and damages, the Pledgor shall remain liable to
the Lender for any such deficiency. All costs and expenses, including attorneys'
fees and expenses, incurred by the Lender' in obtaining performance of or in
collecting any payments due under this Agreement shall be deemed part of the
Obligations hereunder.
5. ADDITIONAL RIGHTS OF SECURED PARTY. In addition to its rights and
privileges under this Agreement, the Lender shall have all the rights, powers,
and privileges of secured parties under the Uniform Commercial Code of the State
of Tennessee and other applicable law. All rights of the Lender shall be
cumulative and not exclusive.
6. DISPOSITION OF STOCK BY THE LENDER. If the Stock or any portion
thereof is not registered under the various United States federal or state
securities acts, disposition thereof after Default may be restricted to one or
more private (instead of public) sales in view of the lack of such registration.
The Pledgor understands that upon such disposition, the Lender may approach only
a restricted number of potential purchasers and further understands that a sale
under such circumstances may yield a lower price for the Stock than if the Stock
were registered pursuant to federal and state securities legislation and sold on
the open market. The Pledgor, therefore, agrees that:
(a) if the Lender shall, pursuant to the terms of this Agreement,
sell or cause the Stock or any portion thereof to be sold at a private
sale, the Lender shall have the right to rely upon the advice and
opinion of any national brokerage or investment firm having recognized
expertise and experience in connection with shares of companies similar
to the Companies (but shall not be obligated to seek such advice and
the failure to do so shall not be considered in determining the
commercial reasonableness of the Lender's action) as to the best manner
in which to expose the Stock for sale and as to the best price
reasonably obtainable at the private sale thereof; and
(b) that such reliance shall be conclusive evidence that the
Lender has handled such disposition in a commercially reasonable
manner.
7. PLEDGOR'S OBLIGATIONS ABSOLUTE. The obligations of the Pledgor
under this Agreement shall be direct and immediate and not conditional or
contingent upon the pursuit of any remedies against any other Person, nor
against other security or liens or encumbrances available to the Lender or any
of its successors, assigns, or agents. The Pledgor hereby waives any right to
require that an action be brought against any other Person or to require that
resort be had to any security or to any balance of any deposit account or credit
on the books of the Lender in favor of any other Person prior to any exercise of
rights or remedies hereunder.
8. VOTING RIGHTS.
(a) After a Default and for so long as any of the Obligations
remain unpaid,(i) the Lender may, upon ten (10) days' prior written
notice to the Pledgor of its intention to do so, exercise all voting
rights, and all other ownership or consensual rights of the Stock, but
under no circumstances is the Lender obligated by the terms of this
Agreement to exercise such rights, and (ii) the Pledgor hereby appoints
the Lender the Pledgor's true and lawful attorney-in-fact and
IRREVOCABLE PROXY to vote the Stock in any manner the Lender deems
advisable for or against all matters submitted or which may be
submitted to a vote
-3-
<PAGE> 4
of shareholders. The power of attorney granted hereby is coupled with
an interest and shall be irrevocable for so long as any of the
Obligations remain unpaid.
(b) For so long as the Pledgor shall have the right to vote the
Stock, the Pledgor covenants and agrees that it will not, without the
prior written consent of the Lender, (i) vote or take any consensual
action with respect to the Stock which would constitute a Default under
this Agreement; (ii) cause, permit, or allow any assets of any of the
Companies to be leased, sold, conveyed, pledged, hypothecated,
transferred, or otherwise encumbered or disposed of except as permitted
under the Loan Agreement; or (iii) cause, permit, or allow any of the
Companies to issue any additional stock, to be dissolved or liquidated,
or to acquire, be acquired by, merged, or consolidated into or with any
other Person except as permitted under the Loan Agreement.
9. TERMINATION. This Agreement, and the security interest hereunder
granted to the Lender in the Stock, shall terminate on the date on which all
Obligations of the Borrowers to the Lender under the Loan Documents have been
fully satisfied. Thereafter, upon written demand from the Pledgor, the Lender,
by its acceptance hereof, agrees that it shall promptly deliver the Stock to the
Pledgor, unless and except to the extent the Stock has been liquidated or
otherwise disposed of pursuant to Section 6 hereof.
10. SECURITY AGREEMENT. This Agreement shall constitute a security
agreement under the Uniform Commercial Code as in effect in the State of
Tennessee.
11. GENERAL.
(a) Time is of the essence of this Agreement. No waiver by the
Lender of any power or right hereunder or of any Default by the Pledgor
hereunder shall be binding upon the Lender unless in writing signed by
the Lender. No failure or delay by the Lender to exercise any power or
right hereunder or binding waiver of any Default hereunder shall
operate as a waiver of any other or further exercise of such power or
any other Default. This Agreement, together with all documents referred
to herein, constitutes the entire agreement between the Pledgor and the
Lender and may not be modified except by a writing executed by the
Lender and delivered by the Lender to the Pledgor.
(b) If any paragraph or part thereof shall for any reason be
held or adjudged to be invalid, illegal, or unenforceable by any court
of competent jurisdiction, such paragraph or part thereof so
adjudicated invalid, illegal, or unenforceable shall be deemed
separate, distinct, and independent, and the remainder of this
Agreement shall remain in full force and effect and shall not be
affected by such holding or adjudication.
(c) All representations and warranties made and given herein
by the Pledgor shall survive the execution and delivery of this
Agreement and shall remain in full force and effect until such time as
this Agreement is terminated as provided in Section 9 hereof.
(d) The rights and obligations of the parties hereunder shall
inure to the benefit of and bind their respective heirs, executors,
administrators, legal representatives, successors, and assigns.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
-4-
<PAGE> 5
(f) All notices and demands required or permitted hereunder or
by law shall be given in the manner prescribed, and shall be effective
as stated in the Loan Agreement.
(g) The pronouns used in this Agreement shall be construed as
masculine, feminine, or neuter as the occasion may require.
(h) Captions are for reference only and in no way limit the
terms of this Agreement.
(i) All references herein to any document, instrument, or
agreement shall be deemed to refer to such document, instrument, or
agreement as the same may be amended, modified, restated, supplemented,
or replaced from time to time.
IN WITNESS WHEREOF, the Pledgor has executed this Agreement by and
through its duly authorized officers and has caused its corporate seal to be
hereunto affixed, as of the day and year first above written.
PLEDGOR:
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Title:
---------------------------
Attest:
-----------------------------
Title:
-----------------------
[CORPORATE SEAL]
-5-
<PAGE> 6
EXHIBIT "A"
Stock
Companies Stock
<PAGE> 7
EXHIBIT "B"
Superior Pledge Agreements
1. Pledge Agreement dated as of July 14, 1993, among Educational Medical,
Inc., a Delaware corporation, as Pledgor, Ohio Institute of Photography
and Technology, Inc., an Ohio corporation, as Pledgee, and OIOPT
Acquisition Corp., a Delaware corporation, as Issuer.
2. Pledge Agreement dated as of July 22, 1993, among Educational Medical,
Inc., a Delaware corporation, as Pledgor, M.T. X-Ray, Inc., as Pledgee,
and MTSX Acquisition Corp., a Delaware corporation, as Issuer.
3. Pledge Agreement, dated as of May 28, 1993, among Educational Medical,
Inc., a Delaware corporation, as Pledgor, Beta Services, Inc., a
Virginia corporation, as Pledgee, and DBS Acquisition Corp., a Virginia
corporation (formerly a Delaware corporation), as Issuer, as amended by
Amendment One to the Pledge Agreement dated as of July 23, 1993, among
said parties.
<PAGE> 1
EXHIBIT 10.18
AGREEMENT IN RESPECT OF WARRANT
THIS AGREEMENT is made by STATE EMPLOYEES' RETIREMENT FUND OF THE STATE
OF DELAWARE and NAP & COMPANY, ITS REGISTERED NOMINEE (the "Holder") in favor of
EDUCATIONAL MEDICAL, INC. (the "Company") and SIRROM CAPITAL CORPORATION
("Lender").
WHEREAS, the Holder is the holder of the Company's Warrant No. R-002
dated July 16, 1991, entitled "Warrant to Purchase Common Stock of Educational
Medical, Inc. Exercisable Commencing July 16, 1991 Void After June 30, 2001"
(the "Warrant");
WHEREAS, the Company desires to obtain a loan ("Loan") from the Lender
in the principal amount of Two Million Two Hundred Thousand and 00/100 Dollars
($2,200,000.00), which Loan will benefit both the Company and, therefore, the
holder of the Warrant;
WHEREAS, the Lender has required, as a condition to making the Loan,
that the Holder execute and deliver this Agreement, and the Holder has agreed to
do so;
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Holder does hereby agree as follows:
1. The foregoing recitals are true and constitute a part of this
Agreement.
2. Notwithstanding anything to the contrary, including, without
limitation, anything to the contrary set forth in the Warrant, the Holder hereby
agrees that the Warrant shall not be puttable in accordance with its terms and
the Purchase Agreement therein described until all indebtedness (including,
without limitation, all principal and interest) due to Lender in connection with
the Loan has been paid in full, and any and all right of the Holder to put the
Warrant to the Company in accordance with its terms and said Purchase Agreement
is hereby waived and released for so long as any such indebtedness remains
unpaid.
3. Except as amended hereby, the Warrant remains unchanged and in
full force and effect.
4. This Agreement may not be modified or terminated without the
Lender's prior written consent.
IN WITNESS WHEREOF, Holder has duly executed and delivered this
Agreement as of the day of , 1995.
Signed, sealed and delivered
in the presence of: STATE EMPLOYEES' RETIREMENT FUND OF
THE STATE OF DELAWARE and NAP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
- ----------------------------------- -------------------------------------
Witness Robert J. Cresci
Name: Managing Director
------------------------------
(SEAL)
- -----------------------------------
Witness
Name:
------------------------------
<PAGE> 1
EXHIBIT 10.19
AGREEMENT IN RESPECT OF WARRANT
THIS AGREEMENT is made by TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. and FUELSHIP & COMPANY, ITS REGISTERED NOMINEE (the
"Holder") in favor of EDUCATIONAL MEDICAL, INC. (the "Company") and SIRROM
CAPITAL CORPORATION ("Lender").
WHEREAS, the Holder is the holder of the Company's Warrant No. R-001
dated July 16, 1991, entitled "Warrant to Purchase Common Stock of Educational
Medical, Inc. Exercisable Commencing July 16, 1991 Void After June 30, 2001"
(the "Warrant");
WHEREAS, the Company desires to obtain a loan ("Loan") from the Lender
in the principal amount of Two Million Two Hundred Thousand and 00/100 Dollars
($2,200,000.00), which Loan will benefit both the Company and, therefore, the
holder of the Warrant;
WHEREAS, the Lender has required, as a condition to making the Loan,
that the Holder execute and deliver this Agreement, and the Holder has agreed to
do so;
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Holder does hereby agree as follows:
1. The foregoing recitals are true and constitute a part of this
Agreement.
2. Notwithstanding anything to the contrary, including, without
limitation, anything to the contrary set forth in the Warrant, the Holder hereby
agrees that the Warrant shall not be puttable in accordance with its terms and
the Purchase Agreement therein described until all indebtedness (including,
without limitation, all principal and interest) due to Lender in connection with
the Loan has been paid in full, and any and all right of the Holder to put the
Warrant to the Company in accordance with its terms and said Purchase Agreement
is hereby waived and released for so long as any such indebtedness remains
unpaid.
3. Except as amended hereby, the Warrant remains unchanged and in
full force and effect.
4. This Agreement may not be modified or terminated without the
Lender's prior written consent.
IN WITNESS WHEREOF, Holder has duly executed and delivered this
Agreement as of the day of , 1995.
Signed, sealed and delivered
in the presence of: TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. and FUELSHIP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
- ----------------------------------- -------------------------------------
Witness Robert J. Cresci
Name: Managing Director
------------------------------
(SEAL)
- -----------------------------------
Witness
Name:
------------------------------
<PAGE> 1
EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of July 23,
1991, between Educational Medical, Inc., a Delaware corporation (the "Company")
and the persons named on Schedules I and II attached to this Agreement (each of
such persons being referred to individually as an "Investor" and collectively
referred to as the "Investors").
PRELIMINARY STATEMENT
The Company and the Investors named on Schedule I (the "Preferred
Stock Investors") are parties to the Stock Purchase Agreement dated March 31,
1988, the Warrant Purchase Agreement dated March 31, 1988, the Note and Warrant
Purchase Agreement dated March 31, 1988 and the Letter Agreements dated
November 14, 1989 (collectively the "Preferred Stock Agreements") Pursuant to
the Preferred Stock Agreements, the Company has issued Preferred Stock,
Warrants to purchase Preferred Stock, Common Stock, and Warrants to purchase
Common Stock (collectively the "Preferred Stock Investors' Securities") to the
Preferred Stock Investors in the amounts set forth opposite each of their names
on Schedule I.
The Company and the Investors "named on Schedule II (the "Warrant
Investors') are parties to the Securities Purchase Agreement dated as of July
23, 1991 (the "Purchase Agreement"), pursuant to which the Company has agreed,
among other things, to issue to the Investors an aggregate of 4,000 units (the
"Units"), each Unit comprising (i) $1,000 principal amount of 12.5% Senior
Subordinated Promissory Notes of the Company in the aggregate principal amounts
set forth on the respective Purchaser Schedule attached to the Purchase
Agreement (the "Notes") and (ii) warrants (the "Warrants") to purchase 200
shares of common stock (the "Warrant Shares") all in the amounts set forth
opposite of their names on Schedule II.
The Preferred Stock Investors have been granted certain registration
rights with respect to the Preferred Stock Investors' Securities pursuant to
the Preferred Stock Agreements. The Company has agreed to grant certain
registration rights to the warrant Investors with respect to the Warrants. The
Investors have agreed to enter into this single Agreement with the Company
setting forth their respective registration rights, replacing the related
provisions of the Preferred Stock Agreements.
In connection with the acquisition of Meadows College of Business, the
Company issued a single parent fixed rate secured promissory note dated October
13, 1989 (the "Meadows Note") which provides for the contingent issuance of
Common Stock (the "Meadows Common Stock") in connection with an Initial Public
Offering. The Meadows Note contains certain registration rights relating to
the Meadows Common Stock, and the Investors have agreed to accommodate the
exercise of such rights in this Agreement.
<PAGE> 2
EXECUTION A
1. Definitions.
For purposes of this Agreement, the capitalized terms used in the
Preliminary Statement shall have the meanings given to them in such statement;
in addition, as used in this Agreement the following terms shall have the
following meanings, in all cases unless the context otherwise requires:
(a) Commission: The Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) Common Stock: The Common Stock of the Company.
(c) Company: As defined in the recital paragraph hereof.
(d) Exchange Act: The Securities Exchange Act of 1934.
(e) Person: An individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated association or a government or any
department or agency thereof.
(f) Registrable Common Stock: The shares of the Company's Common
Stock included in the Restricted Securities or issuable with respect to the
Restricted Securities.
(g) Restricted Securities: The Preferred Stock Investors'
Securities, the Warrants, and any shares of capital stock received in respect
of them, whether by reason of their exercise, a stock split or share
reclassification, a stock dividend, or otherwise. As to any particular
Restricted Securities, once issued such securities shall cease to be Restricted
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (c) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, or (d)
they shall have ceased to be outstanding. The term "holder of Restricted
Securities" shall mean a holder of Warrants, a holder of the Preferred Stock
Investors Securities, a holder of shares of Common Stock issued pursuant to the
exercise or otherwise issued as described in the first sentence of this
definition. Wherever in this Agreement reference is made to a percentage or a
majority (by number of shares) of Registrable Common Stock or Restricted
Securities, the term "number of shares" shall mean and include both issued and
issuable shares.
(h) Registration Expenses: All expenses incident to the Company's
performance of or compliance with this Agreement, including, without
limitation, all registration, filing and National Association of Securities
Dealers, Inc. fees, all fees and expenses of complying with securities or blue
sky laws, all word processing, duplicating and printing expenses, messenger and
<PAGE> 3
EXECUTION A
delivery expenses, the reasonable fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses of
any special audits or "cold comfort" letters required by or incident to such
performance and compliance, reasonable fees and disbursements of not more than
one counsel for the holders of Restricted Securities requesting registration
hereunder, premiums and other costs of policies of insurance obtained by the
Company against liabilities arising out of the public offering of the
Registrable Common Stock being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but
excluding underwriting discounts and commissions and transfer taxes applicable
to Registrable Common Stock sold by Investors, which costs shall be borne in
each case by such Investors.
(i) Securities Act: The Securities Act of 1933, as amended.
2. Restrictions on Transfer.
(a) Not Transferable. The Preferred Stock Investors and the
Warrant Investors each agree that the Restricted Securities shall not be
transferable except upon the conditions specified in this Agreement, which
conditions are intended to insure compliance with the provisions of the
Securities Act in respect of their transfer.
(b) Legends. In addition to any other legends such certificates
may bear, each certificate for the Restricted Securities, and each certificate
for any such securities issued to subsequent transferees of any such
certificate shall (unless otherwise permitted by the provisions of Section 2
(c) be stamped or otherwise imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES 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 RESPECTIVE RULES AND REGULATIONS THEREUNDER.
THE SECURITIES ARE ALSO SUBJECT TO COMPLIANCE WITH CONDITIONS OF A
REGISTRATION RIGHTS AGREEMENT DATED AS OF JULY 23, 1991 AMONG THE
COMPANY AND CERTAIN OTHER PARTIES. NO TRANSFER OF THESE SECURITIES
SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
THE COMPANY."
(c) Notice of Transfer. The holder of any Restricted Securities,
by acceptance thereof agrees, that prior to any transfer of any Restricted
Securities, such holder will give written notice
<PAGE> 4
EXECUTION A
to the Company of such holder's intention to effect such transfer and to comply
in all other respects with the provisions of this Section 2. Each such notice
shall describe the manner and circumstances of the proposed transfer and shall
be accompanied by (a) the written opinion, addressed to the Company, of counsel
for the holder of Restricted Securities (which counsel shall be reasonably
satisfactory to the Company), as to whether in the opinion of such counsel
(which opinion shall be reasonably satisfactory to counsel to the Company) such
proposed transfer involves a transaction requiring registration of such
Restricted Securities under the Securities Act, and (b) in the case of
Registrable Common Stock, if in the opinion of such counsel such registration
is required, a written request addressed to the Company by the holder of such
Registrable Common Stock or Restricted Securities convertible or exercisable
into Registrable Common Stock, describing in detail the proposed method of
disposition and requesting the Company to effect the registration of the
offering of such Registrable Common Stock pursuant to the terms and provisions
of Sections 3 or 4 hereof, as the case may be; provided, however, that in the
case of any holder of Restricted Securities which is a partnership or
corporation, no such opinion of counsel shall be necessary for a transfer by
such holder to a partner of such holder, or a retired partner of such holder
who retires after the date hereof, or the estate of any such partner or retired
partner, or by such corporation to another corporation controlling, controlled
by, or under common control with, such corporation, or in the case of any
individual holder, upon his death for a transfer to any of his beneficiaries or
estate, if the transferee agrees in writing to be subject to the terms of this
Section 2 to the same extent as if such transferee were originally a signatory
to this Agreement; provided further, however, that no such opinion shall be
required in connection with a transaction complying with the requirements of
Rule 144 (as amended from time to time) promulgated under the Securities Act
(or successor Rule thereto), subject to confirmation by counsel to the Company
that such transaction complies with the requirements of Rule 144. If in the
opinion of such counsel (if such opinion is required hereunder) the proposed
transfer of Restricted Securities may be effected without registration under
the Securities Act, the holder of Restricted Securities shall thereupon be
entitled to transfer Restricted Securities in accordance with the terms of the
notice delivered by it to the Company. Each certificate or other instrument
evidencing the securities issued upon the transfer of any Restricted Securities
(and each certificate or other instrument evidencing any untransferred balance
of such securities) shall bear the legend set forth in Section 2 (b) hereof
unless (a) in the opinion of counsel to the Company registration of future
transfer is not required by the applicable provisions of the Securities Act or
(b) the Company shall have waived the requirement of such legend; provided,
however, that such legend shall not be required (i) on any certificate or other
instrument evidencing the securities issued upon such transfer in the event
such transfer shall be made in compliance with the requirements of Rule 144 (as
amended from time to time) promulgated under the Securities Act (or successor
Rule thereto) or (ii) on any certificate or other instrument which is
immediately resaleable under Rule 144(k) (or any successor rule thereto). The
holder of Restricted Securities shall not transfer such Restricted Securities
until such opinion of counsel has been given to the Company, unless waived by
the Company or unless such opinion is not required in accordance with the
provisions of this Section or until registration of sale of the Registrable
Common Stock involved in the above-mentioned request has become effective under
the Securities Act.
<PAGE> 5
EXECUTION A
3. Required Registration. If at any time the Company shall be
requested by any holder or holders of not less than (x) 25% (by voting power)
of the outstanding Restricted Securities issued to the Preferred Stock
Investors (each such request called a "Preferred Stock Investors Section 3
Request") or (y) 50% (by voting power) of the outstanding Restricted Securities
issued to the Warrant Investors (each such request called a "Warrant Investors
Section 3 Request") (in each case assuming all of the related outstanding
securities that are convertible into or exercisable for Registrable Common
Stock have been converted into or exercised for the maximum number of shares of
Common Stock into or for which such securities are then convertible or
exercisable) to effect the registration under the Securities Act of the sale of
Registrable Common Stock, the Company shall promptly give written notice of
such proposed registration to all holders of outstanding Restricted Securities,
and thereupon the Company shall promptly use its best efforts to effect the
registration under the Securities Act of the Registrable Common Stock that the
Company has been requested to register for disposition described (i) in the
request of said holder or holders of Restricted Securities and (ii) in any
response, which response is received from the holders of Restricted Securities
within 30 days after the giving of the written notice to the other holders of
Registrable Common Stock by the Company; provided, however, that the Company
shall not be obligated to effect any registration under the Securities Act
except in accordance with the following provisions:
(a) the Company shall not be obligated to file and cause to become
effective more than (x) up to two registration statements in which Registrable
Common Stock is registered under the Securities Act pursuant to this Section 3
and effectively sold thereunder pursuant to a Preferred Stock Investors Section
3 Request and (y) up to two registration statements in which Registrable Common
Stock is registered under the Securities Act pursuant to this Section 3 and
effectively sold thereunder pursuant to a Warrant Investors Section 3 Request,
nor any registration statement within a period of six months after a prior
registration statement under this Section 3 or under Section 4 in which
Registrable Common Stock was included or with respect to which the holders of
Restricted Securities did not request inclusion.
(b) anything contained herein to the contrary notwithstanding,
with respect to each registration requested pursuant to this Section 3, the
Company may include in such registration any authorized but unissued shares of
Common Stock for sale by the Company or any issued and outstanding shares of
Common Stock for sale by others; provided, however, that if the number of
shares of Common Stock so included pursuant to this clause (b) exceeds the
number of Registrable Common Stock registered by the holder or holders of
outstanding Restricted Securities requesting such registration, then such
registration shall be deemed to be a registration in accordance with and
pursuant to Section 4; provided further, however, that the inclusion of such
previously authorized but unissued shares by the Company or issued and
outstanding shares of Common Stock by others in such registration shall not
prevent the holder or holders of outstanding Restricted Securities requesting
such registration from registering the entire number of Registrable Common
Stock requested by them and, in the event the registration is, in whole or in
part, an underwritten public offering and the managing underwriter determines
and advises in writing that the inclusion of all Registrable Common Stock
proposed to be included in such registration and such previously authorized but
unissued shares of Common Stock by the
<PAGE> 6
EXECUTION A
Company and/or issued and outstanding shares of Common Stock by persons other
than the holders of Restricted Securities proposed to be included in such
registration would interfere with the successful marketing (including pricing)
of such securities, then the number of shares of Registrable Common Stock and
such other previously authorized but unissued shares of Common Stock proposed
to be included by the Company and issued and outstanding shares of Common Stock
proposed to be included by persons other than the holders of Restricted
Securities shall be reduced, first, rata among the Company and the holders of
shares of Common Stock other than the holders of Restricted Securities and the
holders of "the Meadows Common Stock, if included, and thereafter, if
necessary, rata among the holders of Restricted Securities and the Meadows
Common Stock, (based upon the number of shares of Common Stock which each such
person proposes to include in such offering).
4. Incidental Registration. If the Company at any time proposes
for any reason to register any of its securities under the Securities Act
(other than pursuant to a registration statement on Form 5-4 or 5-8 or similar
or successor form or another form which is not available for registering
Registrable Common Stock for sale to the public), it shall each such time
promptly give written notice to all holders of outstanding Restricted
Securities of its intention so to do, and, upon the written request, given
within 30 days after receipt of any such notice, of the holder of any such
Restricted Securities to register any Registrable Common Stock (which request
shall specify the Registrable Common Stock intended to be sold or disposed of
by such holders and shall state the intended method of disposition of such
Registrable Common Stock by the prospective seller), the Company shall use its
best efforts to cause all such Registrable Common Stock to be registered under
the Securities Act promptly upon receipt of the written request of such holders
for such registration, all to the extent required to permit the sale or other
disposition (in accordance with the intended methods thereof, as aforesaid) by
the prospective seller or sellers of the Registrable Common Stock so
registered. In the event that the proposed registration by the Company is, in
whole or in part, an underwritten public offering of securities of the Company,
any request pursuant to this Section 4 to register Registrable Common Stock
must specify that such shares are to be included in the underwriting (a) on the
same terms and conditions as the shares of Common Stock, if any, otherwise
being sold through underwriters under such registration or (b) on terms and
conditions comparable to those normally applicable to offerings of common stock
in reasonably similar circumstances in the event that no shares of Common Stock
other than Registrable Common Stock are being sold through underwriters under
such registration; provided, however, that (i) if the managing underwriter
determines and advises in writing that the inclusion in the underwritten public
offering of (x) all Registrable Common Stock and any Meadows Common Stock
proposed to be included in the underwritten public offering, (y) authorized but
unissued shares of Common Stock to be offered by the Company other than shares
to be issued pursuant to the exercise of options, rights, or warrants to
purchase Common Stock or the conversion of other securities convertible into
Common Stock, and (z) other shares of Common Stock proposed to be included
therein by Persons other than holders of Restricted Securities or the Meadows
Common Stock (shares of Common Stock included in preceding clauses (y) and (z)
are called the "Other Shares"), would interfere with the successful marketing
(including pricing) of such securities, then the number of shares of
Registrable Common Stock, Meadows Common Stock and Other Shares to be included
in such underwritten
<PAGE> 7
EXECUTION A
public offering shall be reduced, first, rata among the holders of Other
Shares, and secondly if necessary, rata among the holders of Registrable Common
Stock and the Meadows Common Stock, based upon the number of shares of
Registrable Common Stock and Meadows Common Stock requested by the holders
thereof to be registered in such underwritten public offering and (ii) in each
case those shares of Common Stock which are excluded from the underwritten
public offering and all shares of Common Stock held by the Investors shall be
withheld from the market by the holders thereof for a period, not to exceed 90
days, which the managing underwriter reasonably determines as necessary in
order to effect the underwritten public offering.
If, at any time after giving written notice of its intention to
register any securities pursuant to this Section 4, and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to each holder of Registrable Common Stock and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Common Stock in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without prejudice, however, to
the rights of any holder or holders of Registrable Common Stock entitled to do
so to request that such registration be effected as a registration under
Section 3, and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Common Stock, for the same
period as the delay in registering such other securities. The Company will pay
all Registration Expenses in connection with each registration of Registrable
Common Stock requested pursuant to this Section 4.
5. Registrations on Forms 5-2 and 5-3. The Company shall use its
best efforts to qualify for registration under the Securities Act on Forms 5-2
and/or 5-3. At such time as the Company shall have qualified for the use of
Forms 5-2 and/or 5-3 (or any similar form or forms promulgated under the
Securities Act), the holders of Restricted Securities shall each have the right
to request registrations on Form 5-2 or 5-3 (which request or requests shall be
in writing, shall specify the Registrable Common Stock intended to be sold or
disposed of by the holders thereof, shall state the intended method of
disposition of such Registrable Common Stock by the holder(s) requesting such
registration and shall relate to Registrable Common Stock having a proposed
aggregate gross offering price (before "deduction of underwriting discounts and
expenses of sale) of at least $500,000), and the Company shall be obligated to
use its best efforts to effect such registration or registrations on Forms 5-2
and/or 5-3 (as the case may be).
6. Granting of Registration Rights. The Company shall not,
without the prior written consent of persons holding a majority (by number of
shares) of the Restricted Securities then outstanding and held by the Preferred
Stock Investors and the Warrant Investors, respectively, grant any rights to
any persons to register any shares of capital stock or other securities of the
Company if such rights could reasonably be expected to conflict with, or be on
parity with, the rights of the holders of Restricted Securities granted
pursuant to this Agreement.
<PAGE> 8
EXECUTION A
7. Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Common Stock pursuant to the Securities Act as provided in Sections 3 and 4,
the Company will as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event no
later than 60 days after the end of the period within which requests for
registration may be given to the Company or such longer period, not to exceed
90 days, as the Company shall in good faith require to produce the financial
statements required in connection with such registration) file with the
Commission the requisite registration statement to effect such registration and
thereafter use its best efforts to cause such registration statement to become
effective, provided that the Company may discontinue any registration of its
securities which are not Registrable Common Stock and, under the circumstances
specified in Section 4, its securities which are Registrable Common Stock at
any time prior to the effective date of the registration statement relating
thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period ending the earlier of: (a) one year from the effective
date; and (b) such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until the end of such period;
(iii) furnish to each seller of Registrable Common Stock covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto, such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 or Rule 430A under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Common Stock and other securities covered by such registration statement under
such other securities or blue sky laws or such jurisdictions as each seller
thereof shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and take
any other action which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the securities
owned by such seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foregoing corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(iv) be obligated to be so qualified or to consent to general service of
process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Common Stock
covered by such registration statement to be registered with or approved by
such other governmental agencies or
<PAGE> 9
EXECUTION A
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Common Stock;
(vi) if an underwritten offering, furnish to each seller of
Registrable Common Stock a signed counterpart, addressed to such seller (and
the underwriters, if any) of
(a) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), of such matters that are customarily covered in an
opinion of counsel including that the registration is valid and effective and
which, if such registration includes an underwritten public offering, will be
deemed satisfactory if in the same form and of the same substance as the
opinion addressed to the underwriter, all of which is reasonably satisfactory
in form and substance to such seller, and
(b) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified the
Company's financial statements included in such registration statement,
addressed to each seller, to the extent the same can be reasonably obtained,
and addressed to the underwriters, if any, covering substantially the same
matters with respect to such registration statement (and the prospectus
included therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in accountants' letters delivered to the underwriters in underwritten
public offerings of securities and such other financial matters as such seller
or such holder (or the underwriters, if any) may reasonably request;
(vii) notify each seller of Registrable Common Stock covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and at the request of any such
seller or holder promptly prepare to furnish to such seller or holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such
registration statement, which earning statement shall satisfy the provisions of
Section 11 (a) of the Securities
<PAGE> 10
EXECUTION A
Act, and will furnish to each such seller at least two business days prior to
the filing thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any thereof to which any such seller
shall have reasonably objected on the grounds that such amendment or supplement
does not comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder;
(ix) provide and cause to be maintained a transfer agent, and (if
required by the applicable rules of any national securities exchange or NASDAQ)
a registrar, for all Registrable Common Stock covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(x) use its best efforts to list all Registrable Common Stock
covered by such registration statement on any securities exchange on which any
of the Registrable Common Stock is then listed.
The Company may require each proposed seller of Registrable Common Stock as to
which any registration is being effected to promptly furnish the Company, as a
condition precedent to including such holder's Registrable Common Stock in any
registration, such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing.
Each holder of Restricted Securities agrees by acquisition of such
Restricted Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 7, such holder will forthwith discontinue such holder's disposition of
Registrable Common Stock pursuant to the registration statement relating to
such Registrable Common Stock until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 7 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable Common
Stock current at the time of receipt of such notice.
8. Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters, if any, for any offering by holders of Registrable Common Stock
pursuant to a registration requested under Section 3, the Company will enter
into an underwriting agreement with such underwriters for such offering, such
agreement to be satisfactory in substance and form to the Company, to holders
of more than 50% (by number of shares) of the Registrable Common Stock held by
the Preferred Stock Investors and 50% (by number of shares) of the Registrable
Common Stock held by the Warrant Investors, included in such registration and
the underwriters and to contain such representations and warranties by the
Company and such other terms as are generally prevailing in agreements of this
type, including, without limitation, indemnities to the effect and to the
extent provided in Section 10. The holders of the Registrable Common Stock
will cooperate with the Company in the negotiation of the underwriting
agreement and will give consideration to the
<PAGE> 11
EXECUTION A
reasonable requests of the Company regarding the form thereof, provided that
nothing herein contained shall diminish the foregoing obligations of the
Company. The holders of Registrable Common Stock to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Common Stock and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable Common
Stock. Any such holder of Registrable Common Stock shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
such holder, such holder's Registrable Common Stock and such holder's intended
method of distribution, any other information supplied by such holder to the
Company for use in the Registration Statement and any other representation
required by law.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 4 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Common Stock as provided in Section 4 and subject to the
provisions of Section 4, arrange for such underwriters to include all the
Registrable Common Stock to be offered and sold by such holder among the
securities to be distributed by such underwriters. The holders of Registrable
Common Stock to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Common Stock and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable Common
Stock. Any such holder of Registrable Common Stock shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties, or agreements regarding
such holder, such holder's Registrable Common Stock and such holders intended
method of distribution, any other information supplied by such holder to the
Company for use in the Registration Statement and any other representation
required by law.
(c) Holdback Agreements.
(i) Each holder of Restricted Securities agrees, if so
required by the managing underwriter, not to effect any sale or distribution of
any equity securities of the Company during the seven days prior to and the
90-day period beginning on the effective date of any underwritten registration
pursuant to Section 3 or 4 hereof in which Registrable Common Stock are
included (except as part of such underwritten registration)
(ii) The Company agrees (x) not to effect any sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities,
<PAGE> 12
EXECUTION A
during the seven days prior to and during the 90-day period beginning on the
effective date of any underwritten registration pursuant to Section 3 hereof
(except as part of such underwritten registration or pursuant to registrations
on Form 5-8 or any successor form), and (y) to use its best efforts to cause
each holder of at least 5% of the Common Stock to agree not to effect any sale
or distribution of any such securities during such period (except as part of
such underwritten registration, if otherwise permitted).
9. Expenses. All Registration Expenses shall be paid by the
Company.
10. Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless the seller of any
Registrable Common Stock covered by such registration statement, its directors
and officers, each other Person who participates as an underwriter in the
offering or sale of such securities and such other Person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
such seller or any such director or officer or underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement pursuant to which such securities were registered
under the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
or 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, and the Company will reimburse such seller and each such director,
officer, underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided that the Company
shall only be required to reimburse such seller, its directors and officers and
such other Person, if any, who controls such seller, for one counsel and firm
of accountants unless a conflict of interest exists between such Persons; and
provided further that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such seller specifically
for use in the preparation thereof and, provided further that the Company shall
not be liable to any Person who participates as an underwriter, in the offering
or sale of Registrable Common Stock or any other Person, if any, who controls
such underwriters within the meaning of the Securities Act, in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's failure
to send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement
<PAGE> 13
EXECUTION A
or omission or alleged omission at or prior to the written confirmation of the
sale of Registrable Common Stock to such Person if such statement or omission
was corrected in such final prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
seller or any such director, officer, underwriter or controlling person and
shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. In the event of any
registration of any securities of an Investor (or any subsequent holder
exercising the rights of an Investor pursuant to this Agreement, which person,
is specifically called an "Investor" for purposes of the obligations contained
in this Section) pursuant to Section 3 or 4 hereof, such Investor will, and
hereby does, indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 10) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or meaning alleged statement in or omission or alleged
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement hereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such seller specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 10,
such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 10, except to
the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified party and indemnifying parties may exist in
respect of such claim, the indemnifying party shall be entitled to participate
in and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation, provided that if any indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to such
indemnified party which are different from or additional to and are
inconsistent with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 10, the indemnifying party
shall not have the right to assume the defense
<PAGE> 14
EXECUTION A
of such action on behalf of such indemnified party and such indemnifying party
shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which are reasonably related to the matters
covered by the indemnity agreement provided in this Section 10. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 10 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Common Stock with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 10 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, subject to repayment in the
event indemnification was not required by this Section 10.
(f) Contribution. If the indemnification provided for in this
Agreement shall for any reason be unavailable or insufficient to an indemnified
party under Section 10(a), 10(b) or 10(d) hereof in respect to any loss, claim,
damage or liability, or any action in respect thereof, or referred to therein,
then each indemnifying party shall, in lieu of indemnifying such party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect (i) the relative benefits
received by the Company on the one hand and the holders of the Registrable
Common Stock included in the offering on the other hand, from the offering of
the Registrable Common Stock, and (ii) the relative fault of the Company on the
one hand and the holders of the Registrable Common Stock included in the
offering on the other, with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the holders of the
Registrable Common Stock on the other with respect to such offering shall be
deemed to be in the same proportion as the sum of the total subscription price
paid to the Company in respect of the Registrable Common Stock plus the total
net proceeds from the offering of the securities (before deducting expenses)
received by the Company bears to the amount by which the total net proceeds
from the offering of the securities (before deducting expenses) received by the
holders of the Registrable Common Stock with respect to such offering exceeds
the subscription price paid to the Company in respect of the Registrable Common
Stock, and in each case the net proceeds received from such offering shall be
determined as set forth on the table of the cover page of the prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
the Company or the holders of the Registrable Common Stock, the
<PAGE> 15
EXECUTION A
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the holders of the Registrable Common Stock agree that it would not be just and
equitable if contribution pursuant to this Section 10 were to be determined by
pro rata allocation or by any other method of allocation which does not take
into account the equitable consideration referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to in this Section 10 shall
be deemed to include, for purposes of this Section 10, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
11. Removal of Legends, Etc. Notwithstanding the foregoing
provisions of this Agreement, the restrictions imposed by this Agreement upon
the transferability of any Restricted Securities shall cease and terminate when
(a) such Restricted Securities are sold or otherwise disposed of in accordance
with the intended method of disposition by the seller or sellers thereof set
forth in the registration statement or as otherwise contemplated by Section 2
hereof which does not require that the securities transferred bear any
restrictive legend making reference to the Securities Act of 1933 hereof or (b)
the holder of Restricted Securities has met the requirements for transfer of
such Restricted Securities pursuant to subparagraph (k) of Rule 144 (as amended
from time to time) promulgated by the Commission under the Securities Act.
Whenever the restrictions imposed by this Agreement shall terminate, as herein
provided, the holder of any Restricted Securities as to which such restrictions
have terminated shall be entitled to receive from the Company, without expense,
a new certificate not bearing a restrictive legend making reference to the
Securities Act.
12. Rule 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company will file the reports required to be filed by it under the Securities
Act and the Exchange Act (or, if the Company is not required to file such
reports, will, upon the request of any holder of Registrable Common Stock, make
publicly available other information) and will take such further action as any
holder of Registrable Common Stock may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Common
Stock without registration under the Securities Act within the limitation of
the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time or (b) any similar rule or regulation
hereafter adopted by the Commission ("Rule 144"), Upon the request of any
holder of Restricted Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
13. Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of 50% or more (by number of shares) of Registrable
<PAGE> 16
EXECUTION A
Common Stock held by (x) the Preferred Stock Investors and (y) the Warrant
Investors, voting as separate classes. Any consent provided for in the
previous sentence may be made by only the Preferred Stock Investors or Warrant
Investors if, and only to the extent, such holders are the sole holders
affected by such action. Each holder of any Restricted Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 13, whether or not such Registrable Common Stock shall have been marked
to indicate such consent.
14. Nominees for Beneficial Owners. In the event that any
Registrable Common Stock are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election, be treated as the
holder of such Registrable Common Stock for purposes of any request or other
action by any holder or holders of Registrable Common Stock pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Common Stock held by any holder or holders of Registrable Common
Stock contemplated by this Agreement. If the beneficial owner of any
Registrable Common Stock so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Common Stock.
15. Notices. All communications provided for hereunder shall be
sent by first-class mail, overnight courier or by telecopier provided that
within a reasonable time a permanent copy is transmitted by any of the other
methods described above and (a) if addressed to a party other than the Company,
addressed to such party at such address as such party shall have furnished to
the Company in writing, or (b) if addressed to any other holder of Registrable
Common Stock at the address that such holder shall have furnished to the
Company in writing, or, until any such other holder so furnishes to the Company
an address, then to and at the address of the last holder of such Registrable
Common Stock who has furnished an address to the Company, or (c) if addressed
to the Company, at 1050 Cambridge Square, Suite C, Alpharetta, Georgia 30201 to
the attention of the President, or at such other address, or to the attention
of such other officer, as the Company shall have furnished to each holder of
Registrable Common Stock at the time outstanding.
16. Assignment. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the
benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent holder of any Restricted
Securities, subject to the provisions respecting the minimum numbers or
percentages of shares of Restricted Securities or Registrable Common Stock
required in order to be entitled to certain rights, or take certain actions,
contained herein.
17. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
<PAGE> 17
EXECUTION A
18. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of New York.
19. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
STATE EMPLOYEES' RETIREMENT FUND
OF THE STATE OF DELAWARE
By: Pecks Management Partners, Ltd.,
its Investment Adviser
By:
-------------------------------------
Robert J. Cresci
Managing Director
TRUST FOR DEFINED BENEFIT PLAN OF
ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners, Ltd.,
its Investment Adviser
By:
-------------------------------------
Robert J. Cresci
Managing Director
SPROUT CAPITAL V
By:
------------------------------------------
<PAGE> 18
EXECUTION A
SPROUT TECHNOLOGY FUND, L.P.
By:
------------------------------------------
DLJ VENTURE CAPITAL FUND II, L.P.
By:
------------------------------------------
INVESTECH, L.P.
By:
------------------------------------------
LAWRENCE, TYRRELL, ORTALE & SMITH
By:
------------------------------------------
<PAGE> 19
EXECUTION A
SCHEDULE I
TO REGISTRATION RIGHTS AGREEMENT
<TABLE>
<CAPTION>
Common Stock(1):
============================================================================================================
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Sprout Capital V: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,483
Sprout Technology Fund, L.P.: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,041
DLJ Venture Capital Fund II, L.P.: . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,860
LTOS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,383
Investech: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,256
- ------------------------------------------------------------------------------------------------------------
Preferred Stock:
- ------------------------------------------------------------------------------------------------------------
Sprout Capital V: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353,942
Sprout Technology Fund, L.P.: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,297
DLJ Venture Capital Fund II, L.P.: . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,261
LTOS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,500
Investech: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,000
- ------------------------------------------------------------------------------------------------------------
Warrants, dated March 31, 1988, to purchase:
- ------------------------------------------------------------------------------------------------------------
Sprout Capital V: 1,221 shares of Common Stock
2,929 shares of Preferred Stock
Investech, L.P.: 813 shares of Common Stock
1,952 shares of Preferred Stock
- ------------------------------------------------------------------------------------------------------------
Warrants, dated November 14, 1989, to purchase:
- ------------------------------------------------------------------------------------------------------------
Sprout Capital V: 7,376 shares of Common Stock
17,704 shares of Preferred Stock
DLJ Capital Fund II, L.P.: 444 shares of Common Stock
1,064 shares of Preferred Stock
LTOS: 7,820 shares of Common Stock
18,768 shares of Preferred Stock
Investech, L.P.: 5,214 shares of Common Stock
12,514 shares of Preferred Stock
============================================================================================================
</TABLE>
(1) Plus up to 250,000 shares of Common Stock to be issued on account of
accrued dividends in connection with the transactions provided for in the
Purchase Agreement.
<PAGE> 20
EXECUTION A
SCHEDULE II
TO REGISTRATION RIGHTS AGREEMENT
<TABLE>
<CAPTION>
===========================================================================================================
Aggregate Warrants
Principal To
Amount Of Purchase
Notes To Of Shares
Note Be Of Common
Warrant Investors Denominations Purchased Stock
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
The Notes and Warrants shall be 220,000
registered in the name of: $1,100,000 $1,100,000 Shares
Fuelship & Company
- -----------------------------------------------------------------------------------------------------------
STATE EMPLOYEES' RETIREMENT FUND OF
THE STATE OF DELAWARE
The Notes and Warrants shall be 580,000
registered in the name of: $2,900,000 $2,900,000 Shares
NAP & Company
===========================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.21
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Registration
Agreement') dated as of March __, 1995, between EDUCATIONAL MEDICAL, INC., a
Delaware corporation (the "Company") and the persons named in Schedule I and II
attached to this Agreement (each of such persons being referred to individually
and as "Investor" and collectively referred to as the "Investors").
PRELIMINARY STATEMENT
The undersigned parties desire to amend the Registration Agreement
pursuant to Section 13 of the Registration Agreement to provide that Sirrom
Capital Corporation ("Sirrom"), a Tennessee corporation, shall become a party
to the Registration Agreement.
NOW, THEREFORE, for good and valuable consideration, and intending to
be legally bound, the parties agree as follows:
1. Sirrom shall have the same rights as a Warrant Investor
pursuant to the terms of the Registration Agreement as such term is defined in
the Registration Agreement.
2. Sirrom agrees to be bound by all of the terms and conditions
of the Registration Agreement applicable to a Warrant Investor effective the
date of the execution of this First Amendment.
3. Schedule II of the Registration Agreement is amended to
reflect Sirrom as a Warrant Holder with the right to purchase up to 185,000
shares of common stock of the Company as set forth in Exhibit "A" attached
hereto and made a part hereof.
4. The definition of Restricted Securities in Section 1 of the
Registration Rights Agreement is amended to add the clause "the Stock Purchase
Warrant issued to Sirrom Capital Corporation dated March 31, 1995," after the
clause "The Preferred Stock Investors' Securities, the Warrants,".
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
EDUCATIONAL MEDICAL, INC.
By: /s/ Morris C. Brown
-----------------------------
Name: Morris C. Brown
--------------------------
Title: Secretary
--------------------------
<PAGE> 2
STATE EMPLOYEES' RETIREMENT FUND OF THE
STATE OF DELAWARE
By: Pecks Management Partners,
Ltd., its Investment Adviser
By:
-----------------------
Robert J. Cresci
Managing Director
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
By: Pecks Management Partners,
Ltd., its Investment Adviser
By:
-----------------------
Robert J. Cresci
Managing Director
SPROUT CAPITAL V
By:
---------------------------
Name:
Title:
SPROUT TECHNOLOGY FUND, L.P.
By:
---------------------------
Name:
Title:
DLJ VENTURE CAPITAL FUND II, L.P.
By:
---------------------------
Name:
-2-
<PAGE> 3
Title:
LAWRENCE, TYRRELL, ORTALE & SMITH
By:
---------------------------
Name:
Title:
SIRROM CAPITAL CORPORATION
By:
---------------------------
Name:
Title:
-3-
<PAGE> 1
EXHIBIT 10.22
COINVESTORS AGREEMENT
In order to induce State Employees Retirement Fund of the State of
Delaware and Trust for Defined Benefit Plan of ICI American Holdings Inc.
(collectively, the "Investors") to enter into a Securities Purchase Agreement
(the "Purchase Agreement") dated July 23, 1991 with Educational Medical, Inc.
(the "Company"), the undersigned (collectively, the "Shareholders") and the
Company hereby agree with the Investors, and in order to induce the
Shareholders to consent to certain matters relating to the investment by the
Investors, the Investors and the Company hereby agree with the Shareholders,
all as follows:
1. Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed thereto in the Purchase Agreement. The term
"beneficially own" (or variations thereof) shall have the meaning ascribed
thereto in Rule 13d-3 under the Exchange Act.
2. So long as the Investors collectively hold or beneficially own
(a) $750,000 aggregate principal amount of Notes (the "Minimum Principal
Amount") or (b) if the Minimum Principal Amount is not outstanding, 150,000
shares of Common Stock issued or issuable upon exercise of the Warrants (the
"Warrant Common Stock"), such Investors shall be entitled to select one
representative (the "Representative") on the Company's Board of Directors, and
the Shareholders agree to vote all voting securities of the Company held or
beneficially owned by them in favor of such representative. Such
Representative shall be designated by Investors beneficially owning or holding
a majority of (a) the outstanding aggregate principal amount of the Notes, or
(b) the Warrant Common Stock, if the Minimum Principal Amount is not
outstanding ("Majority Holders"), by written notice given to the Company's
Secretary, which
<PAGE> 2
notice shall be effective until revoked or modified in writing by the Majority
Holders or the provisions of this section are no longer effective because of
the repayment or disposition of the relevant Securities. In connection with
this Section, the Shareholders shall be entitled to rely on any notice given by
Pecks Management Partners Ltd. on account of any Investor.
3. (a) Until the earlier to occur of (x) consummation of an
Initial Public Offering of equity securities of the Company (and expiration of
any lock-up periods imposed by underwriters in connection therewith) or (y) a
Private Parallel Exit Opportunity (as defined below), the Shareholders shall
not sell) contract to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock, or options, rights or warrants to purchase any shares
of Common Stock or any securities convertible into or exchangeable for Common
Stock except (i) by gift, devise or transfer to a custodian, liquidating
trustee or other entity empowered to liquidate, dissolve or wind up any of the
Shareholders ("a Liquidator"), provided the donee or beneficiary thereof or
(except as provided in clause (iv) below) Liquidator agrees to be bound by this
Coinvestors Agreement, (ii) pursuant to repurchase agreements with employees of
the Company which give the Company the right, but not the obligation, to
repurchase Common Stock upon termination of the employees employment with the
Company, (iii) if one Shareholder purchases shares held or beneficially owned
by another Shareholder, provided that such shares in the hands of such
purchasing Shareholder shall continue to be subject to this Section 3(a) or
(iv) in the event of dissolution, liquidation and wind-up of Investech, L.P.
("Investech"), the general partner or Liquidator of Investech may, in its
discretion, (x) distribute the equity securities held by Investech to
Investech's general and limited partners free and clear of the terms and
provisions hereof or (y) sell all equity securities held by Investech to a
third-party buyer who shall be reasonably acceptable to the Company's Board of
Directors and the Representative
<PAGE> 3
individually, provided that any such buyer shall continue to be bound by this
Coinvestors Agreement.
(b) "Private Parallel Exit Opportunity" means a sale or
disposition of Common Stock held or beneficially owned by a Shareholder or
Shareholders in which the Investors are offered the opportunity to sell or
dispose of a Pro Rata Amount (as defined below) of Common Stock held or
beneficially owned by the Investors.
(c) "Pro Rata Amount" shall be determined for each
Investor with respect to a proposed sale or disposition of Common Stock held or
beneficially owned by a Shareholder, by multiplying (i) the aggregate amount of
Common Stock held or beneficially owned and being sold or disposed of by such
Shareholder by (ii) a fraction of which (x) the numerator is the aggregate
amount of Common Stock held or beneficially owned by such Investor and (y) the
denominator is the aggregate amount of Common Stock held or beneficially owned
by all Investors and the Shareholder or Shareholders contemplating making such
sale or disposition. In making such computation, each amount shall be
determined as of the time immediately before such sale or disposition.
4. Shareholders' Put and Distribution of Put Amounts.
(a) (i) The Company agrees that, if and when an
Investor exercises its right to payment under subparagraph 6B(iii) of the
Purchase Agreement, each Shareholder (including, for purposes of this Section
4, the constituent partners of Investech, L.P. or any Liquidator of a
Shareholder or any donee of beneficiary under Section 3 (a) (i) hereof) shall
have, subject to compliance with paragraph (ii) below, the right to require the
Company to purchase from such shareholder all of the following securities, if
held or beneficially owned by such Shareholder at the time of such exercise, at
the following respective prices: (x) shares of Cumulative Convertible
<PAGE> 4
Preferred Stock at $6.66 per share; and (y) shares of Common Stock into which
shares of Cumulative Convertible Preferred Stock have been converted, at the
conversion price paid when such shares of Cumulative Convertible Preferred
Stock were converted. Any such purchase amounts are hereinafter referred to as
"Shareholders Put Amounts." The aggregate Shareholders Put Amounts payable
hereunder to all Shareholders shall not exceed $6,793,200. If, prior to the
payment or distribution of any Shareholders Put Amounts under Section 4(b)
below, any Shareholder sells or otherwise disposes of (A) any shares of
Cumulative Convertible Preferred Stock at a price greater than $6.66 per share
or (B) any shares of Common Stock into which Cumulative Convertible Preferred
Stock has been converted at a price greater than the conversion price paid when
such Cumulative Convertible Preferred Stock was converted, then the aggregate
amounts in excess of such $6.66 price or conversion price shall be credited to
such Shareholder's Put Amount and shall be deemed paid and distributed to such
Shareholder for purposes of this Section 4.
(ii) The Company agrees to give each Shareholder
reasonably prompt notice of an exercise pursuant to subparagraph 6B(iii) of the
Purchase Agreement. Upon receipt of such notice, each Shareholder shall have 5
days to advise the Company in writing of its desire to require a purchase under
the foregoing paragraph (i).
(b) The parties hereto agree that any amounts due and
payable to the Investors pursuant to subparagraph 6B(iii) of the Purchase
Agreement ("Investors Put Amounts") and any Shareholders Put Amounts shall be
paid and distributed by the Company in the following order and priority:
(i) 50% of the Investors Put Amounts shall be
paid and distributed by the Company to the Investors immediately;
<PAGE> 5
(ii) immediately thereafter, all Shareholders Put
Amounts shall be paid and distributed by the Company to the Shareholders; and
(iii) immediately thereafter, the remaining
Investors Put Amounts shall be paid and distributed by the Company to the
Investors.
5. Successors and Assigns. This Agreement shall be binding on
the Investors successors and assigns, and the Investors agree not to sell,
transfer, or assign the Warrants unless the successor or assign specifically
agrees to be bound by the provisions of this Agreement.
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed and delivered, or
caused their authorized officer to execute and deliver, this Coinvestors
Agreement as of July 1991. SPROUT CAPITAL V
SPROUT TECHNOLOGY FUND, L.P.
By: By:
------------------------------- --------------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
------------------------------- ---------------------------------
LAWRENCE, TYRRELL, ORTALE
& SMITH
By:
------------------------------- ------------------------------------
Gary D. Kerber Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
-------------------------------
Name:
Title:
STATE EMPLOYEES' RETIREMENT FUND
OF THE STATE OF DELAWARE
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
--------------------------
Robert J. Cresci
Managing Director
TRUST FOR DEFINED BENEFIT PLAN
OF ICI AMERICAN HOLDINGS, INC.
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
--------------------------
Robert J. Cresci
Managing Director
<PAGE> 1
EXHIBIT 10.23
Letter Agreement
EXECUTION D
July 23, 1991
Trust for Defined Benefit Plan of
ICI American Holdings Inc.
State Employees' Retirement Fund
of the State of Delaware
c/o Pecks Management Partners Ltd.,
their Investment Adviser
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci,
Managing Director
Educational Medical, Inc.
1050 Cambridge Square
Alpharetta, Georgia 30201
Attention: Gary D. Kerber,
President
Re: Rights of Preferred Stockholders of
Educational Medical, Inc.
Dear Mr. Cresci and Mr. Kerber:
In connection with the Securities Purchase Agreement, dated as of July
23, 1991, among Educational Medical, Inc., a Delaware corporation (the
"Company"), Trust for Defined Benefit Plan of ICI American Holdings Inc. and
State Employees' Retirement Fund of the State of Delaware (the "Securities
Purchase Agreement"), attached to this agreement as Exhibit A, the undersigned
preferred stockholders of the Company (the "Preferred Stockholders"), being all
of the holders of preferred stock of the Company, have agreed to waive or
relinquish, as applicable, certain rights they have pursuant to the Company's
Amended and Restated Certificate of Incorporation (the "Certificate") and the
Stock Purchase Agreement, dated as of March 31, 1988, between the Company and
the Preferred Stockholders (the "1988 Agreement"), in consideration for, among
other things, your purchase of 13% Senior Subordinated Notes due July 23, 1996
(the "Notes") and Warrants to Purchase Common Stock (the "Warrants") pursuant
to the Securities Purchase Agreement. Capitalized terms not otherwise defined
in this letter agreement shall have the respective meanings set forth in the
Certificate.
<PAGE> 2
Trust for Defined Benefit Plan of LETTER AGREEMENT
ICI American Holdings Inc.
State Employees' Retirement Fund EXECUTION D
of the State of Delaware
Educational Medical, Inc.
Page 2
July 23, 1991
1. The Preferred Stockholders hereby agree to the exchange into
common stock, par value $.01 per share, of the Company (the "Common Stock"), as
of the date hereof, of all Accrued Dividends due to the Preferred Stockholders
pursuant to Article Fourth, Section A.1 of the Certificate through July _____,
1991. The exchange rate of the Accrued Dividends shall be one share for each
$5.00 of Accrued Dividend. The number of shares of Common Stock to be issued
by the Company to each Preferred Stockholder upon exchange of the Accrued
Dividends (the "Dividend Shares") is set forth on Exhibit B attached to this
agreement. The Dividend Shares are being issued simultaneously with the
execution of this Agreement, and upon issuance shall be duly issued, fully
paid, nonassessable and shall not be subject to any preemptive rights.
2. Pursuant to Article Fourth, Sections A.3(h) and A.4(h) of the
Certificate as set forth in the Fifth Amendment to the Certificate, the
Preferred Stockholders hereby agree that the provisions of Article Fourth,
Sections A.3 and A.4 of the Certificate regarding mandatory and special
redemption shall be subject to the restrictions set forth in the Securities
Purchase Agreement so long as, and to the extent that, such restrictions in the
Securities Purchase Agreement as in effect on this date remain effective.
Consequently, no redemption payments to which Preferred Stockholders would
otherwise be due pursuant to Article Fourth, Sections A.3 or A.4 of the
Certificate shall be made in violation of such restrictions. This Agreement
constitutes an agreement which makes specific reference to Article Fourth of
the Certificate as referred to in Article Fourth, Sections A.3(h) and A.4(h) of
the Certificate.
3. Each undersigned holder of a warrant to purchase Common Stock,
dated March 31, 1988, hereby waives the provisions regarding adjustment of
number of shares and warrant price, set forth in Section 3 of such warrant,
arising solely out of the issuance of the Warrants, the shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") the Dividend
Shares, the Warrant for 16,000 shares issued to Equitable Securities
Corporation dated July ____, 1991 (the "Equitable Warrant") and the shares
issuable upon its exercise (the "Equitable Shares"), and the Heidric Warrant
(as defined in Schedule 11C to the Securities Purchase Agreement) and the
shares issuable upon its exercise (the "Heidric Shares").
4. Each undersigned holder of a warrant to purchase Common Stock,
dated November 14, 1989, hereby waives provisions regarding adjustment of
number of shares and warrant price, set forth in Section 3 of such warrant,
arising solely out of the issuance of the Warrants, the Warrant Shares and the
Dividend Shares, or the Equitable Warrant, the Equitable
<PAGE> 3
Trust for Defined Benefit Plan of LETTER AGREEMENT
ICI American Holdings Inc.
State Employees' Retirement Fund EXECUTION D
of the State of Delaware
Educational Medical, Inc.
Page 3
July 23, 1991
Shares, the Heidric Warrant or the Heidric Shares.
5. The Preferred Stockholders hereby (a) waive all preemptive
rights with respect to the issuance of the Warrant, the Warrant Shares and the
Dividend Shares, and the Equitable Warrant, the Equitable Shares, the Heidric
Warrant and the Heidric Shares, pursuant to (x) Section 9.2 of the 1988
Agreement and (y) Section 9 of each Letter Agreement, dated November 14, 1989,
executed in connection with the financing of the acquisition of Meadows College
of Business; (b) consent pursuant to Section 9.3 (ii) of the 1988 Agreement, to
the Fifth Amendment to the Certificate; and
(c) consent to the issuance of the Notes, the Warrants,
the Warrant Shares and the Dividend Shares, Equitable Warrant and the Equitable
Shares, pursuant to Sections 9.3(viii) and (ix) of the 1988 Agreement and
Article Fourth, Sections A.5(c)(iii), (iv) and (v) of the Certificate.
6. Such undersigned Preferred Stockholder receiving Dividend
Shares hereby represents and warrants to the Company, severally, and not
jointly and severally, as follows:
(a) Such Preferred Stockholder is acquiring the Dividend
Shares for its own account, for investment and not with a view to the
distribution thereof, nor with any present intention of distributing the same;
(b) Such Preferred Stockholder understands that the
Dividend Shares have not been, nor will they be, registered under the
Securities Act, by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act and that they must be held
indefinitely unless a subsequent disposition of them is registered under the
Securities Act or is exempt from registration;
(c) Such Preferred Stockholder understands that the
exemption from registration afforded by Rule 144 (the provisions of which are
known to it) promulgated under the Securities Act depends on the satisfaction
of various conditions and that, if applicable, Rule 144 may only afford the
basis for sales under certain circumstances and in limited amounts; and
(d) Such Preferred Stockholder is an "accredited
investor" (as such term is defined in Rule 501 (a) of Regulation D promulgated
under the Securities Act).
<PAGE> 4
Trust for Defined Benefit Plan of LETTER AGREEMENT
ICI American Holdings Inc.
State Employees' Retirement Fund EXECUTION D
of the State of Delaware
Educational Medical, Inc.
Page 4
July 23, 1991
7. Each Preferred Stockholder agrees that the certificates
representing the preferred stock held by such Stockholder will forthwith be
surrendered to the Company and stamped with a legend making reference to this
Letter Agreement and indicating that the shares represented by such certificate
are subject to the terms of this Agreement.
8. This agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute
one and the same instrument.
If the foregoing correctly sets forth your understanding, please so indicate by
signing and returning the enclosed counterpart of this letter agreement.
Very truly yours,
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
BY: BY:
-------------------------- ----------------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II, L.P.
BY: BY:
-------------------------- ----------------------------------
LAWRENCE, TYRRELL, ORTALE
& SMITH
BY:
--------------------------
<PAGE> 5
Trust for Defined Benefit Plan of LETTER AGREEMENT
ICI American Holdings Inc.
State Employees' Retirement Fund EXECUTION D
of the State of Delaware
Educational Medical, Inc.
Page 5
July 23, 1991
The undersigned hereby agrees
to and accepts the foregoing
agreement.
TRUST FOR DEFINED BENEFIT PLAN OF
ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.
its Investment Adviser
By:
---------------------------------------
Robert J. Cresci
Managing Director
STATE EMPLOYEES' RETIREMENT
FUND OF THE STATE OF DELAWARE
By: Pecks Management Partners Ltd.
its Investment Adviser
By:
---------------------------------------
Robert J. Cresci
Managing Director
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------------
Gary D. Kerber, President
<PAGE> 6
Letter Agreement
EXHIBIT "A"
SECURITIES PURCHASE AGREEMENT
<PAGE> 7
Letter Agreement
COINVESTORS AGREEMENT
In order to induce State Employees' Retirement Fund of the State of
Delaware and Trust for Defined Benefit Plan of ICI American Holdings Inc.
(collectively, the "Investors") to enter into a Securities Purchase Agreement
(the 'Purchase Agreement') dated ________ 1993 with Educational Medical,
Inc. (the "Company"), the undersigned (collectively, the "Shareholders") and
the Company hereby agree with the Investors, and in order to induce the
Shareholders to consent to certain matters relating to the investment by the
Investors, the Investors and the Company hereby agree with the Shareholders,
all as follows;
1. Capitalized terms used herein and not otherwise defined shall have
the meaning ascribed thereto in the Purchase Agreement. The term
'beneficially own" (or variations thereof) shall have the meaning ascribed
thereto in Rule 13d-3 under the Exchange Act.
2. So long as the Investors collectively hold or beneficially own (a)
$750,000 aggregate principal amount of Notes (the "Minimum Principal Amount")
or (b) if the Minimum Principal Amount is not outstanding, 150,000 shares
of Common Stock issued or issuable upon exercise of the Warrants (the
"Warrant Common Stock"), such Investors shall be entitled to select one
representative (the "Representative") on the Company's Board of Directors, and
the Shareholders agree to vote all voting securities of the Company held or
beneficially owned by them in favor of such representative. Such
Representative shall be designated by Investors beneficially owning or holding
a majority of (a) the outstanding aggregate principal amount of the Notes, or
(b) the Warrant Common Stock, if the Minimum Principal Amount is not
outstanding ("Majority Holders"), by written notice given to the Company's
Secretary, which notice shall be effective until revoked or modified in
writing by the Majority Holders or the provisions of this section are no
longer effective because of the repayment or disposition of the relevant
Securities. In connection with this Section, the shareholders shall be
entitled to rely on any notice given by Pecks Management Partners Ltd., on
account of any Investor.
3. (a) Until the earlier to occur of (x) consummation of an Initial
Public Offering of
<PAGE> 8
equity securities of the Company (and expiration of any lock-up periods imposed
by underwriters in connection therewith) or (y) a Private Parallel Exit
Opportunity (as defined below), the Shareholders shall not sell, contract to
sell or, otherwise dispose of, directly or indirectly, any shares of
Common Stock, or options, rights or warrants to purchase any shares of
Common Stock or any securities convertible into or exchangeable for Common
Stock except (i) by gift, devise or transfer to a custodian, liquidating
trustee or other entity empowered to liquidate, dissolve or wind up any
of the Shareholders ('a Liquidator"), provided the donee or beneficiary
thereof or (except as provided in clause (iv) below) Liquidator agrees to be
bound by this Coinvestors Agreement, (ii) pursuant to repurchase agreements
with employees of the Company which give the Company the right, but not the
obligation, to repurchase Common Stock upon termination of the employee's
employment with the Company, (iii) if one Shareholder purchases shares held
or beneficially owned by another Shareholder, provided that such shares in the
hands of such purchasing Shareholder shall continue to be subject to this
Section 3(a) or (iv) in the event of dissolution, liquidation and wind-up of
Investech, L.P. ("Investech"), the general partner or Liquidator of Investech
may, in its discretion, (x) distribute the equity securities held by Investech
to Investech's general and limited partners free and clear of the terms and
provisions hereof or (y) sell all equity securities held by Investech to
a third-party buyer who shall be reasonably acceptable to the Company's Board
of Directors and the Representative individually, provided, that any such
buyer shall continue to be bound by this Coinvestors Agreement.
(b) "Private Parallel Exit Opportunity" means a sale or disposition
of Common Stock held or beneficially owned by a Shareholder or Shareholders in
which the Investors are offered the opportunity to sell or dispose of a Pro
Rata Amount (as defined below) of Common Stock held or beneficially owned by
the Investors.
(c) "Pro Rata Amount" shall be determined for each Investor with
respect to a proposed sale or disposition of Common Stock held or beneficially
owned by a Shareholder, by multiplying (i) the aggregate amount of Common
Stock held or beneficially owned and being sold or
<PAGE> 9
disposed of by such Shareholder by (ii) a fraction of which (x) the numerator
is the aggregate amount of Common Stock held or beneficially owned by such
Investor and (y) the denominator is the aggregate amount of Common Stock held
or beneficially owned by all Investors and the Shareholder or Shareholders
contemplating making such sale or disposition. In making such computation,
each amount shall be determined as of the time immediately before such sale or
disposition.
4. Shareholders' Put and Distribution of Put Amounts.
(a) (i) The Company agrees that, if and when an Investor exercises
its right to payment under subparagraph 6B(iii) of the Purchase Agreement,
each Shareholder (including, for purposes of this Section 4, the constituent
partners of Investech, L.P. or any Liquidator of a Shareholder or any donee of
beneficiary under Section 3(a)(i) hereof) shall have, subject to compliance
with paragraph (ii) below, the right to require the Company to purchase from
such Shareholder all of the following securities, if held or beneficially
owned by such Shareholder at the time of such exercise, at the following
respective prices: (x) shares of Cumulative Convertible Preferred Stock at
$6.66 per share; and (y) shares of Common Stock into which shares of
Cumulative Convertible Preferred Stock have been converted, at the conversion
price paid when such shares of Cumulative Convertible Preferred Stock were
converted. Any such purchase amounts are hereinafter refeffed to as
"Shareholders Put Amounts." The aggregate Shareholders Put Amounts payable
hereunder to all Shareholders shall not exceed $6,793,200. If, prior to the
payment or distribution of any Shareholders Put Amounts under Section 4(b)
below, any Shareholder sells or otherwise disposes of (A) any shares of
Cumulative Convertible Preferred Stock at a price greater than $6.66 per share
or (B) any shares of Common Stock into which Cumulative Convertible Prefeffed
Stock has been converted at a price greater than the conversion price paid
when such Cumulative Convertible Prefeffed Stock was converted, then the
aggregate arnounts in excess of such $6.66 price or conversion price shall be
credited to such Shareholder's Shareholders Put Amount and shall be deemed
paid and distributed to such Shareholder for purposes of this Section 4.
(ii) The Company agrees to give each Shareholder reasonably
prompt notice
<PAGE> 10
of an exercise pursuant to subparagraph 6B(iii) of the Purchase Agreement.
Upon receipt of such notice, each Shareholder shall have 5 days to advise the
Company in writing of its desire to require a purchase under the following
paragraph (i).
(b) The parties hereto agree that any amounts due and payable
to the Investors pursuant to subparagraph 6B(iii) of the Purchase Agreement
('Investors Put Amounts") and any Shareholders Put Amounts shall be paid and
distributed by the Company in the following order and priority:
(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 Shareholders;
and
(iii) immediately thereafter, the remaining Investors Put
Amounts shall be paid and distributed by the Company to the Investors.
5. Successors and Assigns. This Agreement shall be binding on the
Investors successors and assigns, and the Investors agree not to sell,
transfer, or assign the Warrants unless the successor or assign specifically
agrees to be bound by the provisions of this Agreement.
<PAGE> 11
6. IN WITNESS WHEREOF, the undersigned have executed and delivered, or
caused their authorized officer to execute and deliver, this Coinvestors
Agreement as of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 12
IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused
their authorized officer to execute and deliver, this Coinvestors Agreement as
of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 13
IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused
their authorized officer to execute and deliver, this Coinvestors Agreement as
of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused
their authorized officer to execute and deliver, this Coinvestors Agreement as
of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 1
EXHIBIT 10.24
BUSINESS LOAN AGREEMENT
Agreement by and between Bank One, Dayton. NA ("Bank One"), located at
Kettering Tower, Dayton, OH 45401, and OIOPT Acquisition Corp., a Delaware
corporation ("Borrower"), located at 2029 Edgefield Rd., Moraine, Ohio.
Borrower has requested that a certain extension of credit be provided by Bank
One, same evidenced by a term loan in the amount of $720,000.00 dated July 14,
1993 and executed by Borrower and guaranteed by Educational Medical, Inc. and
any and all renewals, modifications, extensions or substitutions therefor
("Obligation").
In consideration of the mutual promises set forth below and the extension of
credit as described above and subject to Borrower's satisfactory fulfillment of
all conditions incident to the borrowing, Bank One and Borrower agree as
follows:
ARTICLE 1 - DEFINITIONS
The following terms shall have the following meanings in this Agreement or in
any document made or delivered pursuant to or in conjunction with this
Agreement:
1.1 All computations and determinations as to accounting or financial matters
shall be made in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and all accounting or financial terms shall have
the meanings ascribed to such terms by GAAP.
1.2 "Indebtedness" shall mean:
(a) All indebtedness and liabilities of whatsoever kind, nature and
description owed to Bank One by Borrower, whether direct or indirect, absolute
or contingent, due or to become due or whether now existing or hereafter
arising, and howsoever evidenced or acquired, and whether joint and several;
(b) All future advances which Bank One at any time may, but shall not be
required to, make for the protection or preservation of Bank One's rights and
interests arising hereunder, including, without limitation, advances for taxes,
levies, assessments. insurance, and reasonable attorneys' fees, if allowable
by law; and
(c) All costs and expenses incurred by Bank One in the protection and
preparation for sale of any of its collateral including, without limitation,
attorneys' fees, if allowable by law, and court costs.
1.3 "Obligation" shall mean the above referenced extension of credit
including any Promissory Note, Guaranty, Letter of Credit or other instrument of
Borrower evidencing any loan, advance, credit or extension or renewal thereof
made or committed by Bank One to Borrower under this Agreement.
1.4 "Obligor(s)" shall mean all those parties, excluding Borrower, liable for
the Obligation.
1.5 "Person" shall mean and include an individual, partnership,
corporation, trust, unincorporated association or organization. government or
any department or agency thereof.
1
<PAGE> 2
1.6 "Related Person" shall include, but shall not be confined to, any Person
related to Borrower by common control or ownership.
1.7. "Subordinated Debt" shall mean indebtedness of Borrower which is
subordinated to all Indebtedness of Borrower to Bank One under the terms and
conditions approved in writing by Bank One.
1.8. The aforestated definitions, and all other definitions which may be set
forth herein, shall be applicable to the singular and plurals of said defined
term.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
2.1 It is a duly organized, legally existing corporation in good standing
under the laws of the State of Delaware, is qualified to do business in and is
in good standing under the laws of any other state in which it conducts its
business.
2.2 It has the power and is duly authorized to enter into this Agreement and
to execute and deliver to Bank One, now and from time to time hereafter,
additional instruments, resolutions, agreements and other instruments or
documents relating to the Obligation owed to Bank One. It has, by proper
action, authorized and empowered those persons whose signatures appear in this
Agreement and any instruments, documents and exhibits that have been delivered
in connection herewith, to execute the same for and on its behalf.
2.3 The execution by it of this Agreement or any other agreements,
instruments, or documents which may, from time to time hereafter, be executed in
respect hereto and delivered to Bank One, shall not constitute a breach of any
provisions contained in its articles of incorporation or bylaws, or if
applicable, partnership agreement, or any agreements to which it is now a party,
does not violate any law, statute, or ordinance or rule or regulation
promulgated pursuant thereto, and that the performance by it of its obligations
hereunder or any agreements executed by it and delivered hereunder shall not
constitute an event of default under any other agreement to which it is now a
party.
2.4 All financial statements and information relating to it which have been or
may hereafter be delivered by it, its agents or accountants to Bank One are
true and correct and in the case of Education Medical, Inc. ("Guarantor") have
been prepared in accordance with GAAP and that there have been no material
adverse changes in its financial or business condition or operations since the
submission of any financial information to Bank One, and no material adverse
changes in its financial or business condition or operations are imminent or
threatened.
2.5 All of its Federal, State and other tax returns and reports, including
reports to any governmental authority, for the proper maintenance and operation
of its properties, assets and business, as may be required by law to be filed
or paid, have been filed, and all Federal, State and other taxes, assessments,
fees and other governmental charges (other than those presently payable,
without penalty) imposed upon it or its properties or assets, which are due and
payable, have been fully paid unless being contested by it in the ordinary
course of business and for which it has provided adequate reserves.
2
<PAGE> 3
2.6 There is no litigation or legal or administrative proceedings,
investigations or other action of any nature, pending or, to its knowledge,
threatened against or affecting it, which have not been disclosed to Bank One
and involve the possibility of any judgment or liability not covered by
insurance which may materially or adversely affect any of its properties or
assets or its right to carry on its business as now conducted.
2.7 It has good, valid and marketable title to all of its property and assets
free of any adverse lien, security interest or encumbrance, except liens,
security interests, pledges and encumbrances disclosed to Bank One by Borrower
in writing prior to the date hereof.
2.8 All of the funds loaned to it pursuant to this Agreement have been or will
be used exclusively for the acquisition of real property by the Borrower, and
will not be diverted to or used in any other manner, and will not be used for
the purchasing or carrying of any "Margin Stock" as defined in regulations
promulgated by the Federal Reserve Board or the Securities and Exchange
Commission.
2.9 It possesses and will continue to possess all permits, licenses,
trademarks, patents and rights thereto to conduct its business and that its
business does not conflict or violate any valid rights of others with respect to
the foregoing.
2.10 It is in compliance in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations and published interpretations thereof
("ERISA"). Neither a Reportable Event nor a Prohibited Transaction, as defined
per ERISA, has occurred and is continuing with respect to any Plan, nor has
there been a notice of intent to terminate a Plan or appoint a trustee to
administrate a Plan.
2.11 It is in material compliance with all Federal, State and local laws,
statutes, ordinances, regulations, rulings and interpretations relating to
industrial hygiene, public health or safety, environmental conditions, the
protection of the environment, the release, discharge, emission or disposal to
air, water, land or ground water, the withdrawal or use of ground water or the
use, handling, disposal, treatment, storage or management of or exposure to
Hazardous Materials ("Hazardous Materials Laws"), the violation of which would
have a material effect on its business, its financial condition or its assets.
The tern "Hazardous Materials" means any flammable materials, explosives,
radioactive materials, pollutants, toxic substances, hazardous water, hazardous
materials, hazardous substances, polychlorinated biphenyls, asbestos, urea
formaldehyde, petroleum (including its derivatives, by-products or other
hydrocarbons) or related materials or other controlled, prohibited or regulated
substances or materials, including, without limitation, any substances defined
or listed as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "pollutants" or "toxic substances" under any
Hazardous Materials Laws. It has not received any written or oral communication
or notice from any judicial or governmental entity nor is it aware of any
investigation by any agency for any violation of any Hazardous Materials Law.
2.12 Details of all litigation, legal or administrative proceedings,
investigation or other action of similar nature, pending or threatened against
it, at any time during the tern of this Agreement, which in part or in whole
may or will render any of these Representations and Warranties no longer true,
accurate and correct in each and every respect, will be brought to the attention
of Bank One, in writing, within thirty (30) days from the date Borrower acquires
knowledge of same.
3
<PAGE> 4
ARTICLE III - SECURITY
3.1 As security for the Indebtedness, regardless of whether the principal sum
evidenced by an Obligation is reduced to zero and thereafter increased/decreased
an unlimited number of times, Borrower hereby grants to Bank One or has
previously caused to be granted to Bank One a mortgage on certain real estate
located at 2029 Edgefield Rd., Moraine, Ohio.
3.2 It is further agreed that the security described above shall secure
repayment of all Indebtedness and that a default in the terms of any note,
security agreement, mortgage, or other agreement from Borrower to Bank One shall
constitute a default of all notes, security agreements, mortgages, and other
agreements, and that Bank One may proceed in exercising its rights thereunder in
any order or manner it may choose. The purpose of this section being to
cross-collateralize and cross-default all Indebtedness. Additionally, the
security interest described above, if any, may be modified, added to or deleted
from time to time without modification to this Agreement.
ARTICLE IV - AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as any Indebtedness is outstanding
or so long as this Agreement is in effect, Borrower shall:
4.1 Maintain insurance against fire, business interruption, public liability,
theft and other casualty on its insurable real and personal property to their
full replacement costs with companies acceptable to Bank One and against
liability on account of damage to persons or property and as required under all
applicable Workers' Compensation Laws. Furthermore, Borrower shall maintain any
other insurance as may from time to time be reasonably requested by Bank One,
shall insert a joint loss payee clause naming Bank One in all fire and extended
coverage policies and shall deliver certified copies of all such insurance
policies to Bank One upon demand.
4.2 Maintain, keep, and preserve its buildings and properties and every part
thereof in good repair, working order, and condition and from time to time make
all needful and proper repairs, renewals, replacements, additions, betterments,
and improvements thereto, so that at all times the efficiency thereof shall be
fully preserved and maintained.
4.3 Duly pay and discharge or cause to be paid and discharged all taxes,
assessments, and other governmental charges imposed upon it and its properties
or any part thereof or upon the income or profits therefrom, as well as all
claims for labor, materials, or supplies, which if unpaid might by law become a
lien or charge upon its property, except such items as are being in good faith
appropriately contested and for which it has provided adequate reserves.
4.4 Carry on and conduct its business in substantially the same manner and in
substantially the same fields as such business is now and has heretofore been
carried on, maintain management with the same expertise and experience, and if
management is to be changed, immediately notify Bank One of said change, and
maintain its legal existence, and comply with all valid and applicable statutes,
rules and regulations.
4
<PAGE> 5
4.5 Maintain, keep, and preserve a system of accounting for the Guarantor in
accordance with GAAP, deliver to Bank One financial reports in a form
satisfactory to Bank One as Bank One may request from time to time, permit the
duly authorized representative of Bank One at all reasonable times to examine
and inspect the books and records of it or any related business entity of it,
to make abstracts and copies thereof, and to visit and inspect any of its
property wherever same may be located.
4.6 Comply with all laws and regulations which it is required to comply with
including all Hazardous Materials Laws and regulations, and permit Bank One to
make environmental audits from time to time if requested by Bank One with costs
of same to be borne by Borrower.
ARTICLE V - NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any Indebtedness is outstanding
or so long as this Agreement is in effect, except for that previously disclosed
in writing to and consented to by Bank One, Borrower shall not without prior
written consent of Bank One:
5.1 Create, incur or assume any indebtedness for borrowed money, other than to
Bank One or Bank South (or any replacement lender) and other than that certain
promissory note in the original amount of $200,000.00 dated from Borrower
to K. Terry Guthrie, Richard L. Cretcher, Stephen T.McLain, Gerald D. Guthrie
and Mr. James R. Madden, or act as guarantor for any indebtedness of others.
For the purpose hereof, sale of accounts receivable and (or) entering into
capital leases of personal property shall be deemed the incurring of
indebtedness for borrowed money.
5.2 Mortgage, pledge, assign, hypothecate, encumber, create or grant a
security interest in any of its assets except to Bank One or Bank South (or any
replacement lender), nor sell, lease, transfer, assign or otherwise dispose of
any of its assets, properties or business outside of the ordinary course of
business, except secured purchase money or lease indebtedness up to the amount
permitted by Section 5.1, if any.
5.3 Invest in, loan or advance money to other than to Guarantor or an
affiliate of Borrower or Guarantor, organize or participate in the organization
or in the creation of any other business entity.
5.4 Merge, transfer, acquire or consolidate with or into any other entity,
change ownership, dissolve, and/or transfer or sell any assets outside of the
ordinary course of business without the prior written consent of Bank One.
5.5 Release, redeem, retire, purchase, or otherwise acquire directly or
indirectly any of its capital stock, or make any changes in its capital
structure.
ARTICLE VI - ADDITIONAL COVENANTS
6.1 GUARANTY. Prior to or contemporaneous with the execution of this
Agreement, Borrower shall deliver to Bank One the Guaranty of Educational
Medical, Inc. in form and content acceptable to Bank One which Guaranty shall
provide for liability of the Guarantor for payment of the Indebtedness.
5
<PAGE> 6
6.2 FINANCIAL REPORTS. Borrower covenants in accordance with paragraph 4.5
that it will deliver to Bank One:
(a) Within one hundred twenty (120) days after the end of each fiscal year of
Guarantor, audited financial statements of Guarantor prepared in accordance
with GAAP which shall include a balance sheet, statement of income, statement
of reconciliation of net worth, statement of changes in financial position and
notes to financial statements.
(b) Within one hundred twenty (120) days after the end of each fiscal year of
Borrower, compiled financial statements of Borrower prepared in accordance with
GAAP which shall include a balance sheet, and a statement of income.
(c) Within sixty (60) days after the end of each respective fiscal quarter of
Borrower and Guarantor, direct financial statements of Borrower (prepared in
accordance with its current standards) and Guarantor (prepared in accordance
with GMP) for the period from the beginning of the current fiscal year to the
end of such period. The accuracy of the statements (subject to audit and
year-end adjustments) shall be certified by the chief financial officer or
president of Borrower or Guarantor, as the case may be.
(d) Current letters of accreditation from the Accrediting Commission for Trade
and Technical Schools (ACTTS) of the Career College Association.
6.3 NET WORTH. Guarantor agrees to maintain a Net Worth of not less than TEN
MILLION AND NO/100 DOLLARS ($10,000,000.00) and a ratio of Debt, exclusive of
Subordinated Debt, if any, to Net Worth of not more than 1.0 to 1.0.
"Net Worth" shall be determined in accordance with GAAP and shall be deemed to
include the amount of total assets of Guarantor, exclusive of the principal
amount of all loans or advances to shareholders, directors, executive officers,
of Guarantor or Affiliates of Guarantor, minus the amount of total liabilities
of Guarantor, exclusive of Subordinated Debt, if any.
"Debt" shall be determined in accordance with GAAP and shall be deemed to
include all liabilities of Guarantor including but not limited to accruals,
deferrals, and capitalized leases, less Subordinated Debt, if any.
6.4 BANK DEBT TO CASH FLOW RATIO. Guarantor agrees to maintain a Bank Debt
(defined as the amount outstanding under the Bank South Note, as that term is
defined in Section 7.1(d), below, or any replacement thereof) to Cash Flow
(defined as consolidated Cash Flow (net income plus non cash expenses) for the
most recently completed four (4) fiscal quarter period) Ratio of not greater
than 1.75 to 1.00 at any time.
6.5 CASH ON DEPOSIT. Guarantor must maintain on deposit cash or cash
equivalents in the minimum amount of $500,000.00 as of the end of each fiscal
quarter.
6
<PAGE> 7
6.6 TANGIBLE NET WORTH. Borrower agrees to maintain a Tangible Net Worth of
not less than the amounts set forth for the following periods:
<TABLE>
<CAPTION>
Periods Amounts
<S> <C>
Closing date - 12/30/93 $215,000
12/31/93 - 12/30/94 250,000
12/31/94 - 12/30/95 285,000
12/31/95 - 12/30/96 320,000
12/31/96 - 12/30/97 355,000
12/31/97 and all times thereafter 390,000
</TABLE>
and a ratio of Debt to Tangible Net Worth of not more than the ratios set forth
for the following periods:
<TABLE>
<CAPTION>
Periods Ratios
<S> <C>
Closing date - 12/30/93 6.0 to 1.0
12/31/93 - 12/30/94 5.0 to 1.0
12/31/94 - 12/30/95 4.5 to 1.0
12/31/95 - 12/30/96 4.0 to 1.0
12/31/96 - 12/30/91 3.5 to 1.0
12/31/97 and all times thereafter 3.0 to 1.0
</TABLE>
"Tangible Net Worth" shall be determined in accordance with GAAP and shall be
deemed to include the amount of total assets of Borrower excluding the amount
of Intangible Assets of Borrower minus the amount of total liabilities of
Borrower, exclusive of Subordinated Debt, if any.
"Intangible Assets" shall be determined in accordance with GAAP and be deemed
to include at book value, without limitation, leasehold improvements,
goodwill, patents, copyrights, secret processes, deferred expenses relating to
sales, general administrative, research and development expense, and all
amounts due from any officer, employee, director, shareholder or Related
Person.
"Debt" shall be determined in accordance with GAAP and shall be deemed to
include all liabilities of Borrower including but not limited to accruals,
deferrals, and capitalized leases, less Subordinated Debt, if any.
6.7 OPERATING INCOME RATIO. Borrower agrees to maintain an Operating Income
Ratio (operating income before interest and taxes) divided by debt service
(principal plus interest)) of not less than 1.5 to 1.0, tested each fiscal
quarter for the most recently completed four (4) fiscal quarter period.
6.8 COHORT DEFAULT RATE. Borrower agrees that its Cohort Default Rate as
published by the United States Department of Education shall not exceed 25%
for any two consecutive years.
6.9 DEPOSIT ACCOUNTS. Borrower shall establish and maintain its principal
deposit accounts at Bank One as long as any Indebtedness remains outstanding or
so long as this Agreement remains in effect.
7
<PAGE> 8
6.10 MODIFICATION AND DELETION OF FINANCIAL COVENANTS. In the event Bank
South, NA modifies the financial covenants with respect to the Guarantor set
forth in the loan agreement (the "Bank South Loan Agreement") relating to the
Bank South Note, as hereinafter defined, the parties will amend Section 6.3,
6.4 and 6.5 to conform the financial covenants set forth in such Sections to
the corresponding financial covenants set forth in the Bank South Loan
Agreement. In the event Borrower delivers to Bank One an appraisal of the
real estate described in Section 3.1, in form and substance and from an
appraiser in all respects satisfactory to Bank One, which shows the value of
such property exceeds two (2) times the outstanding principal balances of the
$720,000.00 promissory note dated July 14, 1993 from Borrower to Bank One, Bank
One will delete the financial covenants set forth in Sections 6.3 through 6.7.
8
<PAGE> 9
ARTICLE VII - DEFAULT AND REMEDIES
7.1 Borrower shall be in default hereunder upon the happening of any of the
following ("Event of Default"):
(a) The occurrence of an event of default under the terms of any Obligation,
security agreement, mortgage and other agreement executed in connection
therewith or herewith, including any renewal, extension or modification thereof
or hereof or in any other obligation or agreement with Bank One, whether now or
hereafter existing;
(b) Non-performance of any covenant, warranty or liability contained or
referred to herein;
(c) If any warranty, representation or statement made or furnished to Bank One
or by or on behalf of Borrower or any Obligor, in connection with this
Agreement, or to induce Bank One to make a loan to Borrower, proves to have
been false in any material respect when made or furnished; or
(d) The occurrence of any event of default under that certain Promissory Note
dated April 16, 1993 from Education Medical, Inc., Palo Vista College of
Nursing and Allied Health Sciences, Inc., Maric Learning Systems, Andon
Colleges. Inc., Dest Education Corporation, Meadows Acquisition Corp.,
Scottsdale Educational Center for Allied Health Careers, Incorporated, MTSX
Acquisition Corp. and DBS Acquisition Corp. to Bank South, N.A. in the original
principal amount of $2,000,000.00 (the "Bank South Note"), and any loan
agreement, security agreement, mortgage or other agreement executed in
connection therewith, including any renewal, extension or modification thereof.
7.2 Upon the occurrence of an Event of Default, Bank One may, at its option,
declare principal and accrued interest of all Indebtedness to be immediately
due and payable forthwith, without presentation, demand, protest or notice of
any kind, all of which are hereby expressly waived. Bank One shall have all
the rights and remedies of a Secured Party under the Uniform Commercial Code,
as enacted in the state where Bank One's principal office is located, said
rights and remedies being cumulative in nature. Bank One may set off any of
the Borrower's deposits or accounts, and any other indebtedness of Bank One to
Borrower against the Indebtedness before or after an Event of Default, without
first looking to any property securing payment thereof.
7.3 Acceptance of payment, in full or part, or waiver of any Event of Default
shall not operate as a waiver of any current or later Event of Default, nor of
any other right of Bank One.
7.4 The provisions of this Agreement concerning any Event of Default are not
intended in any way to affect any rights of Bank One with respect to any
Indebtedness of Borrower to Bank One which may or hereafter be payable on
demand.
7.5 No delay or failure of Bank One in exercising any right, power, remedy or
privilege hereunder shall affect such right, power or privilege or be construed
as a waiver against Bank One.
9
<PAGE> 10
7.6 Any waiver, permit, consent or approval by Bank One of any breach or
default hereunder must be in writing and shall be effective only to the extent
set forth in such writing.
ARTICLE VIII - MISCELLANEOUS
8.1 Borrower and Bank One acknowledge and agree that the financial covenants
set forth in Article VI and the other terms and conditions contained in this
Agreement were arrived at based on accounting rules, methods and principles,
federal and state tax laws, rules and regulations, and other government or
government agency laws, rules and regulations (together, "Rules") in effect
and adopted by Borrower as of the date of this Agreement. If, at any time
during which this Agreement is in effect, a change occurs or is instituted with
respect to any of the Rules or the application or interpretation thereof, a new
Rule is instituted, or a new or previously enacted Rule is adopted by Borrower,
the result of which materially affects, directly or indirectly, beneficially or
detrimentally, the financial position of Borrower, the calculation of any one
or more of the financial covenants, or any other term or condition of this
Agreement, Bank One and Borrower agree that some or all of the financial
covenants or other terms and conditions of this Agreement shall be amended in
whole or in part at the sole discretion of Bank One. In the event Borrower
fails or refuses to execute a written amendment to this Agreement evidencing
its consent to and agreement with amendments acceptable to Bank One to such
financial covenants and/or other terms and conditions of this Agreement
promptly upon request by Bank One, such failure or refusal shall constitute a
default hereunder and under each of the Obligations, and Bank One shall
thereupon be entitled to exercise any or all of its rights and remedies
hereunder or thereunder.
8.2 All notices required to be given under any tern of this Agreement shall be
sufficient if mailed, via registered or certified mail, return receipt
requested, or sent via overnight or hand courier, to the parties at their
respective addresses as previously set forth.
8.3 All documents referred to in this Agreement shall for all purposes be
considered a part of this Agreement, and all terms used in this Agreement shall
have the meaning set forth in said documents, and this Agreement shall include
all of the provisions stated in said documents.
8.4 This Agreement is a continuing agreement and shall continue in effect
notwithstanding that from time to time. no Indebtedness may exist. This
Agreement shall continue as to any Indebtedness and as to any and all renewals,
extensions or modifications thereof.
8.5 This Agreement may be executed in several counter-parts, each of which
shall be an original and all of which shall constitute the same instrument.
8.6 This Agreement, together with all other documents executed concurrently
herewith or attached hereto, constitutes the full and complete Agreement of the
parties and may not be modified except by written instrument signed by all
parties hereto.
8.7 This Agreement shall be binding upon and inure to the benefit of Borrower
and Bank One and their respective successors and assigns.
10
<PAGE> 11
8.8 Borrower agrees to pay on demand all costS and expenses in
connection with the negotiation, preparation, execution, delivery,
filing. recording, administration, enforcement, litigation, collection, or
filing of any legal action on or for any Obligation, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for Bank
One, with respect thereto. Time is of the essence of all requirements of
Borrower hereunder. The obligations of Borrower under this paragraph shall
survive payment of any Obligation.
8.9 This Agreement shall be governed and construed in accordance with the laws
of the state where Bank One's principal office is located.
8.10 Any provision contained in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
8.11 Borrower shall fully and promptly pay, perform, discharge, defend,
indemnify and hold harmless Bank One from any and all claims, orders, demands,
causes of action, proceedings, judgments, or suits and all liabilities, losses,
costs or expenses (including, without limitation, technical consultant fees,
court costs, expenses paid to third parties and reasonable legal fees) and
damages arising out of, or as a result of (i) any release, discharge, deposit,
dump, spill, leak or placement of any Hazardous Material into or on any
collateral or property owned, leased, rented or used by Borrower (the
"property") at any time; (ii) any contamination of the soil or ground water of
the Property or damage to the environment and natural resources of the Property
or the result of actions whether arising under any Hazardous Material Law, or
common law; or (iii) any toxic, explosive or otherwise dangerous Material which
have been buried beneath or concealed within the Property. This indemnity
shall survive termination of this Agreement.
8.12 This Agreement contains the entire agreement of the parties and supersedes
all prior agreements and understandings, oral or written, with respect to the
subject matter hereof. Executed this day of July, 1993.
OIOPT Acquisition Corp., as Borrower
By:
-----------------------------------
Its:
----------------------------------
EDUCATIONAL MEDICAL, INC., as Guarantor
By:
------------------------------------
Its:
-----------------------------------
Bank One, Dayton, NA
By:
------------------------------------
Its:
-----------------------------------
11
<PAGE> 1
EXHIBIT 10.25
Business Purpose
Promissory Note
Date: July 14, 1993 Amount: $720,000.00
Executed at Dayton, Ohio
For value received, receipt of which is hereby acknowledged, the undersigned
promises to pay to the order of Bank One, Dayton, NA ("Bank One") at its
principal office located at Kettering Tower, Dayton, Ohio 45401 or at such
other place as Bank One may designate from time to time, in lawful money of the
United States of America, the principal sum of SEVEN HUNDRED TWENTY THOUSAND
AND NO/100 DOLLARS ($720,000.00) or such lesser portion thereof as may have
from time to time been disbursed to, or for the benefit of the undersigned, and
remaining unpaid pursuant to the books or records of Bank One, together with
interest on the unpaid balance of principal advanced from the date(s) of
disbursement until paid in full as set forth below. Principal sum(s)
disbursed and repaid will not be available for redisbursement.
Rate of Interest and Its Calculation
Beginning on the Date of this Note, the outstanding principal sum shall bear
interest at an interest rate per annum equal to three percent (3.00%) plus the
Five Year Index (as hereinafter defined), the sum of which as of the Date of
this Note is 8.0%.
On each five (5) year anniversary of the Date of this Note (an "Adjustment
Date") the interest rate payable shall be changed to an interest rate per annum
equal to three percent (3.00%) plus the Five Year Index in effect on the
Adjustment Date.
The Five Year Index equals the weekly average yield on United States Treasury
Securities adjusted to a constant maturity of five (5) years and is available
in Federal Reserve Board Statistical Release H.15(519). The Five Year Index
shall be the most recently available as of the Adjustment Date.
If the Five Year Index is no longer published or otherwise made available by
the Federal Reserve Board, Bank One shall choose an alternative interest rate
index which is based on comparable information. Bank One shall promptly
notify the undersigned in writing of such alternative interest rate index.
Interest shall be calculated on a 360 day year basis and shall be calculated by
dividing the actual number of days which elapsed during the period interest
accrued by a year of 360 days times the interest rate in effect.
After this Note becomes due and payable, whether at maturity, by acceleration
or otherwise, the interest rate on the outstanding principal sum and accrued
interest will be the rate stated above plus five percent (5%) per annum.
Time and Method of Payment
Commencing on September 1, 1993, and on the first day of each calendar month
thereafter until and including the first Adjustment Date, the monthly payments
shall be in an amount equal to the amount necessary to amortize the outstanding
principal
<PAGE> 2
sum and accrued interest thereon at the initial interest rate in 180 equal
monthly instalments of principal and interest. Commencing with the payment of
principal and interest due on the first day of the month next succeeding each
Adjustment Date, the monthly payment shall be adjusted to an amount equal to
the amount necessary to amortize the then outstanding principal sum and accrued
interest thereon at the adjusted interest rate in equal monthly instalments of
principal and interest over a period of months equal to 180 months less the
number of months which have expired since the date of this Note.
Notwithstanding anything in the foregoing to the contrary, the outstanding
principal sum of this Note, together with all accrued and unpaid interest under
this Note, shall be due and payable on August 1, 2000 (the "Maturity Date").
Bank One shall have the right to assess a late payment processing fee in the
amount of the greater of $50.00 or four percent (4%) of the scheduled payment
in the event of a default in payment that remains uncured for a period of at
least ten (10) days.
Additional Terms and Conditions of Promissory Note
1. This Note is issued in conjunction with a Business Loan Agreement dated
July 14, 1993, to which reference is made, and is supported by other security
documents.
2. In the event of a default under this Note as hereinafter defined, Bank One
shall have the right, to the extent permitted by law, to setoff against all
credits, deposits, accounts, securities or moneys of the undersigned
("Obligor") now or hereafter in the possession or control of Bank One at any
time without prior notice to Obligor. All other property or rights belonging
to or in which Obligor has any interest, now or hereafter pledged or
hypothecated to Bank One ("Collateral") shall be held by Bank One as security
for the payment of the Note, and of every other liability now or hereafter
existing of Obligor, absolute or contingent, due or to become due, and in
whatsoever manner acquired by or accruing to Bank One ("Obligations").
3. At the option of Bank One, all Obligations shall become immediately due and
payable without prior notice or demand upon the occurrence of any of the
following events of default: (a) failure of Obligor to make payment when due
of the principal or interest of this Note and/or any of the Obligations; (b)
failure of Obligor to furnish satisfactory collateral or additional collateral,
as the case may be, as hereinafter agreed; (c) failure of Obligor to comply
with any of the terms and conditions of this Note and/or any of the Obligations
contained in any security agreement or instrument securing this Note and/or any
of the Obligations; (d) death of Obligor; (e) dissolution of, termination of
existence of, insolvency of, business failure of, appointment of a receiver
for, or assignment for the benefit of creditors or a commencement of any
proceeding under any bankruptcy, reorganization, arrangement or liquidation law
by or against Obligor or any property of Obligor; (f) failure of Obligor to pay
when due any premium on any policy of life or other insurance pledged
hereunder, or held in connection with any Collateral; (g) Bank One deeming
itself insecure and in good faith believing that the prospect of payment or
performance is impaired; (h) the institution of any garnishment proceedings by
attachment, levy or otherwise against any deposit balance or Collateral
maintained or deposited with Bank One by Obligor; (i) failure of Obligor to
either furnish Bank One within thirty (30) days after written request by Bank
One, current financial statements, including income tax returns, in form
satisfactory to Bank One or to permit inspection of any of Obligor's books or
records; (j) any representation, warranty, statement, report, or application
made, or furnished, by Obligor proving
<PAGE> 3
to have been false, erroneous or misleading in any material respect at the time
of the making thereof; (k) the issuance of any tax levy or lien against Obligor
or Obligor's failure to pay, withhold, collect or remit any tax when assessed
or due; (l) sale or transfer of Collateral out of Obligor's ordinary course of
business; (m) a bulk sale of Obligor's assets; (n) suspension or liquidation
of Obligor's business; or the occurrence of an event of default under that
certain Business Loan Agreement between the undersigned and. Bank One of even
date herewith.
4. No delay or omission on the part of Bank One in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note. A waiver on any one occasion shall not be construed as a bar to or
waiver of any such right and/or remedy on any future occasion.
5. Obligor waives presentment, demand, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default
or enforcement of this Note; and assents to any extension or postponement of
the time of payment, modification or waiver of any payment amount or any other
indulgence, and/or to the addition or release of any other party or person
liable hereon or of any Collateral herefor.
6. This Note shall be governed by and construed in accordance with the laws of
the State of Ohio in all respects.
7. Obligor will pay on demand all costs of collection and attorneys' fees
incurred or paid by Bank One in enforcing this Note when the same has become
due, whether by acceleration or otherwise, if allowable by law.
8. Bank One shall have the right to charge interest on the amount of any
interest payment not paid as provided in this Note at the same rate as
applicable to the principal sum.
9. Payments shall be allocated between principal, interest and fees, if any,
in the discretion of Bank One, and, when applicable, any prepayments will be
applied to principal in the inverse order of scheduled maturity. Any
prepayments shall be in minimum increments of $5,000.00 and shall be accompanied
by prepayment premiums in the amount of (a) five percent (5%) of the outstanding
principal balance of this Note immediately prior to such prepayment if made in
the first twelve (12) months of the term of this Note, (b) three percent (3%) of
the outstanding principal balance of this Note immediately prior to such
prepayment if made in the second twelve (12) months of the term of this Note, or
(c) two percent (2%) of the outstanding principal balance of this Note
immediately prior to such prepayment if made in the third twelve (12) months of
the term of this Note.
10. All rights, powers, privileges and immunities herein granted to Bank One
shall extend to its successors and assigns and any other legal holder of this
Note. All rights, powers, privileges and immunities of Obligor hereunder may
not in any way be assigned, transferred or sold. Bank One at any time is
authorized to correct patent errors and fill in any blanks herein.
11. Obligor acknowledges that this Note evidences a loan made primarily for
business, commercial or agricultural purposes and not primarily for personal,
family or household purposes.
<PAGE> 4
12. When any Obligation becomes due, whether by acceleration or otherwise, and
at any time thereafter, Bank One shall have all of the remedies provided in the
fixture filing security documents including the remedies of a secured party
under the Uniform Commercial Code. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Bank One will give the Obligor reasonable notice of the time
and place of any public sale thereof or of the time after which any private
sale or other intended disposition is to be made. The requirement of
reasonable notice shall be met if such notice is mailed, postage prepaid, to
the last known address of the Obligor at least ten (10) days before the time of
the sale or disposition.
13. When any Obligation becomes due, whether by acceleration or otherwise, and
at any time thereafter, Bank One is empowered to collect, sell, assign,
transfer, set over and deliver the whole or any part of any Collateral through
any stock exchange, broker or agent or at any public or private sale, either
for cash or credit or for future delivery, without assumption of credit risk,
and at any such sale Bank One may become the purchaser of any part of the
Collateral discharged from right of redemption. Upon any such sale, after
deducting all costs and expenses of every kind related to retaking, storing and
selling the Collateral, the residue of the proceeds thereof may be applied as
Bank One may determine toward the payment of any or all of the Obligations,
whether due or not, returning the overage, if any, to Obligor and Obligor shall
be and remain liable to Bank One for every and any deficiency after application
of such proceeds.
14. Right is expressly granted to Bank One at its option to transfer at any
time to itself or to its nominee any securities pledged hereunder, to receive
and retain the income thereon, all splits, substitutions and divisions, and
hold the same as security herefor, or apply it on the principal or interest
which has become due on any Obligation, whether by acceleration or otherwise,
and, in the case of voting shares or interests pledged, to vote the same when
Bank One deems the exercise of such power necessary to maintain or protect such
Collateral.
15. When any Obligation becomes due, whether by acceleration or otherwise, and
at any time thereafter, Bank One may, at its option, demand, sue for, collect,
or make any compromise or settlement it deems desirable with reference to the
Collateral. Bank One shall not be bound to take any steps necessary to
preserve any rights in the Collateral against prior parties, inasmuch as
Obligor agrees to assume such responsibility. Bank One shall have no duty
with respect to collection or protection of the Collateral or of any income
on the Collateral as to the preservation of any rights pertaining to the
Collateral beyond safe custody.
16. Obligor will deliver to Bank One satisfactory collateral or
additional collateral, as the case may be, should Bank One so require.
17. Obligor agrees that Bank One may take possession of any Collateral without
prior judicial hearing or process, hereby expressly waives any right to such
judicial hearing or process, and hereby assents to any substitution, exchange
or release of Collateral.
18. When any Obligation becomes due, by acceleration or otherwise, Bank One
shall have the right, without notice to Obligor, any party claiming under
Obligor, or any other party, such notice being hereby expressly waived, and
without regard to the adequacy of value of the Collateral or the solvency or
insolvency of Obligor, to the
<PAGE> 5
appointment of a receiver by a court of competent jurisdiction chosen solely by
Bank One, upon application at any time, whether prior to or after a judgment
has been obtained against Obligor, to take possession of the assets and/or
business of Obligor together with its books and records, to maintain or to
liquidate said assets and/or business, to collect the proceeds of the
Collateral and apply the net proceeds to any Obligation. Obligor consents to
jurisdiction and venue for the appointment of such receiver by such court and
agrees that any receiver so appointed may take possession of the assets and/or
business of the Obligor, together with the Collateral in any other jurisdiction
in which the Collateral may be located.
19. Obligor authorizes Bank One to exchange Bank One deposit, credit and
borrowing information about Obligor with third parties.
20. Obligor jointly and severally hereby authorizes any attorney at law to
appear in an action on this Note at any time after the same becomes due.
whether by acceleration or otherwise, in any court of record in or of the State
of Ohio, or of elsewhere, and to waive the issuing and service of process
against any or all of said parties, enter an appearance and to confess judgment
in favor of Bank One against any or all of said parties for the amount that may
be due, together with costs of suit, and to release all errors and waive all
rights of appeal and stay of execution from the judgment rendered. After the
judgment entered against one or more of said parties, the powers herein
conferred may be exercised as to one or more of the others. The death of
Obligor shall not impair the authority herein granted as to the survivor or
survivors of Obligor.
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.
OIOPT ACQUISITION CORP.
By:
---------------------------
Its:
---------------------------
<PAGE> 1
EXHIBIT 10.26
OHIO OPEN END MORTGAGE
[BANK ONE LOGO] AMOUNT $720,000.00
---------------
The undersigned, OIOPT Acquisition Corp. ("Mortgagor"), for the
following purposes and in consideration of --Seven Hundred Twenty Thousand and
00/100-------Dollars ($720,000.00) paid by BANK ONE, Dayton, NA, having an
office at Kettering Tower Dayton, Ohio 45401 ("Mortgagee") does grant and
convey unto Mortgagee, its successors and assigns, all right, title and interest
Mortgagor now has or hereafter may have in and to all the premises located in
Moraine, Montgomery County, Ohio more specifically described in Exhibit A
attached hereto and made a part hereof, including such real property, all
buildings now or hereafter attached to or used in connection therewith, all
hereditaments privileges and appurtenances thereunto belonging, all fixtures
and articles annexed thereto as permanent accessions now or hereafter used in
connection therewith, and all leases, rents, issues and profits which may
arise therefrom, be the same more or less, but subject to all legal highways
("Mortgaged Property").
1. USE AND PURPOSE. To have and to hold the Mortgaged Property to
Mortgagee, its successors and assigns, for the use and purpose of
securing the following (collectively "Indebtedness" or "Obligations"):
(a) DEBT SECURED. Payment of the Indebtedness evidenced by the
following instruments, including any amendments, extensions or
renewals thereof in the aggregate sum of the consideration
expressed above with interest, and the performance and
observance of each term thereof by the parties obligated thereon
and any guarantor thereof (singularly and collectively
"Obligor"):
<TABLE>
<S> <C> <C> <C>
(i) Promissory Note $720,00.00 OIOPT Acquisition Corp.
-------------------- ----------- ------------- -------------------------
Instrument Amount Date Obligor
Educational Medical, Inc.
------------------------- ------------------------ ---------------------
Guarantor Obligor Obligor
</TABLE>
(b) ADVANCES FOR TAXES, INSURANCE, ETC. Upon request of Mortgagee,
Mortgagor also hereby agrees to pay to Mortgagee monthly a sum
equal to 1/12 of the annual taxes, assessments and reassessments
levied against the Mortgaged Property and of the annual
premium of insurance insuring the Mortgaged Property as
estimated or computed in each instance by Mortgagee, which
payments Mortgagee is hereby authorized to accumulate and
commingle with other funds of Mortgagee without any obligation
to pay interest thereon and use for the payment of taxes,
assessments, reassessments and insurance premiums, as they
become due and payable, provided the amount deposited with
Mortgagee for such purposes including any amount of additional
deposit requested by Mortgagee is sufficient with which to pay
the same. In addition to the right herein granted and in
addition to the Indebtedness and Obligations secured hereby,
this Mortgage will also secure unpaid balances of advances made
by Mortgagee with respect to the Mortgaged Property for the
payment of taxes, assessments, insurance premiums or costs
incurred for the protection of the Mortgaged Property;
(c) OTHER ADVANCES. Payment by Mortgagor to Mortgagee of all sums
expended or advanced by Mortgagee pursuant to any term or
provision of this Mortgage;
(d) PERFORMANCE. Performance and observance of each covenant and
agreement herein, in the Indebtedness and Obligations secured
and in any other agreement relating to such, as construction
loan agreements and contracts;
(e) FUTURE ADVANCES. Unpaid balances of loan advances made after
this Mortgage will be delivered to the recorder for recording to
the extent that the total unpaid indebtedness, exclusive of
interest thereon, does not exceed the consideration set forth
above which will be the maximum amount of indebtedness that may
be outstanding at any time; and
(f) OTHER DEBTS. Payment by Mortgagor to Mortgagee of all other
liabilities and indebtedness, direct or contingent, now or
hereafter owing by Mortgagor to Mortgagee.
2. COVENANTS OF MORTGAGOR. Mortgagor covenants and agrees with Mortgagee
as follows:
(a) TITLE AN USE. At the time hereof Mortgagor is well seized of
the Mortgaged Property, has title with a good and indefeasible
estate in fee simple and has good right to bargain, sell
convey, and encumber as set forth herein; that Mortgagor will
warrant and defend title to the Mortgaged Property forever
against the claims and demands of all persons whomsoever, that
the Mortgaged Property is free and clear of all easements,
reservations, conditions, restrictions and encumbrances
whatsoever, except liens for taxes and assessments not yet due
and payable, building and use restrictions of record, zoning
ordinances, if any, and the exceptions which may be set forth
on Exhibit B attached hereto and made a part hereof;, that to
the best of Mortgagor's knowledge the Mortgaged Property while
held by Mortgagor or any previous owner has not been used
<PAGE> 2
contrary to law to use, generate, store or dispose of
materials such as toxic waste or hazardous substances commonly
identified by governmental regulations as hazardous including
but not limited to flammable, explosive, corrosive, reactive,
radioactive or otherwise hazardous to human use of the
Mortgaged Property ("Hazardous Materials") and there has been
no seepage, spills, release or discharge of Hazardous
Materials on the Mortgaged Property at any time.
(b) INSURANCE. Mortgagor will keep all buildings and other
insurable property now or hereafter erected or placed in or on
the Mortgaged Property insured against loss or damage by fire,
flood, builder's risk, the several hazards comprehended from
time to time within all risk, extended coverage terms, including
boiler and pressure vessel hazards, if applicable, war damage,
when available, and such other hazards, casualties and
contingencies, in such amounts at replacement costs, and for
such periods as may be required by Mortgagee and at no time will
the amount of fire and extended coverage be less than the
full insurable value of the Mortgaged Property. Further
Mortgagor will maintain comprehensive public liability insurance
for injuries to persons, including death, and property damage or
loss of use in amounts acceptable to Mortgagee. All such
insurance will be carried in companies approved by Mortgagee and
will include a provision satisfactory to it making loss payable
to Mortgagee or naming Mortgagee as an insured as its interest
may appear. Mortgagor will promptly pay when due all insurance
premiums and upon request of Mortgagee will promptly deliver the
policies, certificates of insurance or any renewal thereof to
Mortgagee. Should any loss occur to the the Mortgaged Property,
Mortgagor will promptly give written notice to Mortgagee of such
loss or damage and will not adjust or settle such loss without
the written consent of Mortgagee, and Mortgagee is hereby
appointed attorney-in-fact for Mortgagor to make proof of loss
or damage if Mortgagor fails to do so promptly, to receive any
sums collected under said policies, which sums or any part
thereof at the option of Mortgagee may be applied as payment for
the indebtedness or to the restoration or repair of the
Mortgaged Property so destroyed or damaged, and, in the event
any insurance losses are paid by check, draft or other
instrument payable to Mortgagor, Mortgagee may endorse
Mortgagor's name thereon and take such further steps in behalf
of Mortgagor as are necessary to realize on such instrument.
Application of insurance proceeds to payment indebtedness will
not extend, postpone, or waive installments otherwise due, or
change the amount of payments to be made, and proceeds may be
applied in such order and in such amounts as Mortgagee may
elect. In the event of foreclosure of this Mortgage, all
right, title and interest of Mortgagor in and to any insurance
policies then in force will pass to Mortgagee who is hereby
appointed attorney-in-fact for Mortgagor to assign and
transfer such policies.
(c) MAINTENANCE. Mortgagor will at all times maintain the Mortgaged
Property in good and substantial repair, free from waste or
nuisance of any kind; will make all repairs, replacements,
improvements and additions which may be necessary to preserve
and maintain the Mortgaged Property; will permit the Mortgagee,
its agents or representatives, to inspect the same at any
reasonable time; will comply with any reasonable requirements
made by Mortgagee with respect to maintaining and preserving the
Mortgaged Property; has an will comply with all laws,
ordinances and regulations affecting the Mortgaged Property or
its use and will not use, generate, store or dispose of
Hazardous Materials in, on, under or around the Mortgaged
Property or permit anyone to use the Mortgaged Property for
such purposes and will not permit to occur any seepage, spill,
release or discharge of Hazardous Materials on or onto the
Mortgaged Property at any time, and will indemnify Mortgagee
for any loss arising out of the presence of Hazardous
Materials in any way on the Mortgaged Property and any
violation of federal, state or local environmental laws or
regulations, such as clean up costs, personal injury or death,
restoration, and remedial actions; will not alter, destroy or
remove any of the Mortgaged Property or permit the Mortgaged
Property to be altered, destroyed or removed or used for any
purpose other than that for which it is not used or permit the
Mortgaged Property to be altered, destroyed or removed or used
for any purpose other than that for which it is now used or
permit any easement thereon without first obtaining
Mortgagee's written permission; will complete in good
workmanlike manner any building or improvement
BANK ONE is an affiliate of BANK ONE CORPORATION,
Columbus, Ohio
-BANK ONE CORPORATION 1991
<PAGE> 3
which is being or may be constructed or repaired thereon: will
pay when due all claims for labor performed and material
furnished and will not permit any lien of mechanics or
materialmen nor any judgment lien to attach to the
Mortgaged Property. Mortgagor hereby authorizes and empowers
Mortgagee at its option to do all things authorized or
required to be done by Mortgagee under any present or future
law of the State of Ohio relating to improvement of or payment
of encumbrances on the Mortgaged Property or to the granting
of liens for work, labor, material or machinery in connection
with the construction of any building or other improvement on
the Mortgaged Property in protection of Mortgagee's interest
therein and Mortgagee will be subrogated to the claims of
any party paid with the proceeds.
(d) CONSTRUCTION. If any building or other improvements of the
Mortgaged Property are to be constructed or are under
construction and are not completed, Mortgagee will have the
right, upon the happening of any event of default, to enter into
possession of the Mortgaged Property and perform any and all
work and labor necessary to complete improvements substantially
in accordance with the plans and specifications therefor and
employ watchmen to protect the Mortgaged Property; all sums
expended by Mortgagee for such purposes will be deemed to have
been paid to Mortgagor and secured by this Mortgage. For this
purpose, Mortgagor hereby constitutes and appoints Mortgagee its
true and lawful attorney-in-fact with full power of substitution
to complete to the construction in the name of Mortgagor, and
hereby empowers said attorney or attorneys to use any funds of
Mortgagor including any balance which may be held in escrow and
any funds which may remain unadvanced hereunder for the purpose
of completing construction in the manner called for by the plans
and specifications; to make such additions and changes and
corrections in the plans and specifications which will be
necessary or desirable to complete construction as Mortgagee
deems necessary in its sole judgment and in substantially the
manner contemplated by the plans and specifications; to employ
such contractors, subcontractors, agents, architects and
inspectors as will be required for said purposes; to enforce or
otherwise without limitation deal with any bonding or insurance
company under any policy required hereunder as Mortgagor might
do in its own behalf; to pay, settle or compromise all existing
bills and claims which are or may be liens against the Mortgaged
Property, or which may be necessary or desirable for the timely
completion of construction or the removal of liens and
encumbrances; to execute all applications and certificates in
the name of Mortgagor which may be required by any construction
contract to do any and every act with respect to construction
which Mortgagor may do in its own behalf; and to prosecute and
defend all actions or proceedings in connection with
improvements on the Mortgaged Property and to take such action
and require such performance as Mortgagee deems necessary. This
power of attorney will be deemed to be a power coupled with an
interest which cannot be revoked. Said attorney-in-fact will
also have power to prosecute and defend all actions or
proceedings in connection with the construction of improvements
on the Property and to take such action and require such
performance as is deemed necessary.
Mortgagee will not be liable for any loss sustained by Mortgagor
resulting from Mortgagee's failure to enforce the power of
attorney granted herein or from any other act or omission of
Mortgagee in managing the Mortgaged Property. Nor will
Mortgagee be obligated to perform or discharge nor does
Mortgagee hereby undertake to perform or discharge any
obligation, duty or liability with respect to improvements and
Mortgagor will indemnify Mortgagee for, and hold Mortgagee
harmless from, any and all liability, loss or damage which may
or might be incurred in the exercise or failure to exercise any
of the rights granted to Mortgagee under this section or by
reason of any assignment to Mortgagee of the construction
contract, architectural agreements, plans and specifications and
other contract rights with respect to the Mortgaged Property.
Should Mortgagee incur any such liability or in defense of any
claims or demands relating thereto, the amount thereof,
including costs, expenses and reasonable attorney's fees, will
be secured hereby and Mortgagor will reimburse Mortgagee
therefore immediately upon demand. It is further understood
that this section will not operate to place responsibility upon
Mortgagee for the control, care, management or repair of the
Mortgaged Property or for the carrying out construction; nor
will it operate to make Mortgagee responsible or liable for any
waste committed on the Mortgaged Property by the contractor or
or any other parties, or for any dangerous or defective
condition of the Mortgaged Property, or for any negligence in
the management, upkeep, repair or control of the Mortgaged
Property resulting in loss, injury, or death to any contractor,
subcontractor, licensee, invitees, employee, agent or stranger.
(e) TAXES. Mortgagor will pay before they become delinquent, all
taxes (both general and special), agreements, water rates, sewer
service or other governmental or municipal charges, fines or
impositions lawfully levied or assessed against the Mortgaged
Property, or any part thereof, or upon the rents, income and
profits thereof, so that the lien and priority of this Mortgage
<PAGE> 4
will be fully preserved; will promptly at the request of
Mortgagee deliver to Mortgagee the receipt showing such payment;
and will allow no payment of any taxes, assessments or
governmental charges by a third party with subrogation
attaching; nor permit the Mortgaged Property or any part thereof
to be sold or forfeited for any tax, assessment or governmental
charge whatsoever.
(f) FURTHER ASSURANCES, CONDEMNATION. Mortgagor will execute,
acknowledge and deliver all and every further assurance in law
for the better assuring, conveying, assigning and transferring
to Mortgagee the Mortgaged Property hereby conveyed in such
manner as Mortgagee will require. All awards of damages in
connection with any condemnation or exercise of the power of
eminent domain for public use of or injury to any of the
Mortgaged Property are hereby assigned and will be paid to
Mortgagee, who may apply the same to payment of the
indebtedness, including a foreclosure deficiency and Mortgagee
is hereby authorized, in the name of Mortgagor, to execute and
deliver valid acqittances thereof and to appeal to any such
award. Application of proceeds to payment of indebtedness will
not extend, postpone, or solve installments otherwise due, or
change the amount of payments to be made, and proceeds may be
applied in such order and in such amounts as Mortgagee may
elect.
3. EVENTS OF DEFAULT. Mortgagee will have the Remedies and powers set
forth herein upon occurrence of any of the following "Events of
Default": (a) failure of Mortgagor or Obligor to make payment when due
of the principal or interest of the structured indebtedness or failure
to perform any terms of the Obligations; (b) failure of Obligor to
furnish satisfactory additional collateral; (c) failure of Mortgagor
to comply with any of the terms and conditions of this Mortgage; (d)
death of Mortgagor or Obligor, dissolution, termination of existence,
insolvency, business failure, appointment of a receiver for Mortgagor
or Obligor or any property of Mortgagor or Obligor, assignment for the
benefit of creditors or commencement of any proceeding under any
bankruptcy, reorganization, arrangement or liquidation law for
Mortgagor or Obligor, or if such proceedings are commenced by a
creditor and remain undismissed for thirty (30) days; (e) failure of
Mortgagor or Obligor to pay when due any premium on any policy of life
or other insurance pledged hereunder, or held in connection with the
Mortgaged Property; (f) Mortgagee deeming itself insecure and in good
faith believing that the prospect of payment or performance by
Mortgagor or Obligor is impaired; (g) the filing of a judgment or
statutory lien or the institution of any proceedings by foreclosure,
attachment, levy or otherwise against Mortgagor, Obligor, the
Mortgaged Property or any other collateral securing the indebtedness;
(h) failure of Mortgagor or Obligor to furnish Mortgages within thirty
(30) days after written request by Mortgagee, current financial
statements in form satisfactory to Mortgagee or to permit inspection
of any Mortgagor's or Obligor's books or records; (i) any
representation, warranty, statement, report, or application made, or
furnished, by Obligor or Mortgagor proving to have been false, or
erroneous, in any material respect at the time of the making thereof;
(j) the issuance of any tax levy or lien against Mortgagor or Obligor
or the failure to pay, withhold, collect or remit any tax when
assessed or due; (k) abandonment, sale, or transfer of the Mortgaged
Property by contract to sell or lease, by conveyance, assignment of
lease, rents or rights thereto, encumbering or granting other rights
therein, by Mortgagor; (l) a bulk sale of Obligor's assets; or (m) the
suspension of liquidation of Obligor's business.
4. REMEDIES. Upon an Event of Default Mortgagee may at its option
without notice and without affecting the validity or priority of the
lien hereby created or any right of Mortgagee hereunder:
(a) Perform any such defaulted covenant or agreement to such extent
as Mortgagee will determine and enter upon the Mortgaged
Property, inspect, repair and maintain the same and perform such
other acts thereon as Mortgagee will deem necessary or advisable
for any of the above purposes and all funds so advanced by
Mortgagee with interest thereon at the highest rate applicable
to the indebtedness as set forth in any instrument evidencing
the Indebtedness, from the date advanced until paid will be
secured hereby and will be repaid promptly without demand.
Nothing herein will be construed as requiring Mortgagee to
advance funds for any of the aforesaid purposes. Mortgagee
will have the right to take possession of the Mortgaged
Property, manage it and collect the rents, issues and profits
therefrom and apply the same less reasonable costs of
collection upon the indebtedness. Any and all of the rights
and remedies granted by this paragraph will accrue and become
available to Mortgagee upon such default whether or not a
receiver has been appointed or a foreclosure action has been
commenced;
(b) Declare without notice all sums secured hereby immediately due
and payable whether or not such default be remedied by
Mortgagor, to enforce any of the rights which accrue to
Mortgagee hereunder and to enforce any right or remedy of
Mortgagee under the laws of the State of Ohio. Upon
commencement of any judicial proceedings to enforce any right
under this Mortgage, the court in which such proceedings are
brought, at any time thereafter (without notice to Mortgagor
or any party claiming under Mortgagor, such notice being
hereby expressly waived, and without reference to the then
<PAGE> 5
value of the Mortgaged Property, to the use of the Mortgaged
Property as a homestead or to the solvency or insolvency of
any Obligor or other grounds for extraordinary relief) may
appoint a receiver for the benefit of Mortgagee with power to
take immediate possession of the Mortgaged Property, manage,
rent and collect the rents, issues and profits thereof and
such rents, issues and profits when collected may be applied
toward the payment of the indebtedness and the costs, taxes,
insurance or other items necessary for the protection and
preservation of the Mortgaged Property, including the expenses
of such receivership. In the event of a sale, judicial of
otherwise, of the Mortgaged Property, the Mortgaged Property
may be sold in one or more parcels as the Mortgagee may
determine.
WAIVER. To the extent permitted by law Mortgagor will not claim the
benefit of any stay, extension, valuation, appraisement or redemption
law now or at any time hereafter in force.
AVAILABILITY OF REMEDIES. Every right and remedy provided in this
Mortgage whether herein or by law conferred and may be enforced
concurrently therewith and no acceptance of the performance of any
obligation as to which Mortgagor will be in default, or waiver of
particular or single performance of any obligation or observance of any
covenant, will be construed as a waiver of the obligation or covenant or
as a waiver of any other default then, theretofore or thereafter
existing. Mortgagee's acceptance of less than the entire payment of
principal due or receipt of interest computed at a rate less than the
maximum permitted to be charged under the terms of any Obligation or
Indebtedness will not constitute a waiver of Mortgagee's rights
hereunder to thereafter require payment of the full amount of principal
and interest computed at such maximum rate and receipt of payments after
maturity, by acceleration, declaration, or otherwise of any instrument
of indebtedness in an amount less than that due will not constitute a
waiver of Mortgagee's rights to full payment unless so agreed in
writing.
7. INDULGENCE. Mortgagee may, at any time and without notice, deal with
Mortgagor or grant to Mortgagor or any Obligor any indulgence or
forbearance or any extension of time of payment of the Indebtedness, or
a release of liability for payment of the secured indebtedness, or may,
with or without consideration, release portions of the Mortgaged
Property from the lien hereof. No such act or acts of Mortgages will
effect the personal liability of any other Obligor for payment of the
Indebtedness or the lien of this Mortgage upon the remainder of the
Mortgaged Property for the full amount of the
<PAGE> 6
Indebtedness. Assumption of liability for the payment of the
Indebtedness by any other party will not release Mortgagor from
liability for the payment of the secured indebtedness, and the consent
of Mortgagee to any such assumption or to any sale, lease,
conveyance or transfer of the Mortgaged Property will not be construed
as a release of any Obligor. No delay or omission of Mortgagee to
exercise any right, power or remedy occurring upon any default will
exhaust or impair such right, power or remedy or will be construed to
be a waiver of any such default or acquiescence therein; and every
right, power and remedy given by this Mortgage may be exercised from
time to time and as often as may be deemed expedient by Mortgagee.
8. JOINT AND SEVERAL LIABILITY. The term "Mortgagor" wherever used in this
Mortgage will include the joint and several liability of not only the
persons signing this Mortgage, but also any person or persons who
hereafter may assume payment of any or all of the Indebtedness, together
with respective heirs, representatives, successors and assigns of such
persons, and the term "Mortgagee" wherever used in this Mortgage will
include any lawful owner, holder or pledgee of any Indebtedness.
9. FINANCIAL STATEMENTS. As long as the indebtedness remains unpaid in
whole or in part, Mortgagor agrees to furnish Mortgagee upon request by
Mortgagee, at such times reasonably required by Mortgagee, financial
statements certified by Mortgagor, including balance sheets and
statements of income and expense for such period requested by Mortgagee
including such information with respect to the Mortgaged Property as
Mortgagee will request.
10. DOWER. The undersigned, spouse of Mortgagor, if any, does hereby
remiss, release and forever quit-claim unto Mortgagee, its successors
and assigns all right, title and expectancy do dower in the Mortgaged
Property.
11. FEES AND EXPENSES. If Mortgagee incurs any costs and expenses
(including reasonable attorneys' fees) in connection with any action or
proceeding to sustain the lien of this Mortgage of its priority or to
enforce any of Mortgagee's rights hereunder or to recover any
Indebtedness, or for any title examination or title insurance policy
relating to title to the Mortgaged Property required by Mortgagee, or
in curing any default of Mortgagor under any lease, or other agreement,
all such sums will be paid by Mortgagor on demand, together with
interest thereon at the default rate from date of payment by Mortgagee.
To the maximum extent permitted by law, such sums will be secured by
this Mortgage and will be a lien on the Mortgaged Property prior to any
right, title or interest claimed upon the Mortgaged Property
subordinate to the lien of this Mortgage.
12. TIME IS OF THE ESSENCE. Time is of the essence in the performance of
the terms of this Mortgage, the Indebtedness and the Obligations.
13. INDEMNIFICATION. Mortgagor will protect, save harmless and Indemnify
Mortgagee from and against any and all claims, liabilities, costs and
expenses, of whatever nature. (Including court costs and attorneys'
fees), which may arise or result directly or indirectly, by reason of
the use, occupation or operation of the Mortgaged Property or any part
thereof, or of any violation of any covenants of this Mortgage.
14. ASSIGNMENT OF RENTS AND LEASES. Mortgagor hereby absolutely and
unconditionally assigns, transfers and sets over unto Mortgagee, its
successors and assigns, all present and future leases covering all or
any part of the Mortgaged Property and all of the rents,
income, receipts, revenues, issues and profits now due or which may
hereafter become due under the leases of any extensions or renewals
thereof, together with any and all rights and remedies which Mortgagor
may have against any tenant under any of the leases or others in
possession of the Mortgaged Property.
Mortgagee shall not be obligated to perform or discharge any
obligation or duty to be performed or discharged by Mortgagor under any
of the leases; and Mortgagor hereby agrees to indemnify Mortgagee for,
and to save Mortgagee harmless from, any and all liability, damage or
expense arising from any of the leases or from this assignment,
including attorneys' fees. This assignment shall not place
responsibility for the control, care, management or repair of the
Mortgaged Property upon Mortgagee. Upon any default in the payment of
the indebtedness, or upon any default in performance or observance of
any of the terms, covenants or agreements of this Mortgage or any one or
more of the other instruments securing the Indebtedness and Obligations
all rents assigned hereunder shall be paid directly to Mortgagee, and
Mortgagee may notify the tenants under the leases (or any other parties
in possession of the Mortgaged Property) to pay off the rents directly
to Mortgagee. Rents collected by Mortgagee may be applied toward the
payment of taxes, assets, insurance premiums, repairs, protection of the
Mortgaged Property, and other charges against the Mortgaged Property,
or in the reduction of the Indebtedness and the payment of interest as
Mortgagee may elect.
Mortgagor shall not lease the Mortgaged Property without
Mortgagee's consent, however, if Mortgagee consents to a lease
Mortgagor will comply with and observe the duties of lessor thereunder
and Mortgagor will furnish Mortgagee with a copy upon request.
Mortgagor agrees to provide Mortgagee a separate Assignment of Lease
upon request to clarify the rights of Mortgagor and Mortgagee
therein. The absence of a separate assignment will not affect the
rights of Mortgagee granted hereby.
<PAGE> 7
15. NOTICES. Any provision in this Mortgage requiring or permitting notice
or demand or request will be deemed satisfied by written notice
personally served on Mortgagor or Mortgagee, as the case may be, or as
of the fifth (5th) day after being mailed by United States Postal
Service, registered or certified mail, return receipt requested, postage
prepaid, addressed to Mortgagor as follows:
OIOPT Acquisition Corp.
----------------------------------------------
2029 Edgefield Rd.
----------------------------------------------
Moraine, Ohio
----------------------------------------------
and addressed to Mortgagee as follows:
BANK ONE, Dayton, NA
-------------------------------------
Kettering Tower
----------------------------------------------
Dayton, Ohio 45401
----------------------------------------------
Attn: Commercial Financial Services Division
----------------------------------------------
Either party may, by written notice to the other in the above manner,
specify a different address for notice purposes.
16. CONFLICTS. The terms of this Mortgage will prevail over conflicting
terms set forth in any of the Obligations secured.
17. SEVERABILITY. In the event that any provision of this Mortgage, the
Indebtness or Obligations or any other agreement conflicts with
applicable law, such conflict will not affect other provisions of this
Mortgage, which can be given effect without the conflicting provision,
and to this end the provisions of this Mortgage, the Indebtedness and
Obligations, and other agreements are declared to be severable.
18. FURTHER ASSURANCES. Mortgagor will, at its own expense, within fifteen
(15) days after request by Mortgagee, do, execute, acknowledge and
deliver all further acts, deeds, conveyances, transfers, security
interests, security agreements, financing statements, renewals,
certificates, affidavits, continuation statements and other documents
and assurances necessary or proper to effectuate, complete, or perfect,
or to continue and preserve, the Obligations of Mortgagor and the lien
provided for by this Mortgage in the Mortgaged Property or any part
thereof.
19. GOVERNING LAW. This Mortgage will be construed, interpreted, enforced
and governed by and in accordance with laws of the State of Ohio.
20. CAPTIONS & HEADINGS, GENDER & NUMBER. The captions or headings of the
provisions hereof are for convenience of reference only and will not
define or limit the terms hereof. Whenever the singular or plural
number, masculine or feminine or neuter gender is used herein, it will
equally include the other.
21. PROVIDING ALWAYS, that if Mortgagor will pay to Mortgagee the secured
Indebtedness with Interest and perform the secured Obligations at the
time and in the manner provided therein or under this Mortgage, then
these presents will be void and this Mortgage will be released and
cancelled at the cost of Mortgagor.
IN WITNESS WHEREOF, this Open End Mortgage has been executed at Dayton,
Ohio, this 14th day of July, 1993.
Signed, acknowledged and OIOPT Acquisition Corp.
delivered in the presence of: -------------------------------
/s/ Michael P. Moloney BY: /s/ Vince Pisano
- ------------------------------ ---------------------------
Michael P. Moloney Vince Pisano
/s/ Scott E. Roman ITS: V.P. - CFO
- ------------------------------ ---------------------------
Scott E. Roman
<PAGE> 8
PERSONAL ACKNOWLEDGMENT
STATE OF__________________________)
) SS.
COUNTY OF_________________________)
Before me, a Notary Public in any for said county and state, personally
appeared the above named_____________________________________________________
and _____________________________who acknowledged signing the foregoing
instrument and that the same is his/her/their free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and offical seal at
____________________________________________, this day of
_____________________, 19_________.
________________________________________
Notary Public
CORPORATE ACKNOWLEDGMENT
STATE OF Ohio
----------------------------)
) SS.
COUNTY OF Montgomery )
--------------------------
BEFORE ME, a Notary Public in and for said county and state, personally
appeared the above-named OIOPT Acquisition Corp. by Vince Pisano, its Vice
President and Chief Financial Officer, and ___________________________ its
___________________________________, who acknowledged that he/she/they did
sign the foregoing instrument for and on behalf of the partnership and
that the same is his/her/their free act and deed and the free act and deed of
the corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Dayton, Ohio, this 14th day of July, 1993.
/s/ Stanley J. Cohen
---------------------------------------
Notary Public
STATE OF
----------------------------)
) SS.
COUNTY OF
--------------------------)
BEFORE ME, a Notary Public in and for said county and state, personally
appeared the above-named __________________________ by _______________________
and __________________________ its partners, who acknowledged that he/she/they
did sign the foregoing instrument for and on behalf of the partnership and that
the same his/her/their free act and deed and the free act and deed of the
partnership.
IN TESTIMONY WHEREOF, I have hereunto set my hand official seal at
_______________________________, this _________ day of _____________________,
19________.
______________________________________
Notary Public
This instrument prepared by BANK ONE, Dayton NA
----------------------------------------
Address of BANK ONE: Kettering Tower Dayton, Ohio 45401
----------------------------------------------------------
<PAGE> 9
EXHIBIT "A"
SITUATED IN THE CITY OF MORAINE, COUNTY OR MONTGOMERY, STATE OF OHIO AN BEING
LOTS NUMBERED THREE THOUSAND EIGHT HUNDRED FOUR (3804) AND FOUR THOUSAND FOUR
HUNDRED SEVENTY THREE (4473) OF THE CONSECUTIVE NUMBERS OF LOTS ON THE REVISED
PLAT OF THE SAID CITY OF MORAINE, OHIO.
<PAGE> 1
EXHIBIT 10.27
PLEDGE AGREEMENT
AGREEMENT, dated as of , 1993 between EDUCATIONAL
MEDICAL, INC., a Delaware corporation (the "Pledgor"), OHIO INSTITUTE OF
PHOTOGRAPHY AND TECHNOLOGY, INC., an Ohio corporation (the "Pledgee") and OIOPT
ACQUISITION CORP., a Delaware corporation (the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common
stock, par value $.10 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
$200,000 (the "Second Payment Note"), a copy of which is attached as Exhibit 1
to this Pledge Agreement. The Second Payment Note was issued pursuant to an
asset purchase agreement (the "Asset Purchase Agreement") entered into among
the Pledgor, Pledgee, the Issuer and the Shareholders of the Pledgee and dated
June 23, 1993. The Pledgor's obligations with respect to the payment of the
Second Payment Note and the Consulting Payments (as defined in Section 1(f)(1)
of the Asset Purchase Agreement) and the Individual Non-Competition Payments
(as defined in Section 1(f)(2) of the Asset Purchase Agreement) are
collectively called the "Secured Obligations" and 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 Sebaly, Shillito &
Dyer, P.O. Box 220, Dayton, Ohio (the "Escrow Agent"). The Pledgor shall
deliver to the Escrow Agent all original certificates representing the Pledged
<PAGE> 2
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 the Escrow Agent of the appropriate Pledged Collateral to the
Issuer, exchange the certificates representing the Pledged Collateral for
certificates of smaller or larger denominations for any purpose consistent with
the terms of this Pledge Agreement.
3. Voting Rights; Dividends. So long as there is no failure to make
due and punctual payment to the Pledgee in accordance with the terms of the
Secured Obligations nor any other continuing event which would constitute an
event of default under this Agreement (an "Event of Default"):
(a) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to the
Pledged Collateral or any part thereof.
(b) The Pledgor shall be entitled to receive and retain
any and all ordinary cash dividends and interest payable on the Pledged
Collateral, but any and all stock and/or liquidating dividends, distributions
in property, returns of capital or other distributions made on or in respect of
the Pledged Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of an Issuer or received in
exchange for Pledged Collateral or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which the
Issuer may be a party or otherwise, and any and all cash and other property
received in payment of the principal of or in redemption of or in exchange for
any Pledged Collateral (either at maturity, upon call for redemption or
otherwise), shall be and become part of the collateral pledged by the Pledgor
hereunder and, if received by the Pledgor, shall be received in trust for the
benefit of the Pledgee or its assigns or the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement and shall forthwith
be delivered to the Escrow Agent (accompanied by proper instruments of
assignment and/or stock and/or bond powers executed by the Pledgor in
accordance with the Pledgee's instructions) to be held as Pledged Collateral
subject to the terms of this Pledge Agreement.
(c) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of attorney,
dividend orders, interest coupons and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
subparagraph (a) above and/or to receive the dividends and/or interest payments
which it is authorized to receive and retain pursuant to subparagraph (b)
above.
(d) Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
Section 3(a) hereof and/or to receive the dividends and interest payments which
it is authorized to receive and retain pursuant to Section 3(b) hereof shall
cease, and all such rights shall thereupon become vested in the Pledgee who
shall have the sole and exclusive right and authority to exercise such voting
and/or consensual rights and powers and/or to receive and retain the dividends
and/or interest payments which the Pledgor would otherwise be authorized to
retain pursuant to Section 3(b) hereof. Any and all money and other property
paid over to or received by the Pledgee pursuant to the provisions of this
Section 3 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:
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<PAGE> 3
(a) the Pledgor and the Issuer shall default in making any
payment with respect to the Secured Obligations; or
(b) if the Pledgor and the Issuer shall fail to make any
payment9 when with respect to the Consulting Payments or the Individual
Non-Competition Payments (as defined in the Asset Purchase Agreement; or
(c) if either the Pledgor or the Issuer 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 any event; and
(d) except as provided for in subsection (c), if such default
or event shall continue for 10 days after the giving of written notice to the
Pledgee.
5. Remedies upon Default. If any Event of Default shall have
occurred and be continuing, then, in addition to exercising any rights and
remedies as a secured party under the Uniform Commercial Code in effect in
Ohio, 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 Secured
Obligations and this Agreement; second to the payment of interest accrued and
unpaid on the Second Payment Note to and including the date of such
application, third to the payment or prepayment of principal of the Second
Payment Note; fourth, to the payment of all amounts due with respect to the
Consulting Payments; fifth to the payment of all amounts due with respect to
the Individual Non-Competition Payments; and sixth all other amounts then due
with respect to other Secured Obligations 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
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(1) In the event of a dispute with respect to the payment of any
non-competition fee, it shall not be a default for purposes of this pledge
agreement if payments of such fee are made into the registry or similar
facility of any court of competent jurisdiction pending the outcome of such
dispute.
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<PAGE> 4
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 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 other
Secured Obligations and then otherwise pursuant to 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
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
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<PAGE> 5
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 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
enter into the transactions provided for in the Asset Purchase Agreement and to
accept the Second Payment 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 the
Secured Obligations have been fully paid and performed, provided that, with
respect to the Individual Non-Competition Agreements, it shall terminate upon
payment in full of the Consulting Payments, provided at the time of such
payments all amounts due with respect to such Individual Non-Competition
Payments have been paid or provided for in accordance with this Agreement, 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
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<PAGE> 6
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) Sebaly, Shillito & Dyer 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:
(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 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
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<PAGE> 7
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 in reliance upon advice of
counsel in reference to any matter(s) in 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 retained 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 be bound by, the provisions of any other
agreement.
(v) The Escrow Agent may at any time resign hereunder by
giving written notice of its resignation to all parties hereto at
least thirty (30) days prior to the date specified for such
resignation to take effect, and upon the effective date of such
resignation, all cash, documents and all other property then held by
the Escrow Agent hereunder shall be delivered by it to such persons as
may be designated in writing by all parties hereto, whereupon all
further obligations of 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 from
any further duties and obligations hereunder upon its filing an
impleader or other appropriate proceeding in a court of competent
jurisdiction and depositing in such court 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.
(vi) Pledgor and Pledgee shall be jointly and severally
obligated to pay the Escrow Agent its fees, and reimburse all of its
costs and expenses in connection herewith, including reasonable
counsel fees for counsel retained by the Escrow Agent (even though the
Escrow Agent is a practicing attorney) 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. The Escrow Agent may
apply to a court of competent jurisdiction for payment of its fees and
expenses from the Pledged Collateral and such claim shall have
priority over the rights of the undersigned with respect to any
payment to be made pursuant to this agreement. In that connection the
Escrow Agent may sell all or any part of the Pledged Collateral to
satisfy such obligations as if they were Secured Obligations as
defined in this agreement.
(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.
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<PAGE> 8
(vii) Pledgor acknowledges that the Escrow Agent is 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 impleader
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 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
relating to the subject matter of this agreement. 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 Ohio, and any
suit, action or proceeding arising out of or relating to this Agreement shall
be commenced and maintained in the circuit court in Montgomery County, Ohio, or
the United States District Court for the Southern District of Ohio 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. As between Pledgor and Pledgee, 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
certification 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 for such party as aforesaid.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
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<PAGE> 9
In the Presence of: EDUCATIONAL MEDICAL, INC.
- ------------------------------
By:
- ------------------------------ ---------------------------------
Authorized Signatory
OIOPT ACQUISITION CORP.
- ------------------------------
By:
- ------------------------------ ---------------------------------
Authorized Signatory
OHIO INSTITUTE OF PHOTOGRAPHY AND
TECHNOLOGY, INC.
- ------------------------------
By:
- ------------------------------ ---------------------------------
Authorized Signatory
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<PAGE> 10
ACCEPTANCE OF ESCROW AGENT
Sebaly, Shillito & Dyer acknowledges receipt of the foregoing
Agreement and agrees to act as Escrow Agent under its terms.
SEBALY, SHILLITO & DYER
By:
--------------------------------
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<PAGE> 11
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).
SEBALY, SHILLITO & DYER
Acknowledged, Accepted and Agreed to as of July ____, 1993.
EDUCATIONAL MEDICAL, INC.
By:
--------------------------------
Authorized Representative
<PAGE> 1
EXHIBIT 10.28
ASSET PURCHASE AGREEMENT
Agreement dated as of June 23, 1993, among EDUCATIONAL MEDICAL, INC., a
Delaware corporation ("EMI"), OIOPT Acquisition Corp., a Delaware corporation
wholly owned by EMI ("Buyer"), OHIO INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY,
INC., an Ohio corporation (the "Seller"), Mr. K. TERRY GUTHRIE, Mr. RICHARD L.
CRETCHER, Mr. STEPHEN T. McLAIN, Mr. GERALD D. GUTHRIE, and Mr. JAMES R.
MADDEN (each such individual is separately called a "Shareholder" and such
Shareholders are collectively called the "Shareholders").
PRELIMINARY STATEMENT
The Seller is the owner of a post secondary educational school
located, at 2029 Edgefield Road, Dayton, Ohio (the "School"). The Buyer wants
to buy the School. The Seller and each Shareholder want to sell the School to
the Buyer.
This Agreement provides for the sale and purchase of the School. It
contains the terms pursuant to which Seller has agreed to sell substantially
all of its School Related Assets to Buyer and Buyer has agreed to assume
certain related Stated Liabilities of Seller. EMI has entered into this
Agreement to reflect that it is jointly and severally liable with the Buyer
with regard to the obligations of the Buyer provided for in it.
IN CONSIDERATION OF THE COVENANTS CONTAINED IN THIS AGREEMENT, AND THE
OTHER CONSIDERATION PROVIDED FOR IN IT, THE PARTIES, EACH INTENDING TO BE
LEGALLY BOUND, AGREE AS FOLLOWS:
1. THE PURCHASE PRICE; CONVEYANCE OF THE ASSETS; ASSUMPTION OF
STATED LIABILITIES; CERTAIN DEFINITIONS; INDIVIDUAL NON-COMPETITION AGREEMENTS;
CONSULTING AGREEMENTS; EFFECTIVE DATE OF TRANSACTION.
(a) The Purchase Price and Other Payments. The purchase
price for the "School Related Assets" (as defined in Section 1(h), below, is
(1) $370,000.00 (the "Cash Portion"), plus
(2) the amount of cash (the "Existing Mortgage
Payments") necessary to repay in full the Existing First Mortgage and Existing
Second Mortgage (as defined in Section 1(m) of the Addendum to this Agreement
secured by the Facility (as defined in Section 1(h)(1)(ii), below), plus
(3) the amount of cash (the "Wage Claims Payment")
necessary to pay Accrued Wage Claims (as defined in Section 1(h)(4), below),
plus
(4) the assumption of the Stated Liabilities (as
defined in Section 1(h)(2), below).
The payments provided for in clauses (i), (ii) and (iii) of the preceding
sentence are called the "Cash Portion of the Purchase Price"); the Cash Portion
of the Purchase Price plus the assumption provided for in clause (iv) of the
preceding sentence is called the ("Purchase Price"). The Purchase Price shall
be allocated between tangible and intangible assets and between real estate and
personal property as determined by Buyer and Seller prior to the Closing.
(b) Conveyance of Assets. On July 21, 1993, or such earlier
date as the parties may specify (the "Closing Date") the Seller shall convey to
Buyer all of its School Related Assets (the "Closing").
(c) Cash Payments. At the Closing, the Buyer shall deliver
to Seller or the holder of
<PAGE> 2
the Existing Mortgage, as the case may be:
(1) $170,000 in immediately available funds on
account of the Cash Portion (the "First Payment");
(2) The Existing Mortgage Payments, which shall be
delivered to the respective mortgagees in full satisfaction of the Existing
Mortgages; and
(3) The Wage Claims Payment, which shall be paid by
the Seller to the relevant employees or appropriately deposited on account of
withholding taxes or similar deposits in compliance with laws requiring similar
withholdings or deposits.
(d) Assumption of Stated Liabilities. On the Closing Date
the Buyer shall assume all of the "Stated Liabilities" (as defined in Section
1(h)(2), below.
(e) Delivery of Second Payment Note. On the Closing Date the
Buyer shall deliver to Seller its Promissory Not e for $200,000.00 (the "Second
Payment Note") in the form attached to this Agreement as EXHIBIT 172, payable
the earlier of the last business day within the first 30 calendar days
following the date on which the Prerequisite Student Aid Approvals are
obtained, but no later than twelve months from the date of Closing.
"Prerequisite Student Aid Approvals" mean approvals by the United States
Department of Education and all other applicable private and governmental
agencies and organizations of the change in control of the School resulting
from the sale of the School pursuant to this Asset Purchase Agreement which are
a prerequisite to receipt of federal and state aid by the School's students;
(f) Consulting Agreements and Individual Non-Competition
Agreements. In addition to the payments for the School Related Assets
described above, the Buyer shall:
(1) enter into consulting agreements (the "Consulting
Agreements") with each of the Shareholders in the form attached to this
agreement as EXHIBIT 273 providing for aggregate semi-annual payments (the
"Consulting Payments") in the following amounts:
<TABLE>
<CAPTION>
AGGREGATE SEMI-ANNUAL
CONSULTING CONSULTING
SHAREHOLDER PAYMENT PAYMENT
----------- ------- -------
<S> <C> <C>
K. Terry Guthrie $ 71,420.00 $11,903.33
Richard L. Cretcher 60,960.00 10,160.00
Stephen T. McLain 43,800.00 7,300.00
Gerald D. Guthrie 17,140.00 2,856.67
James R. Madden 6,680.00 1,113.33
----------- ----------
TOTAL $200,000.00 $33,333.33
</TABLE>
The Consulting Payments shall be paid to each Shareholder in 10 equal
semiannual payments in the amounts set forth above. Such payments shall be due
on June 30, and December 31 of each year, commencing on December 31, 1993.
(2) pay to Messrs. Guthrie and Cretcher,
respectively, the amounts of
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<PAGE> 3
$175,00.00 and $150,000.00 (the "Individual Non-Competition Payments") on
account of the agreements contained in Section 7(f) of this Agreement
prohibiting them from Competing with the Buyer or EMI for a period of 5 years.
The Individual Non-Competition Payments shall be paid to Messrs. Guthrie and
Cretcher in 10 equal semiannual payments of $17,500.00 and $15,000.00,
respectively. Such payments shall be due on June 30, and December 31 of each
year, commencing on December 31, 1993.
(g) DELIVERY OF THE PLEDGE AGREEMENT. At the Closing EMI shall
deliver to the Seller a pledge agreement in the form attached to this Agreement
(the "Pledge Agreement") in the form attached to this Agreement as EXHIBIT
374pursuant to which EMI secures the payment of the Second Payment Note and the
Consulting Payments by a pledge of all of the outstanding capital stock (the
"Buyer's Stock") of the Buyer.
(h) Definitions of School Related Assets and Stated Liabilities.
(1) "School Related Assets" shall mean:
(i) All cash and cash equivalents owned by
the Seller at the Closing Date except for "Excess Cash," which shall mean cash
or cash equivalents on hand at the Closing Date less that amount, up to $
, distributed to the Shareholders subsequent to December 31, 1992,
("Permitted Pre-Closing Distributions") and (y) increased or decreased, as the
case may be, to the extent the Net Assets of the Seller as of March 31, 1993
are greater or less than $419,667.00, without giving effect to any Permitted
Pre-Closing Distributions (the "Closing Adjustment"). "Net Assets" means
assets minus liabilities, as calculated in accordance with generally accepted
accounting principals, as indicated on financial statements reviewed by [
] prior to the Closing for the purpose, among others, of making such
calculation (the "Reviewed March 31, 1993 Financials"). Any Closing Adjustment
shall first be made by reducing the First Payment and then the amount of the
Second Payment Note.
(ii) The Facility, which means the Real
Property described on EXHIBIT 475, along with all improvements to it.
(iii) The non-cash assets reflected in the
Seller's 1993 Balance Sheet and included in the Seller's Financial Statements,
together with the related goodwill and rights of Seller as a going concern,
tangible and intangible, used in connection with the operation of the School,
together with any other assets acquired by Seller subsequent to the date of
such balance sheet in connection with the operation of the School;
(iv) Seller's right to use the name "Ohio
Institute of Photography & Technology" either alone or in conjunction with
other words or names in the context of the operation of a school or other
learning institution.
(v) National student matching funds, if
any.
School Related Assets shall not include "Excluded Assets." Excluded Assets
are:
(i) assets disposed of in the ordinary
course of business subsequent to the date of the Seller's March Balance Sheet,
and
(ii) those assets listed on EXHIBIT
5 attached to this Agreement.
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<PAGE> 4
(2) "Stated Liabilities" shall mean shall mean the
liabilities, duties, and obligations of the Seller related to the operations of
the School:
(i) which are reflected on the Seller's March
Balance Sheet in accounts numbered 20100, 23000, 20410, 20640, 20700 and 20800
which include liability for unearned tuition and similar liabilities incurred
by the Seller prior to the Closing in the ordinary course of business after
March 31, 1993 which are posted to such accounts consistently with the Seller's
prior practice,
(ii) provided for in agreements made or
entered into in the ordinary course of business after the date of the Seller's
March Balance Sheet, including accounts payable arising in the ordinary course
of business, from transaction with trade creditors and suppliers, regardless of
whether such agreement is in writing, (the "Closing Date Liabilities"), and
(iii) provided for in the agreements
disclosed on the Exhibits attached to this Agreement and specifically assumed
by the Buyer;
provided, in the case of liabilities, duties, and obligations described in
clauses (i), (ii) and (iii) of this sentence, Stated Liabilities shall only
include the liability, duty or obligation to (x) pay money if, and to the
extent, such obligation is provided for in such agreement and (y) perform any
service or take any other action if, and to the extent, such service or other
action is capable of being performed in the ordinary course of business.
Stated Liabilities shall exclude, without limitation (x) obligations of the
Seller to employees whether in the nature of wages, benefits or otherwise,
including, Accrued Wage Claims (the later of which will be paid by the Seller
from the Purchase Price) and (y) any contingent liabilities not specifically
assumed, whether arising prior to of after the Effective Date and regardless of
whether disclosed to Seller, including without limitation, any liabilities
arising from failure to comply with any law or regulation relating to the
administration of any kind of student aid or grant, or record keeping or
reporting required in connection with such administration.
(3) "Cohort Default Report" shall mean the relevant
Department of Education report from indicating the student default rate for the
applicable fiscal year computed in accordance with federally mandated
procedures for all students attending the School and receiving assistance
pursuant to the Stafford Loan and Supplemental Loans for Students programs.
(4) "Accrued Wage Claims" means the Seller's
obligation to pay Employee Wages, federal and state withholding and similar
taxes and deposits as reflected in accounts 20130, and 20500 through 20560,
inclusive, described in the Seller's March Balance Sheet and similar
liabilities incurred by the Seller prior to the Closing in the ordinary course
of business after March 31, 1993 which are posted to such accounts consistently
with the Seller's prior practice.
(i) Effective Date. The effective date of this
transaction for all accounting purposes shall be March 31, 1993, provided that
the selection of such effective date shall not be considered to impose on the
Buyer any liability of the Seller other than with respect to the assumption of
Stated Liabilities.
2. REPRESENTATIONS OF THE SELLER AND THE SHAREHOLDER.
Seller and each Shareholder, jointly and severally, represent and
warrant to Buyer:
(a) No Misstatements. The representations of the Seller
and each Shareholder and the information supplied by Seller or each Shareholder
contained in this Agreement, the Exhibits attached to it and the documents
incorporated into it by reference do not contain any untrue statement of a
material fact or omit to state any fact necessary to make such representations
or information not
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<PAGE> 5
materially misleading.
(b) Validity of Actions. Seller (i) is duly organized,
validly existing and in good standing under the laws of its organization, (ii)
has all requisite corporate and other appropriate authorization to conduct its
business as currently conducted, (iii) is qualified to do business in all
jurisdictions in which such qualification is necessary, and (iv) has full power
and authority to enter into this Agreement and to carry out all acts
contemplated by it. This Agreement has been duly executed and delivered on
behalf of the Seller and each Shareholder, has received all necessary corporate
authorization and is a legal, valid and binding obligation of the Seller and
each Shareholder, enforceable against each of them in accordance with its
terms. Entering into this Asset Purchase Agreement and the consummation of the
transactions contemplated by it will not violate any provision of the Articles
of Incorporation or Code of Regulations of Seller or conflict with or result in
any breach of any of the provisions of any agreement to which the Seller or and
or any of the Shareholders is a party or by which any of them or any of their
respective assets are bound, or cause a breach of any applicable law,
governmental regulation, order, or other decree of any court or governmental
agency. The Articles of Incorporation and Code of Regulations of Seller, as
presently in effect, are attached to this Agreement as EXHIBIT 6(6).
(c) Seller's Financial Statements
(1) Attached as EXHIBIT 7(7) to this Agreement
are Seller's unaudited balance sheets at August 31, 1991, and 1992, and
statements of income and expense and cash flows for the years then ending
("Seller's Annual Financial Statements"), and Seller's unaudited balance sheet
at March 31, 1993 ("Seller's March Balance Sheet") and statements of income and
expense for the period then ending (the Seller's March Balance Sheet and such
statements of income and expense are collectively called "Seller's March
Financial Statements"). All of such financial statements are called the
"Seller's Financial Statements."
(2) The Seller's Financial Statements: (i) have
been prepared on the accrual basis in accordance with generally accepted
accounting principles consistently applied ("GAAP"), except the Seller's March
Financial Statements do not contain footnote disclosure and are subject to
normal year end adjustments of a nature consistent with adjustments made to
Seller's Annual Financial Statement, and (ii) fairly present Seller's financial
condition and its results of operations at the times and for the periods
presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects,
properties of assets of Seller since the date of the Seller's March Financial
Statements.
(d) Liabilities of Seller. Seller has no liabilities,
contingent or otherwise, including, without limitation, liabilities for state
or Federal income, withholding, sales, or other taxes, except to the extent
reflected, reserved against, or provided for, in the Seller's March Balance
Sheet, and trade payables and other obligations incurred after the date of the
Seller's March Balance Sheet in amounts consistent with those incurred in prior
periods in the ordinary course of business, including without limitation
liabilities for unearned tuition.
(e) Assets of Seller. Seller has good and marketable
title to all of its School Related Assets. Except as otherwise disclosed in
the Seller's March Balance Sheet, all of the School Related Assets are owned
free and clear of any adverse claims, security interests, or other encumbrances
or restrictions, except liens for current taxes not yet due and payable,
landlords' liens as provided for in the relevant leases or by applicable law,
or liens or similar security interests granted as part of personal property
financing agreements made in the ordinary course of business and which in the
aggregate are
-5-
<PAGE> 6
not material.
(f) Facility and Facility Operations.
(1) The School's operations are conducted solely
at the relevant Facility and all of the tangible School Related Assets used in
connection with such operations are located at the School Facility. All of the
improvements located at the School Facility are in good operating condition and
repair. There is no pending or threatened condemnation proceeding with respect
to the School Facility.
(2) Attached as EXHIBIT 8(8) to this Agreement is
a schedule of furnishings, fixtures and equipment located on, or used in
connection with, the operation of the School Facility as of [INSERT DATE OF
MOST RECENT INVENTORY].
(3) Except for environmental law compliance
(which is addressed in Section 2(f)(4) below) and accreditation, recruitment,
admissions, student loan and funding matters compliance (which are addressed in
Sections 2(h) and 2(i) below) as to which no representation or warranty is made
in this Section, all activities at, and the physical condition of, the Facility
are in compliance with all legal and regulatory requirements applicable to the
Seller, the operation of the School, and the use of the Facility, and the
Seller had not received any notice to the contrary. Seller has paid for and
obtained all licenses, permits, and other authorizations required for the
operation of the School and the use of the Facility (the "Permits"). All
Permits currently the in effect and pertaining to the Seller, the Facility or
the operation of the School are listed on EXHIBIT 980 to this Agreement. The
representations contained in this subsection 3 shall not apply to incidental
instances of non-compliance occurring in the ordinary course of business
without the knowledge of the Seller of any of the Shareholders, which are
immaterial to the operation of the School and capable of being cured without
significantly disrupting such School's operations.
(4) To the best of the knowledge of Seller and each
Shareholder, after investigation, there are no Hazardous Substances6 in, on or
under the Facility and Seller is not now
- -------------------------------
(1) The term "Hazardous Substance" shall include without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any
Ohio Statute and in the regulations promulgated pursuant to any Ohio
Statute;
(iii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or
which are classified as hazardous or toxic under federal, state, or
local laws or regulations; and
(v) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C)
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<PAGE> 7
engaged in any litigation, proceedings or investigations, nor knows of any
pending or threatened litigation, proceedings or investigations regarding the
presence of Hazardous Substances in, on or under the Facility.
(g) Equipment Leases and Financing Agreements. All of
the leases and financing agreements to which Seller is a party or any other
encumbrances which relate to each School Facility or any School Related Asset
are described in EXHIBIT 1081 to this Agreement (the "Financing and Related
Agreements"). Copies of the Financing and Related Agreements are attached to
such Exhibit. Except as reflected in such Exhibit, there have been no
modifications to any of the Financing and Related Agreements; all of them are
in good standing, and free from default; and none of the interests of Seller in
any of them is subject to any restriction except as stated in the applicable
document or as provided by applicable law.
(h) Accreditation. Attached as EXHIBIT 11(11) to this
Agreement is a list of all Federal, state or other licenses and approvals,
including without limitation all accreditation, granted to Seller with respect
to the conduct of its educational or training business (the "Accreditations"),
and the governmental body or agency or other entity granting such
Accreditation. Included in such Exhibit are copies of all such Accreditations.
Except for the Permits and the Accreditations, no license or approval is
necessary for the conduct of Seller's business as it is now being conducted,
and the Seller has received no notice that any other license or approval is
necessary for the continued conduct of such business or that any such license
or approval will not be renewed. Seller is accredited by the Accrediting
Commission of Trade and Technical Schools and is certified by the United States
Department of Education and is a party to, and in compliance with, valid
program participation agreements with that agency with respect to the
operations being conducted at each Facility. Seller has not received any
notice, not previously complied with, with respect to any alleged violation of
the rules or regulations of such agency or any applicable accrediting agency in
respect of any of the Facilities or the terms of any program participation
agreement to which it is or was a party. If any such notices have been
received and complied with, Seller has disclosed their receipt and disposition
to Buyer prior to the execution of this Agreement in writing by a letter making
specific reference to this Section of this Agreement. Seller is not aware of
any investigation or review of its student financial aid programs or any review
of any of its Accreditation whether by a party to any relevant agreement, the
issuer of such Accreditation or otherwise.
(i) Recruitment; Admissions Procedures; Attendance;
Reports. Attached as EXHIBIT 12(12) to this Agreement are copies of all policy
manuals and other statements of procedures or instruction relating to
recruitment of students, including procedures for assisting in the application
by prospective students for direct or indirect state or Federal financial
assistance; admissions procedures, including any descriptions of procedures for
insuring compliance with state or Federal or other appropriate standards or
tests of eligibility; procedures for encouraging and verifying attendance,
minimum required attendance policies, and other relevant criteria relating to
course completion and certification (collectively referred to as the "Policy
Guidelines").
To the best of its knowledge and the knowledge of each Shareholder,
Seller's operations have in all material respects been conducted in accordance
with the Policy Guidelines and all relevant standards imposed by applicable
accrediting agencies, agencies administering state or Federal government
programs in which the Seller participates, or applicable laws or regulations.
- ------------------------
polychlorinated biphenyl, (D) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section
Section 1251 et seq. or listed pursuant to Section 307 of the Clean
Water Act, (E) flammable explosive, or (F) radioactive materials.
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<PAGE> 8
Seller has submitted all reports, audits, and other information,
whether periodic in nature or pursuant to specific requests, ("Compliance
Reports") to all agencies or other entities with which such filings are
required relating to its compliance with (i) applicable accreditation standards
governing its activities or (ii) laws or regulations governing programs
pursuant to which the Seller or its students receive funding, including,
without limitation, the Perkins Loan Program, the Stafford Student Loan
Program, the Pell Grant program and the Supplemental Educational Opportunity
Grant Programs.
Complete and accurate records in all material respects for all present
and past students attending the School have been maintained consistent with the
operations of a school business. All forms and records have been prepared,
completed, maintained and filed in all material respects in accordance with all
applicable federal and state laws and regulations, and are true and correct in
all material respects. As of December 31, 1992 all financial aid grants and
loans, disbursements and record keeping relating to them have been completed in
compliance with all federal and state requirements, and there are no material
deficiencies in respect thereto. No student has been funded prior to the date
for which such student was eligible for funding and such student's records have
been processed in accordance with all applicable federal, state and relevant
third party funding source requirements. All appropriate reports and surveys
have been accurately prepared, taken and filed prior to delinquency.
(j) Default. Attached as EXHIBIT 13(13) is a schedule
indicating the cohort default rate, as calculated by the United States
Department of Education, of all students attending the School receiving
assistance pursuant to the Stafford Loan and Supplemental Loans for Students
programs (or their applicable predecessor programs) for the fiscal years ended
12/31/91, 12/31/90 and 12/31/89. To the best of the knowledge of the Seller and
each of the Shareholders, such schedule is materially accurate in all respects.
(k) Trademarks, etc. Attached to this Agreement as EXHIBIT
14(14) is a list of all tradenames, trademarks, service marks, copyrights and
the registrations for them owned or used by Seller. Seller has not infringed
and is not now infringing, any trademark, tradename, service mark, or copyright
belonging to any other person. Except as set forth on such exhibit, Seller is
not a party to any license, agreement or arrangement, whether as licensor,
licensee or otherwise, with respect to any trademark, tradename, service mark,
or copyright used by Seller. Seller's business may be conducted without
license by others for the use of any tradename, trademark, service mark, or
copyright.
(l) Material Contracts. Attached as composite EXHIBIT
15(15) to this Agreement is (i) a schedule identifying all material contracts
relating to the School's operations or the Facility, including, without
limitation, all agreements relating to state or Federal funding of educational
services provided by the Seller through grants, loans or direct payments either
to the Seller, individual students or otherwise, and any agreements relating to
the placement of students following their completion of relevant educational
programs provided by the Seller other than agreements with students involving
the teaching of standard courses, for standard prices as set forth in the
Sellers catalog or in the enrollment agreement for such students (the
"Contracts"); (ii) a summary of all material provisions of the Contracts that
are not reduced to written documents, including but not limited to all
provisions of each Contract regarding amounts payable by and/or to the Seller
and termination of the Contract; and (iii) a copy of all written Contracts.
Except as disclosed in Exhibit 15: (i) all of the Contracts remain unmodified
and in full force and effect, and (ii) Seller is not in default of any material
nature (nor does any state of facts exist which, with the giving of notice, the
passing of time, or otherwise, would constitute a default of any material
nature by Seller) with respect to any of the Contracts.
(m) Maintenance and Employment Agreements. Attached to
this Agreement as composite EXHIBIT 16(16) is (i) a schedule of all written
agreements between the Company and
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<PAGE> 9
independent contractors, employees and agents who are employed or engaged in
the management or operation of Seller's business, the Facilities or the
personal property used by Seller; (ii) the names of all parties entitled to
payments from Seller under any such agreements or arrangements; (iii) the
amounts payable by Seller under the terms of all such agreements and
arrangements, including without limitation, the terms of employment and
compensation, including vacation and other employee benefit provisions and the
cost of all employee benefits and payroll taxes; and (iv) a copy of all written
contracts for such services. There are no material oral agreements in effect
for any such services. Except as disclosed on such Exhibit: (x) there are no
written agreements between any of such contractors, employees or agents and
Seller; (y) there is no party entitled to compensation or remuneration for any
such services arising from Seller's operations after the Closing; and (z)
Seller's agreements and arrangements providing for such services may be
terminated by Seller at any time with or without cause, and without any
obligation to pay any of said parties any amounts whatsoever except as may be
required by law (including, without limitation, severance pay or accrued
vacation pay or other benefits).
(n) Employee Benefit Plans. Seller maintains employee
benefit plans as listed on EXHIBIT 17(17) to this Agreement (the "Employee
Benefit Plans"). Copies of such plans are attached to such Exhibit. Except as
listed on such Exhibit, Seller does not maintain any profit sharing, pension or
other employee benefit plan. Seller has no unfunded obligations pursuant to
any insurance, retirement, pension, profit sharing or deferred compensation
plan or program.
(o) Labor. There is no existing labor dispute affecting
Seller's business. None of Seller's employees are covered by any union or
collective bargaining agreement.
(p) Insurance. A schedule of all of the policies of
insurance maintained by Seller in connection with the operation of its business
or the ownership of the Facility is attached as EXHIBIT 18(18) to this
Agreement. The insurance coverage provided by such policies complies with all
agreements to which Seller is a party, and applicable legal requirements to
which it is subject. All such policies are currently in effect.
(q) Taxes. Complete and accurate copies of all of the
Seller's Federal, state and other income tax returns for the years ended
August 31, 1989, 1990, and 1991 are attached as composite EXHIBIT 19(19) to this
Agreement. The Company has filed timely all Federal, state and local tax
returns which it is required to file and has no outstanding liability for any
Federal, state or local taxes or interest or penalties thereon, whether
disputed or not, except taxes not yet payable which have been provided for in
accordance with GAAP and are disclosed in the Interim Financial Statements.
Seller's Federal income tax returns have been audited and accepted by the
Internal Revenue Service for all of its fiscal years through the year ended
, 19 ; there is not now in force any extension of time with respect to the
date on which any tax return was or is due to be filed by or with respect to
Seller, or any waiver or agreement by it for the extension of time for the
assessment of any tax.
(r) Actions Pending. Except as disclosed in EXHIBIT
20(20) to this Agreement: (i) there are no actions, suits, proceedings or
claims pending or threatened against Seller or any Shareholder which, if
determined adversely to Seller or each Shareholder, could (A) have a material
adverse effect on Seller, the Assets, or the businesses of Seller when taken
as a whole, or (B) prevent or delay the consummation of any of the transactions
contemplated by this Agreement; (ii) Seller, is not (to its knowledge or the
knowledge of each Shareholder) the subject of any pending or threatened
investigation relating to any aspect of Seller's operations, including the
operations of any of the Facilities, by any Federal, state or local
governmental agency or authority; (iii) Seller, is not and has not been (to its
knowledge or the knowledge of each Shareholder) the subject of any formal or
informal complaint, investigation or inspection under the Equal Employment
Opportunity Act or the Occupational Safety and Health Act (or their state or
local counterparts) or by any other Federal, state or local
-9-
<PAGE> 10
authority.
(s) Accounts Receivable. Each of the accounts receivable
of Seller constitutes a valid claim in its full amount against the debtor
charged on Seller's books and has arisen in the ordinary course of Seller's
business. Seller's management believes that each such account receivable is
fully collectible to the extent of the face value thereof, except to the extent
of the normal allowance for doubtful accounts with respect to accounts
receivable computed as a percentage of sales consistent with Seller's prior
practices as reflected on the Interim Balance Sheet. No account debtor has any
valid setoff, deduction or defense with respect thereto, and no account debtor
has asserted any such setoff, deduction or defense.
(t) No Guaranties. Except for the Existing First
Mortgage, none of Seller's obligations or liabilities is guaranteed by any
other person, firm or corporation, nor has Seller guaranteed the obligations or
liabilities of any other person, firm or corporation.
(u) Bank Accounts and Deposit Boxes. Attached to this
agreement as EXHIBIT 21(21) are the names and addresses of all banks or
financial institutions in which Seller has an account, deposit or safety
deposit box with the names of all persons authorized to draw on these accounts
or deposits or to have access to the boxes, and an indication of which accounts
or deposits or boxes contain financial aid funds.
(v) Records. The books of account of Seller are complete
and correct in all material respects, and there have been no transactions
involving the business of Seller which properly should have been set forth
therein and which have not been accurately so set forth.
(w) Transactions With Certain Persons. Seller does not
owe any amount to, or have any contract with or commitment to, any Shareholder,
other than compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business. No
Shareholder owes any amount to Seller except as reflected in the Seller's
Financial Statements. Seller has made no distributions or other payments to
the Shareholders subsequent to December 31, 1992 except for (i) the
reimbursement of expenses incurred in the ordinary course of business (ii)
salaries consistent with those paid in prior comparable periods, (iii) payments
on the Existing Second Mortgage, or (iv) Permitted Pre-Closing Distributions.
3. REPRESENTATIONS AND WARRANTIES OF EMI AND BUYER. EMI and
Buyer, jointly and severally, represents to Seller and each Shareholder as
follows:
(a) No Misstatements. The representations and the
information supplied by it contained in this Agreement and the documents
incorporated by reference into it do not contain any untrue statement of a
material fact or omit to state any fact necessary to make such representations
or information not materially misleading.
(b) Validity of Actions. It is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the authority to carry on its business as currently conducted, and is qualified
to do business in all jurisdictions in which such qualification is necessary.
It has full power and authority to enter into this Agreement and to carry out
all acts contemplated by it. This Agreement and each of the documents provided
for in it to be delivered as part of this transaction, have been duly executed
and will be delivered pursuant to all appropriate corporate authorization on
its behalf and is its legal, valid and binding obligation and is enforceable
against it in accordance with its terms. The execution and delivery of this
Agreement, the Second Payment Promissory Note, and the consummation of the
transactions contemplated by them will not violate any provision of its
Certificate of Incorporation or Bylaws nor violate, conflict with or result in
any breach
-10-
<PAGE> 11
of any of the terms, provisions of or conditions of, or constitute a default or
cause acceleration of any indebtedness under, any indenture agreement or
instrument to which it is a party or by which it or its assets may be bound, or
cause a breach of any applicable Federal or state governmental law or
regulation, or any applicable order, judgment, writ, award, injunction or
decree of any court or governmental instrumentality.
(c) EMI's Financial Statements
(1) Attached as EXHIBIT 22(22) to this Agreement
are (A) EMI's audited balance sheets at March 31, 1990, 1991, and 1992, and
statements of income and expense and cash flows for the years then ending (the
"Annual Statements"), and (B) EMI's unaudited balance sheet at December 31,
1992 (the "Interim Balance Sheet"), and statements of income and expenses and
cash flow for the period then ending (collectively the Interim Balance Sheet
and such statements are called the "Interim Financial Statements"). The Annual
Statements and the Interim Financial Statements are called the "EMI's Financial
Statements."
(2) EMI's Financial Statements: (i) have been
prepared on the accrual basis in accordance with generally accepted accounting
principles consistently applied ("GAAP"), except as otherwise disclosed in the
reports accompanying them or in the notes attached to them, and (ii) fairly
present EMI's financial condition and its results of operations at the times
and for the periods presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects,
properties of assets of Buyer since the date of the Interim Financial
Statements.
(d) Buyer's Financial Condition. The Buyer is a newly formed
corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
4. COVENANTS OF THE PARTIES.
(a) Prohibited Acts. Pending consummation of the
transactions contemplated in this Agreement or prior to termination of this
Agreement, Seller and each Shareholder agree that, without prior written
consent of Buyer, given in a letter which specifically refers to this Section
of the Agreement:
(1) not to (i) perform any act or omit to take
any act that would make any of their respective representations made in Section
2 above, inaccurate or materially misleading as of the Closing Date, or (ii)
allow Seller to make any payment or distribution except for the payment of
liabilities provided for in Seller's Financial Statements or incurred in the
ordinary course of business or the Permitted Pre-Closing Distributions;
(2) to cause Seller to conduct its businesses in
the ordinary and regular course, maintain each School Facility and carry on its
business practices, protect its Accreditation and Permits, and keep its books
of account, records and files in substantially the same manner as at present.
(b) Notice. Pending the consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, each
party agrees that it will promptly advise the others of the occurrence of any
condition or event which would make any of its representations contained in
this Agreement inaccurate, incorrect, or materially misleading.
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(c) Access. Prior to the Closing, Seller shall afford to
the Buyer (and its officers, attorneys, accountants and other authorized
representatives), upon reasonable notice, free and full access during usual
business hours to its offices, personnel, Facilities, books and records and
other data, financial or otherwise, so that Buyer may have full opportunity to
make such investigation as it shall desire of the Real Property, Assets,
business and operations of Seller, provided that such investigation shall not
unreasonably interfere with Seller's operations. The scope of the investigation
will include, but not be limited to, a verification of Seller's Financial
Statements and a review of Seller's control procedures, regulatory compliance,
each School Facility, material contracts, litigation and tax returns for prior
years. Duly authorized representatives of the Buyer shall also be entitled to
discuss with officers of Seller, its counsel, employees and independent public
accountants, all of its books, records and other corporate documents,
contracts, pricing and service policies, commitments and future prospects.
Representatives of Seller will furnish to Buyer and such other persons, copies
of all materials relating to the business affairs, operations, School Related
Assets and liabilities of Seller which may be reasonably requested from time to
time and will cause representatives and employees of Seller to assist Buyer in
its investigation of the matters relative to Seller. All information obtained
by Buyer, EMI or any of their officers, directors, employees, lender,
investors, agents and other representatives (the "Buyer's Representatives") in
connection with the transactions contemplated by this Agreement or in the
course of their investigations of the Seller, whether obtained before or after
the date of this Agreement (the "Evaluation Material") shall be used only in
connection with this Agreement and, in the event the transactions provided for
in this Agreement are not consummated, each of Buyer and EMI and Buyer's
Representatives shall agree or be instructed, as the case may be, that all
Evaluation Material will be otherwise kept strictly confidential, and, to the
extent practicable, returned to Seller.
(d) Additional Documents. At the request of any party,
each party will execute and deliver any additional documents and perform in
good faith such acts as reasonably may be required in order to consummate the
transactions contemplated by this Agreement and to perfect the conveyance and
transfer of any property or rights to be conveyed or transferred under the
terms of this Agreement.
(e) Employee Notification, Termination of Employee
Benefit Plans, Etc. With respect to any employees employed by the Seller prior
to the Closing, Seller will comply with the terms of all applicable Federal and
state laws and regulations, including without limitation the provisions of the
Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section Section
2101 et. seq. or the Consolidated Omnibus Budged Reconciliation Act ("COBRA").
Seller will terminate all Employee Benefit Plans in accordance with all
applicable laws and regulations as of a date no later than the Closing Date.
(f) Filing of Returns; Additional Information. Seller
will file on a timely basis all tax returns, notices of sale and other
documentation required by law in connection with the transactions provided for
in this Agreement or otherwise required by law, regulation or pursuant to the
terms of any agreement to which it is a party. Seller will supplement any
previous filing made by it in accordance with legitimate requests made by
applicable agencies or parties to the extent required by the relevant law,
regulation or agreement.
(g) Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the Closing Date, each of
the parties to this Agreement will execute such documents and take such other
actions as reasonably may be appropriate to fulfill the conditions to Closing
provided for in Section 5 of this Agreement.
5. CONDITIONS TO CLOSING BY THE RESPECTIVE PARTIES.
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The obligation of EMI and Buyer, on the one hand, and Seller and
each Shareholder on the other hand, to consummate the transactions contemplated
by this Agreement shall be subject to compliance with or satisfaction of the
following conditions by the other, to the extent applicable:
(a) Bring Down. The representations and warranties
set forth in this Agreement shall be true and correct in all material respects
on and at the Closing Date as if then made by the relevant party (except for
those representations and warranties made as of a given date, which shall
continue to be true and correct as of such given date).
(b) Compliance. Each party shall have complied with all
of the covenants and agreements in this Agreement on its or their part,
respectively, to be complied with as of or prior to the Closing Date.
(c) No Material Adverse Changes. Since the date of the
Interim Balance Sheet, there shall not have occurred any material adverse
change in the condition (financial or otherwise) of the School Related Assets
or prospects of Seller.
(d) Certificates. There shall be delivered to the Buyer
and EMI and to the Seller, respectively:
(1) a certificate executed by the President and
Secretary of the other, dated the Closing Date, certifying that the conditions
to be fulfilled by such party set forth in this Section 5 have been fulfilled;
(2) a certificate of incumbency for such entity
executed by its President or any Vice President and by the Secretary of any
Assistant Secretary of such entity, listing the officers of such entity
authorized to execute (to the extent applicable) the Agreement and the other
documents, certificates, schedules and instruments to be delivered on behalf of
such entity, and their respective offices, and containing the genuine signature
of each such person set forth opposite his name; and
(3) good standing certificates and certified
charter documents of such entity of recent date, from the Secretary of the
State of the jurisdiction of incorporation of such entity.
(e) No Suits. No action or proceeding shall have been
instituted in any court or before any Federal, state or local governmental
agency against any party seeking to restrain or prohibit the consummation of
the transactions contemplated by this Agreement, or which could have a material
adverse effect on the School Related Assets or prospects of any of the parties,
which shall not have been dismissed or withdrawn prior to the Closing Date.
(f) Closing Financials.
(1) The Buyer shall have received a student aid
audit, prepared at the Buyer's expense, confirming the accuracy of the relevant
representations and warranties contained in Section 2(h) and 2(i) of this
Agreement in all material respects.
(2) Not more than 15 days prior to the Closing,
Seller shall prepare and deliver to Buyer unaudited interim financial
statements, including a balance sheet (the "Closing Interim Balance Sheet") and
a statement of income and expense (the "Closing Interim Income Statement") for
the period ending March 31, 1993 reviewed by a certified public accountant (the
"Closing Interim Financial Statements"). The Closing Interim Financial
Statements shall be (A) prepared in accordance with GAAP, except that it may
not contain footnote disclosure and will be subject to normal year end
adjustments consistent with those made in prior years, (B) fairly present
Seller's financial condition and
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its results of operations as of the date and for the period presented, and (C)
shall not disclose any materially adverse variation in the results of
operations or financial condition when compared to the Seller's March Financial
Statements. The Closing Interim Financial Statements shall be accompanied by a
letter from the reviewing accountant stating that such accountant has reviewed
the books and records of the Seller as of a date no earlier than 5 days prior
to the Closing Date, and on the basis of a review of such records and
conversations with the Seller's management, nothing has come to his attention
which causes him to believe that there has been any material adverse change in
the financial condition of the Seller.
(g) Change of Seller's Name. At least ten (10) days
prior to the Closing, Seller and Shareholder shall deliver to Buyer a duly
executed and acknowledged certificate of amendment to Seller's articles of
incorporation or other appropriate document required to change Seller's
corporate name to a new name bearing no resemblance to its present name so as
to make Seller's present name available to Buyer. Buyer is hereby authorized
to file such certificate or other documents, at Seller's expense, in order to
effectuate such change of name at or after the Closing.
(h) Documents. All documents required to be delivered to
Buyer at or prior to Closing shall have been so delivered.
(i) Authority. There shall be in full force and effect
on the Closing Date resolutions of the Boards of Directors of the Buyer and
Seller and any corporate Shareholder approving this Agreement and the
transactions contemplated in it. At or prior to the Closing, each party will
deliver to the other a copy of the resolutions of its Board of Directors and,
in the case of the Seller, the resolutions or consents of each Shareholder,
together with any and all required resolutions or consents of each Shareholder
thereof, approving the execution and delivery of this Agreement and the
consummation of all of the transactions contemplated hereby, duly certified by
an appropriate officer.
(j) Opinions of Counsel. Each party shall receive the
opinion of counsel to the other party reasonably satisfactory in form and
content to the party receiving such opinion.
(k) Consents. Seller shall have obtained written
consents to the transfer or assignment to Buyer of all agreements, Licenses,
leases and other material contracts of Seller (other than immaterial purchase
and sales orders in the ordinary course of business) where the consent of any
other party to any such contract may, in the opinion of Buyer's counsel, be
required for such assignment or transfer.
(l) Estoppel. Seller shall have obtained and delivered
to Buyer written estoppel from the holders of any leases, and/or notes set
forth in Exhibits to this Agreement stating the amount due pursuant to such
agreements, and that each is in good standing and free from default.
(m) Current Insurance Coverage. Payments will have been
made as of the Closing Date with respect to all of Seller's insurance policies,
and all insurance coverage concerning Seller's assets and operations shall be
continued in force through at least 10 days subsequent to the Closing Date,
unless cancelled subsequent to the Closing Date by Buyer.
(n) Compliance with Bulk Sales Law. Seller shall have
either (i) duly complied with the provisions of the applicable state Uniform
Commercial Code sections dealing with bulk transfers which impose requirements
on a transferror, and shall have delivered to Buyer all documents and notices
required to be furnished thereunder by a transferror, and copies of any claims
made by creditors, or (ii) delivered to Buyer an opinion of counsel, which
opinion shall be reasonably satisfactory to Buyer and its counsel, indicating
that such compliance is not required in order to complete the transactions
provided for in this agreement in accordance with its terms.
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<PAGE> 15
(o) Bankruptcy, Dissolution, etc. No petition or other
commencement of proceedings in bankruptcy or proceedings for dissolution,
termination, liquidation or an arrangement, reorganization or readjustment of
any party's debts under any state or Federal law enacted for the relief of
debtors or otherwise, whether instituted by or against a party, has been
effected or commenced by or against any party.
(p) Financing. The Buyer shall have received financing
in the amount of at least $720,000.00 (the "Buyer's Financing") to be secured
by a first mortgage on the Facility, on terms and conditions acceptable to
Buyer in its sole, absolute and uncontrolled discretion.
6. CLOSING AND POST CLOSING AGREEMENTS.
(a) Closing Date and Place; Effective Date. The closing
of the transactions provided for in this Agreement shall take place as provided
for in Section 1((b) of this Agreement at the offices of the Seller, or at such
other place or time as the parties shall mutually agree in writing.
(b) Deliveries by Buyer to Seller. At the Closing, Buyer
shall make the payments provided for in Section 1(c), and deliver to the
Seller:
(1) The Second Payment Promissory Note; and
(2) An assumption agreement (the "Assumption
Agreement" in substantially the form attached to this Agreement as EXHIBIT
23(23).
(c) Deliveries by Buyer to Shareholders. At the Closing,
the Buyer shall deliver the Consulting Agreements to the Shareholders, each of
whom shall execute and deliver counterparts of such Agreements to the Buyer.
(d) Deliveries by EMI to Escrow Agent. At the Closing,
EMI shall deliver to counsel for Seller, as Escrow Agent:
(1) The Pledge Agreement; and
(2) The Buyer Stock, accompanied by duly endorsed
stock powers.
(e) Deliveries by Seller to Buyer. At the Closing,
Seller shall deliver to Buyer:
(1) The Bill of Sale (the "Bill of Sale") in the
form attached to this Agreement as EXHIBIT 24(24); and
(2) An Assignment of all of Seller's Bank Accounts;
(3) Such other instruments of conveyance in form
and substance reasonably
satisfactory to Buyer's counsel, as shall be effective to vest in Buyer good
and marketable title to the School Related Assets, including without limitation
the Facility Conveyance Document provided for in Appendix A to this Agreement.
(f) Further Documents or Acts. The parties will also
execute, deliver, and/or perform at Closing and thereafter all other documents
or acts required to consummate any of the transactions contemplated by this
Agreement.
7. CONFIDENTIALITY AND JOINT NON-COMPETITION AGREEMENT.
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(a) Each of Messrs. Guthrie and Cretcher acknowledges
that, as a result of his ownership of the Seller and, if applicable, employment
by Seller, he has had access to and knowledge of confidential or proprietary
information developed by Seller and of a special and unique nature and value to
Seller, including, but not limited to, Seller's methods and systems, students'
records, student files, charts, ledgers, accounts receivable ledgers, price
lists, methods and systems, operating procedures, technical memoranda,
curricula, accounts payable ledgers, records of amounts received from students,
student lists, referral sources, teacher lists, sources of employment for
students, placement materials, research reports, and financial records of
Seller and of its students and operating procedures, and other information,
data, and documents now existing or later acquired by each of Messrs. Guthrie
and Cretcher or Seller, regardless of whether any such information, data, or
documents, qualify as a "trade secret" under applicable Federal or state law
(collectively "Confidential Information"). As a material inducement to Buyer
to enter into this Agreement, each Shareholder and the Seller, jointly and
severally, covenants and agrees not at any time directly or indirectly, to
divulge or disclose for any purpose whatsoever, any Confidential Information
which is in the possession of Seller or which has been obtained by or disclosed
to each of Messrs. Guthrie and Cretcher as a result of employment by Seller,
ownership of Seller, or otherwise as a result of the relationship between each
of Messrs. Guthrie and Cretcher and Seller. In accordance with the foregoing,
each of Messrs. Guthrie and Cretcher and the Seller agrees at no time retain or
remove from the Facility records of any kind or description whatsoever (other
than those which constitute Excluded Assets) for any purpose whatsoever unless
authorized by Buyer. Notwithstanding the foregoing provisions of this Section
7(a), Seller and each of Messrs. Guthrie and Cretcher may disclose Confidential
Information (i) to its employees, counsel, accountants and agents on a
need-to-know basis (provided that any such person shall be informed of the
confidential nature of such information and directed not to disclose or make
public such Confidential Information), (ii) to the extent required by
applicable law, rules and regulation, and (iii) in any action, suit or
proceeding between the parties, provided that in connection with disclosures
permitted by clauses (ii) and (iii) above, Seller or each of Messrs. Guthrie
and Cretcher shall provide Buyer with at least three (3) days notice of such
intent so that an appropriate protective order may be sought by Buyer if
desired.
(b) As a material inducement to Buyer to enter into this
Agreement, each of Messrs. Guthrie and Cretcher and the Seller, jointly and
severally, covenants and agrees for a period of five (5) years after the date
of this Agreement not to (i) engage in any business in direct or indirect
competition with that currently conducted by the Seller which is being sold to
the Buyer pursuant to this Agreement or by EMI or any Affiliate(2) (the
"Prohibited Activities") anywhere within 50 miles of any school listed on
EXHIBIT 25(25) (the "Area"); (ii) become associated as manager, supervisor,
employee, consultant, advisor, stockholder owning more that 5% of the
outstanding stock of a company or participating in the management or direction
of a company or otherwise with any person, corporation or entity engaging in
any Prohibited Activities within the Area; (iii) call upon any of Buyer's
students, teachers or referral sources for the purpose of promoting any
Prohibited Activities for any person, person, corporation or entity within the
Area; or (iv) divert, solicit or take away any of Buyer's teachers or other
personnel for the purpose of engaging in any Prohibited Activities within the
Area.
(c) In the event of a breach or threatened breach by each
of Messrs. Guthrie and Cretcher or Seller of any of the provisions of this
Section 7, Buyer, in addition to and not in limitation of any other rights,
remedies, or damages available to Buyer at law or in equity, shall be entitled
to a permanent injunction in order to prevent or to restrain any such breach by
Seller or each of Messrs. Guthrie and Cretcher, or by such shareholder's
partners, agents, representatives, servants, employers, employees and/or any
and all persons directly or indirectly acting for or with him.
(d) Each of Messrs. Guthrie and Cretcher and the Seller
covenants and agrees that,
__________________________________
(2) An Affiliate is any person or entity controlling, controlled by or
under common control with EMI.
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<PAGE> 17
if he shall violate any of his covenants or agreements provided for in this
Section 7, Buyer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remuneration, or benefits which Seller or
Messrs. Guthrie and Cretcher, directly, or indirectly, has realized and/or may
realize as a result of, growing out of, or in connection with any such
violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Buyer may be entitled to
at law or in equity or under this Agreement.
(e) Each of Messrs. Guthrie and Cretcher and the Seller
has carefully read and considered the provisions of this Section 7, and agrees
that the restrictions set forth above (including without limitation the time
period and geographical areas of restriction) are fair and reasonable and are
reasonably required for the protection of the interest of the Buyer. Each
acknowledge that it is the intention of the Buyer to solicit students on a
nationwide basis, that the market for the schools curricula is national and
limited, and that the Buyer is considering introducing all or parts of the
School's curricula in other locations as part of its national marketing
program. In the event that, notwithstanding the foregoing, any of the
provisions of this Section 7 are held invalid or unenforceable, the remaining
provisions shall continue to be valid and enforceable. In the event that any
provision of this Section 7 relating to time period and/or areas of restriction
are declared by a court of competent jurisdiction to exceed the maximum time
period or areas such court deems reasonable and enforceable, said time period
or areas of restriction shall be deemed to become, and thereafter be, the
maximum time period and/or area which such court deems reasonable and
enforceable.
8. INDEMNIFICATION. Seller and each Shareholder, jointly and
severally, on the one hand, and Buyer, on the other hand (respectively, the
"Indemnifying Party"), agree to defend, indemnify and hold harmless the other
party and its directors, officers, employees and agents (collectively, the
"Indemnified Parties") from and against any loss, damage, settlement, or
expense (including, without limitation, attorneys' fees and disbursements)
incurred by any Indemnified Party and arising from or related to the inaccuracy
or breach of any of the representations, warranties, covenants or agreements of
the respective Indemnifying Party contained in this Agreement or in any
document incorporated by reference into it. In addition, the Buyer agrees to
indemnify and hold harmless the Seller and the Shareholders from and against
any loss, damage, settlement, or expense (including, without limitation,
attorneys' fees and disbursements) incurred by them as a result of the
operation of the School by the Buyer subsequent to the Closing Date. The
relevant Indemnified Part(ies) shall give (or cause to be given) to the
relevant Indemnifying Party notice of any claim or matter for which indemnity
is (or will be) sought under this Section 8; such notice shall be given
promptly after the Indemnified Part(ies) receive actual notice or knowledge of
the claim or matter that is subject to indemnification. With respect to any
claim asserted by a third party against any Indemnified Part(ies) for which
indemnity is sought, the relevant Indemnifying Party shall have the right to
employ counsel reasonably acceptable to the relevant Indemnified Part(ies) to
defend against such assertion, and such Indemnifying Parties shall have the
right to compromise or otherwise settle any such action or claim only with the
prior written consent of the relevant Indemnified Party, which shall not be
unreasonably withheld.
9. EVENTS OF DEFAULT. If any one or more of the following events
occurs then, subject to the expiration of any specified grace period and the
giving of any prior notice required under this Section 9, such event shall
constitute an Event of Default by the party responsible for such event or
against whom it should be charged.
(a) Untrue Statements. Any statement, report, financial
statement, or certificate made or delivered by any party or any of its agents
to another party is not true, complete and correct in any material respect.
(b) Warranties or Representations. Any warranty,
representation or other statement by or on behalf of any party contained in
this Agreement (or in any document between the parties
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furnished in compliance with or in reference hereto) is false or misleading in
any material respect.
(c) Agreements. Any party fails to take any action
required of it to comply with its obligations contained in this Agreement, or
takes any action prohibited or inconsistent with its obligations under this
Agreement, and such failure to act or action is not cured prior to thirty (30)
days after written notice thereof is given to the defaulting party, except in
the case of Section 7 of this Agreement, with respect to with the period
referred to in this Section shall be ten (10) days.
(d) Refusal to Close. A party refuses to consummate the
transactions provided for (and subject to the terms and conditions specified)
in this Agreement on the Closing Date, except if the failure to close is based
upon the failure of another party to meet a condition to Closing provided for
in Section 5 of this Agreement.
(e) Failure of Closing Condition. Any party is unable to
comply with the conditions of Closing provided for in Section 5 of this
Agreement, other than as a result of an Event of Default as described in
Sections 9(a), (b), (c) or (d) above.
10. TERMINATION AND RIGHTS AND REMEDIES ON DEFAULT.
(a) Termination. This Agreement may be terminated and
the transactions contemplated hereby abandoned prior to the Closing: (i) by the
mutual consent of Buyer, EMI, and the Seller, in their sole and absolute
discretion without the consent of the Shareholders; (ii) by Buyer and EMI, if
any condition to their obligations to close set forth in Section 5 hereof
becomes impossible of performance or has not been satisfied in full (in each
case other than as a result of a breach of such party's obligations under this
Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; (iii) by Seller and Shareholder if
any condition to their obligations to close set forth in Article 5 hereof
becomes impossible of performance or has not been satisfied in full (in each
case other than as a result of a breach of such party's obligations under this
Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; or (iv) by any party (other than a
party that is in breach of its obligations under this Agreement) if the Closing
shall not have occurred on or before the Termination Date. If this Agreement
is terminated pursuant to clause (i) of this Article 10, all obligations of the
parties hereunder shall terminate without any further liability or obligation
of any party to the other, except that the provisions of Section 11, Section
13(b) and the confidentiality provisions of Section 4(c) of this Agreement
shall survive and continue in full force and effect notwithstanding such
termination. Except as limited by the preceding sentence, the exercise by any
party of the right to terminate this Agreement shall not terminate or limit any
remedy that such party may have in this Section 10 as a result of an Event of
Default.
(b) Rights and Remedies on Default; Limitation of Liability.
Upon and after an Event of Default by any party, the other party shall have the
following rights and remedies:
(1) Default by Buyer. In the event that Buyer is
obligated to and fails to close by the Termination Date, and Seller and
Shareholder are not in default of their obligations under this Agreement, this
Agreement shall terminate and Seller and Shareholder shall have the right to
seek money damages, including without limitation, attorneys's fees and other
expenses incurred by them relating to the preparation of this Agreement and
indemnification pursuant to Section 8 of this Agreement, as their sole remedy.
Seller and Shareholder hereby agree that they shall not be entitled to seek or
file suit for specific performance of this Agreement.
(2) Default by Seller or Shareholder. If, on the
Termination Date, there exists an Event of Default as described in Section 9 of
this Agreement, chargeable against the Seller
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or any Shareholder, Buyer may either (i) waive such default and close, in which
event Buyer shall have the right to seek specific performance of this
Agreement, including, without limitation, the acquisition of the School Related
Assets and the performance by the Seller and the Shareholder of the covenants
provided for in this Agreement, or (ii) refuse to close, and, except in the
case of an Event of Default described in Section 9(d) above, seek money damages
from Seller and Shareholder, including, without limitation, attorneys's fees
and other expenses incurred by them relating to the preparation of this
Agreement and indemnification pursuant to Section 8 of this Agreement. An
election by Buyer to proceed in accordance with subclause (i) of the preceding
sentence shall constitute the acknowledgment by Buyer, Seller and Shareholder
that Buyer cannot be adequately compensated by money damages for the failure to
perform by Seller and Shareholder, that such damages are indeterminate, and
that a court of competent jurisdiction may enter an order pursuant to which
Seller and Shareholder are obligated to specifically perform their obligations
to Buyer pursuant to the terms of this Agreement.
(3) Default Subsequent to Closing. If any party
breaches this Agreement subsequent to Closing pursuant to Section 9(c), or if a
default occurs pursuant to Sections 9(a) or 9(b), the nondefaulting party(ies)
shall have the right to seek money damages from the defaulting party(ies),
either pursuant to Section 8 of this Agreement or otherwise. In addition, if,
(i) as a result of any action taken or not taken by the Seller in violation of
any applicable law or regulation which (ii) has not been disclosed to the Buyer
in this Agreement, and which (iii) the occurrence or non occurrence of which
was known or reasonably should have been known to the Seller, the Prerequisite
Student Aid Approvals are not received prior to 12 months from the date of the
Closing, or, if received or offered, can only be obtained on conditions
imposing substantial financial burdens on the Buyer in addition to those which
would otherwise be imposed in connection which such approval, the Buyer may
elect to rescind the transactions provided for in this Agreement and, upon such
election, the parties will take such action as may be reasonably required to
restore the other party to its respective positions as they existed prior to
the Closing provided for in this Agreement.
(4) Nature of Remedies Cumulative. All rights
and remedies granted in this Agreement or available under applicable law shall
be deemed concurrent and cumulative and not alternative or exclusive remedies,
to the full extent permitted by law and this Agreement, and any party may
proceed with any number of remedies at the same time or in any order. The
exercise of any one right or remedy shall not be deemed a waiver or release of
any other right or remedy, and any party, upon the occurrence of an event of
default by another party under this Agreement, may proceed at any time, under
any agreement, in any order and with any available remedy.
(5) Limitation on Liability of Seller and
Shareholder. Except in the case of a breach of the agreements contained in
Section 7 of this Agreement, neither Seller nor Shareholder shall have any
liability with respect to any claims of Buyer or EMI for money damages, whether
pursuant to this Section, Section 8 of this Agreement or otherwise, until such
time, if any, as the aggregate amount of all such amounts otherwise subject to
recovery by Buyer or EMI shall exceed, in the aggregate, $25,000, and then only
to the extent of such excess.
11. FINDERS FEES.
Seller and each Shareholder, jointly and severally, represents and
warrants that it has not employed any finder or broker in connection with
transactions contemplated by this Agreement except for Mr. Warner W. Martin of
Associated Business Investment Corp., or his affiliates, and shall be
responsible for any commissions or fees payable to Mr. Martin and any other
such finder or broker for fees incurred by Seller and/or each Shareholder in
connection with this Agreement. Each party agrees to indemnify and hold
harmless the others from and against any claim, damages, liabilities, and
expenses (including without limitation, attorneys' fees and disbursements)
arising from any claim or
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<PAGE> 20
demand asserted by any person or entity on the basis of its employment as a
finder or broker by the respective party.
12. NOTICES. All notices or other communications required or
permitted under the terms of this Agreement shall be made in writing and shall
be deemed given upon (i) hand delivery or (ii) three days after deposit of same
in the Certified Mail, Return Receipt Requested, first class postage and
registration fees prepaid and correctly addressed to the parties at the
following addresses:
If to Buyer: OIOPT Acquisition Corp.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 30076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 33076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
-20-
<PAGE> 21
If to Seller: Ohio Institute of Photography and Technology
2029 Edgefield Road
Dayton, Ohio
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. K. Terry Guthrie
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. Richard L. Cretcher
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. Stephen T. McLain
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. Gerald D. Guthrie
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. James R. Madden
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
-21-
<PAGE> 22
or to such other address as any of the parties hereto may designate by notice
to the others.
13. MISCELLANEOUS.
(a) Successors. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their respective successors
and permitted assigns. This Agreement may not be assigned prior to Closing
without the prior written consent of the other parties hereto.
(b) Expenses. Buyer and Seller shall be responsible for
any and all of the respective fees, costs and expenses incurred by each, in
connection with the negotiation, preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by
this reference all Exhibits hereto and all documents executed and/or delivered
at Closing. This Agreement and the documents so incorporated into it contain
the parties' entire understanding and agreement with respect to the subject
matter hereof; and any and all conflicting or inconsistent discussions,
agreements, promises, representations and statements, if any, between the
parties or their representatives that are not incorporated in this Agreement
shall be null and void and are merged into this Agreement.
(d) Amendments Only in Writing. No amendment,
modification, waiver or discharge of this Agreement or any provision of this
Agreement shall be effective against any party, unless such party shall have
consented thereto in writing.
(e) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original, but all of
which together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement,
when requested by another party, shall give all reasonable and necessary
cooperation with respect to any reasonable matters relating to the transactions
contemplated by this Agreement.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio, exclusive of
its choice of law provisions.
(h) Headings. The various section headings are inserted
for purposes of reference only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.
(i) Gender; Number. All references to gender or number
in this Agreement shall be deemed interchangeably to have a masculine,
feminine, neuter, singular or plural meaning, as the sense of the context
requires.
(j) Severability. The provisions of this Agreement shall
be severable, and any invalidity, unenforceability or illegality of any
provision or provisions of this Agreement shall not affect any other provision
or provisions of this Agreement,and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
(k) Survival. Except as otherwise expressly provided in
this Agreement, the liabilities and obligations of each party with respect to
any and all of its representations, warranties, covenants and agreements set
forth in this Agreement and/or in any document incorporated into it shall
-22-
<PAGE> 23
not be merged into, affected or impaired by the Closing under this Agreement,
but rather shall survive such Closing for the period of three years thereafter,
so that (except as otherwise provided below) any claim under this Agreement
must be asserted by notice given to the party claimed to be liable on or before
the third anniversary of the Closing Date. Notwithstanding the foregoing, the
time limitation shall not apply to: (i) the covenants related to
confidentiality and non-competition contained in Section 7 above and the
Non-Competition Agreements; (ii) claims relating to liabilities of the Seller
that are not Stated Liabilities; (iii) claims for indemnification under Section
8, above, which seek indemnity for matters identified in (ii), above, or
arising out of a misrepresentation as to matters contained in section 2 (i) or
2 (j), or Paragraph 6(a) of the Addendum to this Agreement, or (iv) fraud. All
obligations and liabilities described in the previous sentence shall survive
the Closing for the period in which a claim can be asserted with respect
thereto under applicable law.
(l) No Third Party Beneficiaries. This Agreement has been
entered into solely for the benefit of the parties that have executed it, and
not to confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it. The Second Promissory Note
may be assigned by the Seller to the Shareholders in accordance with their
respective interests.
(m) Addendum. The Addendum attached to this Agreement is
incorporated into it and made a part of it as if set forth in full.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
OIOPT ACQUISITION CORP. ("BUYER") OHIO INSTITUTE OF
PHOTOGRAPHY
AND TECHNOLOGY ("SELLER")
BY: By:
---------------------------- -----------------------
Authorized Signatory Authorized Signatory
SHAREHOLDERS:
----------------------
K. Terry Guthrie
SHAREHOLDERS:
----------------------
Richard L. Cretcher
----------------------
-23-
<PAGE> 24
Stephen T. McLain
-----------------------
Gerald D. Guthrie
-----------------------
James R. Madden
By executing and delivering this Agreement, EMI agrees it is jointly and
severally liable for each of the obligations of the Buyer contained in it.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------
Authorized Signatory
-24-
<PAGE> 25
EXHIBITS
1. Form of Second Payment Note
2. Form of Consulting Agreement
3. Form of Pledge Agreement
4. Description of the Property
5. List of Excluded Assets
6. Articles of Incorporation
and By-Laws of the Seller
7. Seller's Financial Statements
8. Inventory of FF & E
9. List of Permits
10. List of Leases, Financing
Agreements, and Other
Encumbrances relating to Real
and Personal Property
11. List of Accreditation
12. Policy Manuals and other
School Material.
13. Cohort Default Rate
Evaluation Material
14. Trademarks etc.
15. List of Material Contracts
16. Employment Agreements
17. Employee Benefit Plans
18. Insurance Policies
19. Federal Income Tax Returns
20. Actions Pending
21. List of Bank Accounts
22. EMI's Financial Statements
23. Form of Assumption Agreement
24. Form of Bill of Sale
-25-
<PAGE> 26
25. List of Schools
-26-
<PAGE> 1
EXHIBIT 10.29
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
of 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: Vince Pisano
-------------------------------
Its: V.P Finance
-------------------------------
BANK ONE, DAYTON, NA
By:
--------------------------------
Its:
-------------------------------
<PAGE> 1
EXHIBIT 10.30
PROMISSORY NOTE MODIFICATION AGREEMENT
This Agreement is made and entered into on 28th, August, 1995
("Agreement Date"), to be effective as of August 28, 1995 ("Effective Date"),
by and between OIOPT Acquisition Corp., a Delaware corporation ("Maker") and
Bank One, Dayton, NA ("Bank One"):
WITNESSETH:
WHEREAS, Maker heretofore executed a $720,000.00 promissory note dated July
14, 1993 in favor of Bank One as same may have been amended or modified from
time to time ("Promissory Note"); and, WHEREAS, Maker has requested that the
Promissory Note be modified to the limited extent as hereinafter set forth;
and, WHEREAS, Bank One has agreed to such modification; NOW THEREFORE, by
mutual agreement of the parties and in mutual consideration of the premises and
for other good and valuable considerations, the receipt of which is hereby
acknowledged, the parties hereto agree that the Promissory Note is modified as
hereinafter indicated.
1. RATE OF INTEREST
The rate of interest from the Effective Date until paid in full shall be
modified as follows:
Interest on the daily unpaid principal balance of the Promissory Note
shall be changed to a fixed rate of eight and three quarters of one
percent (8.75%) per annum until July 14, 1998, (the "Adjustment Date").
Commencing on July 14, 1993, interest on the daily unpaid principal
balance of the Promissory Note shall be changed to a variable rate of
one and one quarter percent (1.25%) above the Prime Rate in effect on
each respective day.
"Prime Rate" means the rate of interest announced by Bank One from time
to time as its Prime Rate and is adjusted to reflect a change in the
Prime Rate on the same day as the Prime Rate changes.
Interest shall be calculated on a 360 day year basis and shall be
calculated by dividing the actual number of days which elapsed during
the period interest accrued by a year of 360 days ? the interest
rate in effect.
2. PRINCIPAL AND INTEREST PAYMENTS.
Payments of principal and interest shall be due from the Effective Date
as follows:
Commencing on September 1, 1995, and continuing on the first day of
each calendar month thereafter until and including the Adjustment Date,
the monthly payments shall be in an amount equal to the amount
necessary to amortize the outstanding principal sum and accrued
interest thereon at the interest rate as of the Effective Date in 156
equal monthly installments of principal and interest. Commencing with
the payment
<PAGE> 2
due on the first day of the month next succeeding the Adjustment Date,
the monthly payments shall be in an amount equal to the outstanding
principal sum of the Note on the Adjustment Date multiplied by the
fraction in which the numerator is one (1) and the denominator is 156
less the number of monthly principal payments made by Maker since the
Effective Date, plus accrued interest thereon. Notwithstanding anything
in the foregoing to the contrary, the outstanding principal sum of the
Promissory Note, together with all accrued and unpaid interest under the
Promissory Note, shall be due and payable on the Maturity Date.
3. AGREEMENTS/COLLATERAL.
All agreements or security documents previously executed shall remain in full
force and effect except to the extent hereby modified.
4. TERMS AND CONDITIONS.
This Agreement is a modification only and not a provision. Except for the
above-quoted modification(s), the Promissory Note, 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 Agreement is to be considered attached to the Promissory Note and made a
part thereof. This Agreement shall not release or affect the liability of any
guarantor, surety or endorser of the Promissory Note or release any owner of
collateral securing the Promissory Note. The validity, priority and
enforceability of the Promissory Note shall not be impaired hereby. To the
extent that any provision of this Agreement conflicts with any term or
condition set forth in the Promissory Note, or any agreement or security
document executed in conjunction therewith, the provisions of this Agreement
shall supersede and control. Maker acknowledges and agrees that as of the
Agreement Date there are no claims, setoffs or defenses or rights to claims,
setoffs or defenses to payment of the Promissory Note. If the Promissory Note
is signed by more than one person, the modified Promissory Note shall be the
joint and several obligation of all Makers of the Promissory Note.
5. REAFFIRMATION OF COGNOVIT PROVISION.
Each Maker continues to authorize any attorney at law to appear in an action on
the Promissory Note, as modified, at any time after the sums becomes due,
whether by acceleration or otherwise, in any court of record in or of the State
of Ohio, or of elsewhere, and to waive the issuing and service of process
against any or all Makers, enter an appearance and to confess judgment ?
of Bank One against any or all Makers for the amount that may be due under the
Promissory Note, as modified, together with costs of suit, and to release all
errors and waive all rights of appeal and stay of execution from the judgment
rendered. After the judgment is entered against any one or more Makers, the
powers herein conferred may be exercised as to any one or more of the other
Makers. The death of any Maker shall not impair the authority herein granted
as to the survivor or survivors of such Maker.
<PAGE> 3
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
OIOPT ACQUISITION CORP., a Delaware
corporation
By: Vince Pisano
---------------
Its: V.P. Finance
---------------
BANK ONE'S ACCEPTANCE
The foregoing Promissory Note Modification Agreement is hereby agreed to and
acknowledged this 30th day of August, 1995.
BANK ONE, DAYTON, NA
By: Scott E. ????
---------------------------------
Its: Senior Commercial Banking Officer
---------------------------------
<PAGE> 4
ACKNOWLEDGEMENT AND AGREEMENT BY GUARANTOR(S) AND/OR OWNER(S)
OF COLLATERAL SECURING THE PROMISSORY NOTE.
The foregoing Promissory Note Modification Agreement is hereby acknowledged and
agreed to by the undersigned guarantor(s) of the Promissory Note and/or the
owner(s) of collateral securing the Promissory Note, confirming the continuing
validity of said guaranty(ies) and/or security document(s).
EDUCATION MEDICAL, INC.
By: Vince Pisano
---------------------------
Tit: V.P. Finance
--------------------------
<PAGE> 1
EXHIBIT 10.31
ASSET PURCHASE AGREEMENT
Agreement dated as of April 30, 1993, among EDUCATIONAL MEDICAL,
INC., a Delaware corporation ("EMI"), DBS Acquisition Corp., a Delaware
corporation wholly owned by EMI ("Buyer"), BETA SERVICES, INC., doing business
as DOMINION BUSINESS SCHOOLS, a Virginia corporation (the "Seller"), Mr.
KENNETH C. HORNE, Ms. ANN S. HORNE, Mr. CRAIG H. MILLER and Ms. DIANE S.
CLOWER (each such individual is separately called a "Shareholder" and each such
Shareholders are collectively called the "Shareholders").
PRELIMINARY STATEMENT
The Seller is the owner of three vocational schools located, at 4142-1
Melrose Avenue, Roanoke Virginia, 933 Reservoir Street, Harrisonburg, Virginia,
and 825 Richmond Road, Staunton, Virginia, (the "Roanoke School," the
"Harrisonburg School," and the "Staunton School," respectively, individually a
"School" and collectively called the "Schools"). The Buyer wants to buy the
Schools. The Seller and each Shareholder want to sell the Schools to the
Buyer.
This Agreement provides for the sale and purchase of the Schools. It
contains the terms pursuant to which Seller has agreed to sell substantially
all of its School Related Assets to Buyer and Buyer has agreed to assume
certain related Stated Liabilities of Seller. EMI has entered into this
Agreement to reflect that it is jointly and severally liable with the Buyer
with regard to the obligations of the Buyer provided for in it.
IN CONSIDERATION OF THE COVENANTS CONTAINED IN THIS AGREEMENT, AND THE
OTHER CONSIDERATION PROVIDED FOR IN IT, THE PARTIES, EACH INTENDING TO BE
LEGALLY BOUND, AGREE AS FOLLOWS:
1. THE PURCHASE PRICE; CONVEYANCE OF THE ASSETS; ASSUMPTION OF
STATED LIABILITIES; CERTAIN DEFINITIONS; EFFECTIVE DATE OF TRANSACTION.
(a) The Purchase Price. The purchase price for the "School
Related Assets" (as defined in Section 1(g), below) is $2,400,000 (the
"Purchase Price"), subject to adjustment for "Wage Claims" as provided of in
Section 1(d), below. The Purchase Price will be allocated as follows: (i)
$2,000,000 to tangible and intangible assets allocated at the discretion of the
Buyer, and (ii) $400,000 to the non-competition agreements (the
"Non-Competition Agreements") contained in Section 7 of this Asset Purchase
Agreement.
(b) Conveyance of Assets. On May 31, 1993, or such earlier
date as the parties may specify (the "Closing" or the "Closing Date") the
Seller shall convey to Buyer all of its School Related Assets.
(c) Assumption of Stated Liabilities. On the Closing Date
the Buyer shall assume all of the "Stated Liabilities" (as defined in Section
1(g)(2), below.
(d) Cash Payments by the Buyer. On the date this Asset
Purchase Agreement is executed Buyer shall deposit with Seller's counsel
$100,000 as an earnest money deposit (the "Deposit") to be delivered to Seller
on the Closing Date on account of the transactions provided for in such
agreement. On the Closing Date the Buyer also shall pay to Seller $250,000
(the "Initial
<PAGE> 2
Payment"), by wire transfer or otherwise in immediately available funds. The
Initial Payment will be increased by an amount equal to any accrued but unpaid
payroll and other wage related liabilities to the extent such amounts are
consistent with those incurred in prior periods and are incurred in the
ordinary course of the operations of the School by Seller prior to the Closing
Date (the "Wage Claims").
(e) Delivery of Second Payment Note, the Purchase Money
Promissory Note, and the Pledge Agreement by the Buyer. On the Closing Date the
Buyer shall deliver to Seller:
(1) its Promissory Note for $ 350,000.00 (the
"Second Payment Note") in the form attached to this Agreement as EXHIBIT 1(1),
payable the earlier of the last business day within the first 30 calendar days
following the date on which the Prerequisite Student Aid Approvals are
obtained, but no later than twelve months from the date of Closing.
"Prerequisite Student Aid Approvals" mean approvals by the United States
Department of Education and all other applicable private and governmental
agencies and organizations of the change in control of the School resulting
from the sale of the School pursuant to this Asset Purchase Agreement which are
a prerequisite to receipt of federal and state aid by the School's students;
(2) its Promissory Note for $ 900,000.00, amortizing
in equal annual payments over 5 years with interest at 11% per annum in the
form attached to this Agreement as EXHIBIT 2(2) (the "Purchase Money Promissory
Note").
(3) A pledge agreement in the form attached to this
Agreement (the "Pledge Agreement") pursuant to which EMI secures the payment of
the Second Payment Note, the Purchase Money Promissory Note, and the 1991
Contingent Payment and the 1992 Contingent Payment (as defined in subsection
(f) below) and the related interest by a pledge of all of the outstanding
capital stock (the "Buyer's Stock") of the Buyer.
(f) Additional Payments and Non-Competition Payments. The
Buyer shall also pay the Seller and the Shareholders in the respective
proportions set forth on Schedule 1 attached to this Agreement:
(1) An additional payment of $200,000.00 (the "1991
Contingent Payment") within 2 business days after the publication of the Cohort
Default Rate (as defined in Section 3 (g) of this Agreement) applicable to the
Schools for fiscal 1991 or receipt of the Prerequisite Student Aid Approvals,
whichever occurs later, provided that such Cohort Default Rate does not exceed
19.9% with respect to the Schools. If such Cohort Default Rate does exceed
19.9% for the Schools, the 1991 Contingent Payment shall not be made until the
30 days following the first anniversary of the publication of such rate, and
shall be reduced by an amount (not to exceed $200,000) equal to any
diminishment in the amount of financing available to the Schools' students
pursuant to the Federal Family Educational Loan Program reasonably attributable
to such default rate; and
(2) An additional payment of $200,000.00 (the "1992
Contingent Payment") within 2 business days after the publication of the Cohort
Default Rate (as defined in Section 3 (g) of this Agreement) applicable to the
Schools for fiscal 1992 provided that such Cohort Default Rate does not exceed
19.9% with respect to the Schools. If such Cohort Default Rate does exceed
19.9% for the Schools, the 1992 Contingent Payment shall not be made until the
30 days following the first anniversary of the publication of such rate, and
shall be reduced by an amount (not to exceed $200,000) equal to any
diminishment in the amount of financing available to the Schools' students
pursuant to the Federal Family Educational Loan Program reasonably attributable
to such default rate; and
-2-
<PAGE> 3
(3) $400,000.00 (the "Non-Competition Fee") on
account of the Non-Competition Agreements. The Non-Competition Fee will be
paid in five equal payments commencing on the first anniversary of the Closing
and thereafter on the next four anniversaries of the Closing.
(g) Definitions of School Related Assets and Stated
Liabilities.
(1) "School Related Assets" shall mean: (i) cash and
cash equivalents on hand at the Closing Date, (ii) the non-cash assets
reflected in the Seller's 1992 Balance Sheet, together with the related
goodwill and rights of Seller as a going concern, tangible and intangible, used
in connection with the operation of the Schools, together with any other assets
acquired by Seller subsequent to the date of such balance sheet in connection
with the operation of the Schools, (iii) Seller's right to use the name
"Dominion Business Schools" either alone or in conjunction with other words or
names in the context of the operation of a school or other learning
institution, and (iv) national student matching funds, if any, but shall not
include "Excluded Assets." Excluded Assets are (i) assets disposed of in the
ordinary course of business subsequent to the date of the Seller's 1992 Balance
Sheet, and (ii) those assets listed on EXHIBIT 3(3) attached to this Agreement.
(2) "Stated Liabilities" shall mean shall mean
liabilities, duties, and obligations of the Seller which are:
(i) provided for on the Seller's 1992
Balance Sheet (the "1992 Balance Sheet") included in the Seller's Financial
Statements described in Section 2(c) of this Asset Purchase Agreement and not
discharged at or prior to the Closing Date, except for Long-Term Debt described
in Note 2 to the Seller's Financial Statements and amounts "Due to affiliated
company" which appear in the Seller's 1992 Balance Sheet;
(ii) incurred by the Seller subsequent to
December 31, 1992 and prior to the Closing Date in the ordinary course of
operating the Schools, including without limitation, liability for trade
payables and unearned tuition; and
(iii) provided for in the agreements
disclosed on the Exhibits attached to this Agreement and specifically assumed
by the Buyer;
provided, in the case of liabilities, duties, and obligations described in
clauses (ii) and (iii) of this sentence, Stated Liabilities shall only include
the liability, duty or obligation to (x) pay money if, and to the extent, such
obligation of a fixed amount, and (y) perform any service or take any other
action if, and to the extent, such service or other action is capable of being
performed in the ordinary course of business. Stated Liabilities shall
exclude, without limitation (x) obligations of the Seller to employees whether
in the nature of wages, benefits or otherwise, including, accrued but unpaid
payroll and other wage related liabilities such as accrued vacation and (y) any
contingent liabilities not specifically assumed, whether arising prior to or
after the Closing Date and regardless of whether disclosed to Seller, including
without limitation, any liabilities arising from failure to comply with any law
or regulation relating to the administration of any kind of student aid or
grant, or record keeping or reporting required in connection with such
administration.
(3) "Cohort Default Report" shall mean the relevant
Department of Education report from indicating the student default rate for the
applicable fiscal year computed in accordance with federally mandated
procedures for all students attending the Schools and receiving assistance
pursuant to the Stafford Loan and Supplemental Loans for Students programs.
-3-
<PAGE> 4
2. REPRESENTATIONS OF THE SELLER AND THE SHAREHOLDERS.
Seller and each Shareholder, jointly and severally, represent and
warrant to Buyer:
(a) No Misstatements. The representations of the Seller
and each Shareholder and the information supplied by Seller or each Shareholder
contained in this Agreement, the Exhibits attached to it and the documents
incorporated into it by reference do not contain any untrue statement of a
material fact or omit to state any fact necessary to make such representations
or information not materially misleading.
(b) Validity of Actions. Seller (i) is duly organized,
validly existing and in good standing under the laws of the state of Virginia,
(ii) has all requisite corporate authorization to conduct its business as
currently conducted, (iii) is qualified to do business in all jurisdictions in
which such qualification is necessary, and (iv) has full power and authority to
enter into this Agreement and to carry out all acts contemplated by it. This
Agreement has been duly executed and delivered on behalf of the Seller and each
Shareholder, has received all necessary corporate authorization and is a legal,
valid and binding obligation of the Seller and each Shareholder, enforceable
against each of them in accordance with its terms, subject to bankruptcy and
other laws affecting creditors rights generally. Entering into this Asset
Purchase Agreement and the consummation of the transactions contemplated by it
will not violate any provision of the Articles of Incorporation or Bylaws of
Seller or conflict with or result in any breach of any of the provisions of any
agreement to which the Seller or and or any of the Shareholders is a party or
by which any of them or any of their respective assets are bound, or cause a
breach of any applicable law, governmental regulation, order, or other decree
of any court or governmental agency. The Articles of Incorporation and Bylaws
of Seller, as presently in effect, are attached to this Agreement as EXHIBIT
4(4).
(c) Seller's Financial Statements
(1) Attached as EXHIBIT 5(5) to this Agreement are
Seller's audited balance sheets at December 31, 1990, 1991, and 1992, and
statements of income and expense and cash flows for the years then ending. All
of such financial statements are called the "Seller's Financial Statements."
(2) The Seller's Financial Statements: (i) have
been prepared on the accrual basis in accordance with generally accepted
accounting principles consistently applied ("GAAP"), except as otherwise
disclosed in the reports accompanying them or in the notes attached to them,
and (ii) fairly present Seller's financial condition and its results of
operations at the times and for the periods presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects,
properties of assets of Seller since the date of the Seller's Financial
Statements.
(4) Prior to the date of this Agreement the Seller
repaid all of the Long-term debt described in Note 2 to the Seller's Financial
Statement except for the "Note payable to bank" appearing as the fourth item in
such note, which has been reduced to approximately $94,000 (the "Remaining Bank
Note") and the notes payable described in the sixth and seventh items in such
note, which are not being assumed by the Buyer.
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<PAGE> 5
(d) Liabilities of Seller. Seller has no liabilities,
contingent or otherwise, including, without limitation, liabilities for state
or Federal income, withholding, sales, or other taxes, except to the extent
reflected, reserved against, or provided for, in the Seller's 1992 Balance
Sheet included in the Seller's Financial Statements, and trade payables and
other obligations incurred after the date of the Seller's 1992 Balance Sheet in
amounts consistent with those incurred in prior periods in the ordinary course
of business, including without limitation liabilities for unearned tuition.
(e) Assets of Seller. Seller has good and marketable
title to all of its School Related Assets. Except as otherwise disclosed in
the Seller's 1992 Balance Sheet or related notes accompanying it, all of the
School Related Assets are owned free and clear of any adverse claims, security
interests, or other encumbrances or restrictions, except liens for current
taxes not yet due and payable, landlords' liens as provided for in the relevant
leases or by applicable law, or liens or similar security interests granted as
part of personal property financing agreements made in the ordinary course of
business and which in the aggregate are not material.
(f) Facilities and Facility Operations.
(1) Attached to this Agreement as EXHIBIT 6(6) are
the existing leases relating to each of the school facilities (individually
called a "Facility" or a "School Facility" and collectively the "Facilities" or
the "School Facilities"). Each of the Schools' operations are conducted solely
at the relevant School Facility and all of the tangible Assets used in
connection with such operations are located at the relevant School Facility.
All of the improvements located at each School Facility are in good operating
condition and repair. There is no pending or threatened condemnation proceeding
with respect to any School Facility.
(2) Attached as EXHIBIT 7(7) to this Agreement
is a schedule of furnishings, fixtures and equipment located on, or used in
connection with, the operation of each School Facility as of January 1, 1993.
(3) Without regard to the matters provided for in
Section 2(h) below, all activities at, and the physical condition of, each
School Facility are in compliance with all legal and regulatory requirements
applicable to the Seller, the conduct of its business, and the use of each
School Facility, including without limitation, applicable environmental
requirements, and the Seller had not received any notice to the contrary.
Seller has paid for and obtained all licenses, permits, and other
authorizations required for the conduct of its business and the use of each
School Facility (the "Permits"). All Permits currently in effect and
pertaining to the Seller, each School Facility or the Seller's activities are
listed on EXHIBIT 8(8) to this Agreement. The representations contained in this
subsection 3 shall not apply to incidental instances of non-compliance
occurring in the ordinary course of business without the knowledge of the
Seller of any of the Shareholders, which are immaterial to the operation of the
relevant School and capable of being cured without significantly disrupting
such School's operations.
(4) To the best of the knowledge of Seller and each
Shareholder, there are no Hazardous Substances(1) in, on or under each Facility
and Seller is not now engaged in any litigation,
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(1) The term "Hazardous Substance" shall include without limitation:
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<PAGE> 6
proceedings or investigations, nor knows of any pending or threatened
litigation, proceedings or investigations regarding the presence of Hazardous
Substances in, on or under the Facilities.
(g) Equipment Leases and Financing Agreements. Except
for each School Facility Lease, all of the leases and financing agreements to
which Seller is a party or any other encumbrances which relate to each School
Facility or any School Related Asset are described in EXHIBIT 9(9) to this
Agreement (the "Financing and Related Agreements"). Copies of the Financing
and Related Agreements are attached to such Exhibit. Except as reflected in
such Exhibit, there have been no modifications to any of the Financing and
Related Agreements; all of them are in good standing, and free from default;
and none of the interests of Seller in any of them is subject to any
restriction except as stated in the applicable document or as provided by
applicable law.
(h) Accreditation. Attached as EXHIBIT 10(10) to this
Agreement is a list of all Federal, state or other licenses and approvals,
including without limitation all accreditation, granted to Seller with respect
to the conduct of its educational or training business (the "Accreditations"),
and the governmental body or agency or other entity granting such
Accreditation. Included in such Exhibit are copies of all such Accreditations.
To the best of the knowledge of the Seller and the Shareholders, except for the
Permits and the Accreditations, no license or approval is necessary for the
conduct of Seller's business as it is now being conducted. The Seller has
received no notice that any other license or approval is necessary for the
continued conduct of such business or that any such license or approval will
not be renewed. Seller is accredited by the Career College Association and is
certified by the United States Department of Education and is a party to, and
in compliance with, valid program participation agreements with that agency
with respect to the operations being conducted at each Facility. Seller has
not received any notice, not previously complied with, with respect to any
alleged violation of the rules or regulations of such agency or any applicable
accrediting agency in respect of any of the Facilities or the terms of any
program participation agreement to which it is or was a party. If any such
notices have been received and complied with, Seller has disclosed their
receipt and
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(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any
Virginia Statute and in the regulations promulgated pursuant to any
Virginia Statute;
(iii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or
which are classified as hazardous or toxic under federal, state, or
local laws or regulations; and
(v) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C) polychlorinated biphenyl, (D) designated as a
"hazardoussubstance" pursuant to Section 311 of the Clean Water Act,
33 U.S.C. Section Section 1251 et seq. or listed pursuant to Section 3
07 of the Clean Water Act, (E) flammable explosive, or (F) radioactive
materials.
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<PAGE> 7
disposition to Buyer prior to the execution of this Agreement in writing by a
letter making specific reference to this Section of this Agreement. Seller is
not aware of any investigation or review of its student financial aid programs
or any review of any of its Accreditation.
(i) Recruitment; Admissions Procedures; Attendance;
Reports. Attached as EXHIBIT 11(11) to this Agreement are copies of all policy
manuals and other statements of procedures or instruction relating to
recruitment of students, including procedures for assisting in the application
by prospective students for direct or indirect state or Federal financial
assistance; admissions procedures, including any descriptions of procedures for
insuring compliance with state or Federal or other appropriate standards or
tests of eligibility; procedures for encouraging and verifying attendance,
minimum required attendance policies, and other relevant criteria relating to
course completion and certification (collectively referred to as the "Policy
Guidelines").
Seller's operations have in all material respects been conducted in
accordance with the Policy Guidelines and all relevant standards imposed by
applicable accrediting agencies, agencies administering state or Federal
government programs in which the Seller participates, or applicable laws or
regulations.
Seller has submitted all reports, audits, and other information,
whether periodic in nature or pursuant to specific requests, ("Compliance
Reports") to all agencies or other entities with which such filings are
required relating to its compliance with (i) applicable accreditation standards
governing its activities or (ii) laws or regulations governing programs
pursuant to which the Seller or its students receive funding, including,
without limitation, the Perkins Loan Program, the Stafford Student Loan
Program, the Pell Grant program and the Supplemental Educational Opportunity
Grant Programs.
Complete and accurate records in all material respects for all present
and past students attending Seller have been maintained consistent with the
operations of a school business. All forms and records have been prepared,
completed, maintained and filed in all material respects in accordance with all
applicable federal and state laws and regulations, and are true and correct in
all material respects. As of December 31, 1992 all financial aid grants and
loans, disbursements and record keeping relating to them have been completed in
compliance with all federal and state requirements, and there are no material
deficiencies in respect thereto. No student has been funded prior to the date
for which such student was eligible for funding and such student's records have
been processed in accordance with all applicable federal, state and relevant
third party funding source requirements. All appropriate reports and surveys
have been accurately prepared, taken and filed prior to delinquency.
(j) Default. Attached as EXHIBIT 12(12) is a schedule
indicating the cohort default rate, as calculated by the United States
Department of Education, of all students attending the School receiving
assistance pursuant to the Stafford Loan and Supplemental Loans for Students
programs (or their applicable predecessor programs) for the fiscal years ended
12/31/90 and 12/31/89. To the best of the knowledge of the Seller and each of
the Shareholders, such schedule is materially accurate in all respects.
(k) Trademarks, etc. Attached to this Agreement as EXHIBIT
13(13) is a list of all tradenames, trademarks, service marks, copyrights and
the registrations for them owned or used by Seller. To the best of the
knowledge of Seller and each Shareholder, Seller has not infringed and is not
now infringing, any trademark, tradename, service mark, or copyright belonging
to any other person. Except as set forth on such exhibit, Seller is not a
party to any license, agreement or arrangement, whether as licensor, licensee
or otherwise, with respect to any trademark, tradename, service mark, or
copyright used by Seller.
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<PAGE> 8
(l) Material Contracts. Attached as composite EXHIBIT
14(14) to this Agreement is (i) a schedule identifying all material contracts
relating to the Schools' operations, including, without limitation, all
agreements relating to state or Federal funding of educational services
provided by the Seller through grants, loans or direct payments either to the
Seller, individual students or otherwise, and any agreements relating to the
placement of students following their completion of relevant educational
programs provided by the Seller other than agreements with students involving
the teaching of standard courses, for standard prices as set forth in the
Sellers catalog or in the enrollment agreement for such students (the
"Contract(s)"); (ii) a summary of all material provisions of the Contracts that
are not reduced to written documents, including but not limited to all
provisions of each Contract regarding amounts payable by and/or to the Seller
and termination of the Contract; and (iii) a copy of all written Contracts.
Except as disclosed in Exhibit 14: (i) all of the Contracts remain unmodified
and in full force and effect, and (ii) Seller is not in default of any material
nature (nor does any state of facts exist which, with the giving of notice, the
passing of time, or otherwise, would constitute a default of any material
nature by Seller) with respect to any of the Contracts.
(m) Maintenance and Employment Agreements. Attached to
this Agreement as composite EXHIBIT 15(15) is (i) a schedule of all written
agreements between the Company and independent contractors, employees and
agents who are employed or engaged in the management or operation of Seller's
business, the Facilities or the personal property used by Seller; (ii) the
names of all parties entitled to payments from Seller under any such agreements
or arrangements; (iii) the amounts payable by Seller under the terms of all
such agreements and arrangements, including without limitation, the terms of
employment and compensation, including vacation and other employee benefit
provisions and the cost of all employee benefits and payroll taxes; and (iv) a
copy of all written contracts for such services. There are no material oral
agreements in effect for any such services. Except as disclosed on such
exhibit: (x) there are no written agreements between any of such contractors,
employees or agents and Seller; (y) there is no party entitled to compensation
or remuneration for any such services arising from Seller's operations after
the Closing; and (z) Seller's agreements and arrangements providing for such
services may be terminated by Seller at any time with or without cause, and
without any obligation to pay any of said parties any amounts whatsoever except
as may be required by law (including, without limitation, severance pay or
accrued vacation pay or other benefits).
(n) Employee Benefit Plans. Seller maintains employee
benefit plans as listed on EXHIBIT 16(16) to this Agreement (the "Employee
Benefit Plans"). Copies of such plans are attached to such exhibit. Except as
listed on such exhibit, Seller does not maintain any profit sharing, pension or
other employee benefit plan. Seller has no unfunded obligations pursuant to
any insurance, retirement, pension, profit sharing or deferred compensation
plan or program.
(o) Labor. There is no existing labor dispute affecting
Seller's business. None of Seller's employees are covered by any union or
collective bargaining agreement.
(p) Insurance. A schedule of all of the policies of
insurance maintained by Seller in connection with the operation of its business
is attached as EXHIBIT 17(17) to this Agreement. The insurance coverage
provided by such policies complies with all agreements to which Seller is a
party, and applicable legal requirements to which it is subject. All such
policies are currently in effect.
(q) Taxes. Complete and accurate copies of all of the
Seller's Federal, state and other income tax returns for the years ended
December 31, 1989, 1990, and 1991 are attached as composite EXHIBIT 18(18) to
this Agreement. The Company has filed timely all Federal, state and local tax
returns which it is required to file and has no outstanding liability for any
Federal, state or local
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<PAGE> 9
taxes or interest or penalties thereon, whether disputed or not, except taxes
not yet payable which are disclosed in the Closing Interim Financial
Statements. Except for an extension delaying the filing date until September
15, 1993 for it's federal corporate tax return for the year ended December 31,
1992, there is not now in force any extension of time with respect to the date
on which any tax return was or is due to be filed by or with respect to Seller,
or any waiver or agreement by it for the extension of time for the assessment
of any tax.
(r) Actions Pending. Except as disclosed in EXHIBIT
19(19) to this Agreement: (i) there are no actions, suits, proceedings or claims
pending or threatened against Seller or any Shareholder which, if determined
adversely to Seller or each Shareholder, could (A) have a material adverse
effect on Seller, the Assets, or the businesses of Seller when taken as a
whole, or (B) prevent or delay the consummation of any of the transactions
contemplated by this Agreement; (ii) Seller, is not (to its knowledge or the
knowledge of each Shareholder) the subject of any pending or threatened
investigation relating to any aspect of Seller's operations, including the
operations of any of the Facilities, by any Federal, state or local
governmental agency or authority; (iii) Seller, is not and has not been (to its
knowledge or the knowledge of each Shareholder) the subject of any formal or
informal complaint, investigation or inspection under the Equal Employment
Opportunity Act or the Occupational Safety and Health Act (or their state or
local counterparts) or by any other Federal, state or local authority.
(s) Accounts Receivable. Each of the accounts receivable
of Seller constitutes a valid claim in its full amount against the debtor
charged on Seller's books and has arisen in the ordinary course of Seller's
business. Seller's management believes that each such account receivable is
fully collectible to the extent of the face value thereof, except to the extent
of the normal allowance for doubtful accounts with respect to accounts
receivable computed as a percentage of sales consistent with Seller's prior
practices as reflected on the Seller's 1992 Balance Sheet. To the best of the
knowledge of the Seller and the Shareholders, no account debtor has any valid
setoff, deduction or defense with respect thereto, and no account debtor has
asserted any such setoff, deduction or defense.
(t) No Guaranties. None of Seller's obligations or
liabilities is guaranteed by any other person, firm or corporation, nor has
Seller guaranteed the obligations or liabilities of any other person, firm or
corporation, except for certain rental obligations pursuant to the lease
pursuant to which the Roanoke Facility is rented, which lease is guaranteed by
Mr. Kenneth Horne.
(u) Bank Accounts and Deposit Boxes. Attached to this
agreement as EXHIBIT 20(20) are the names and addresses of all banks or
financial institutions in which Seller has an account, deposit or safety
deposit box with the names of all persons authorized to draw on these accounts
or deposits or to have access to the boxes, and an indication of which accounts
or deposits or boxes contain financial aid funds.
(v) Records. The books of account, minute books, stock
certificate books and stock transfer ledgers of Seller are complete and correct
in all material respects, and there have been no transactions involving the
business of Seller which properly should have been set forth therein and which
have not been accurately so set forth.
(w) Transactions With Certain Persons. Seller does not
owe any amount to, or have any contract with or commitment to, any Shareholder,
other than compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business. No
Shareholder owes any amount to Seller except as reflected in the Seller's
Financial Statements. Seller
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<PAGE> 10
has made no distributions or other payments to the Shareholders subsequent to
the date of the Seller's 1992 Balance Sheet except for the reimbursement of
expenses incurred in the ordinary course of business or with respect to cash
included in Excluded Assets.
3. REPRESENTATIONS AND WARRANTIES OF EMI AND BUYER. Each of EMI
and Buyer represents to Seller and each Shareholder as follows:
(a) No Misstatements. The representations and the
information supplied by it contained in this Agreement and the documents
incorporated by reference into it do not contain any untrue statement of a
material fact or omit to state any fact necessary to make such representations
or information not materially misleading.
(b) Validity of Actions. It is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the authority to carry on it business as currently conducted, and is qualified
to do business in all jurisdictions in which such qualification is necessary.
It has full power and authority to enter into this Agreement and to carry out
all acts contemplated by it. This Agreement and each of the documents provided
for in it to be delivered as part of this transaction, have been duly executed
and will be delivered pursuant to all appropriate corporate authorization on
its behalf and is its legal, valid and binding obligation and is enforceable
against it in accordance with its terms. The execution and delivery of this
Agreement, the Second Payment Promissory Note, the Purchase Money Promissory
Note and the Pledge Agreement and the consummation of the transactions
contemplated by them will not violate any provision of its Certificate of
Incorporation or Bylaws nor violate, conflict with or result in any breach of
any of the terms, provisions of or conditions of, or constitute a default or
cause acceleration of any indebtedness under, any indenture agreement or
instrument to which it is a party or by which it or its assets may be bound, or
cause a breach of any applicable law or governmental regulation, or any
applicable order, judgment, writ, award, injunction or decree of any court or
governmental instrumentality.
(c) EMI's Financial Statements
(1) Attached as EXHIBIT 21(21) to this Agreement
are (A) EMI's audited balance sheets at March 31, 1990, 1991, and 1992, and
statements of income and expense and cash flows for the years then ending (the
"Annual Statements"), and (B) EMI's unaudited balance sheet at December 31,
1992 (the "Interim Balance Sheet"), and statements of income and expenses and
cash flow for the period then ending (collectively the Interim Balance Sheet
and such statements are called the "Interim Financial Statements"). The Annual
Statements and the Interim Financial Statements are called the "EMI's Financial
Statements."
(2) EMI's Financial Statements: (i) have been
prepared on the accrual basis in accordance with GAAP consistently applied
("GAAP"), except as otherwise disclosed in the reports accompanying them or in
the notes attached to them, and (ii) fairly present EMI's financial condition
and its results of operations at the times and for the periods presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects,
properties of assets of Buyer since the date of the Interim Financial
Statements.
(d) Buyer's Financial Condition. The Buyer is a newly formed
corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
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<PAGE> 11
4. COVENANTS OF THE PARTIES.
(a) Prohibited Acts. Pending consummation of the
transactions contemplated in this Agreement or prior to termination of this
Agreement, Seller and each Shareholder agree that, without prior written
consent of Buyer, given in a letter which specifically refers to this Section
of the Agreement:
(1) not to (i) perform any act or omit to take
any act that would make any of their respective representations made in Section
2 above, inaccurate or materially misleading as of the Closing Date, or (ii)
allow Seller to make any payment or distribution except for the payment of
liabilities provided for in Seller's Financial Statements except payment of the
Remaining Bank Debt (other than normal instalment payments of approximately
$2,500 per month) or the payment of any other liabilities not constituting
Stated Liabilities, or incurred in the ordinary course of business(2);
(2) to cause Seller to conduct its businesses in
the ordinary and regular course, maintain each School Facility and carry on its
business practices, protect its Accreditation and Permits, and keep its books
of account, records and files in substantially the same manner as at present.
(b) Notice. Pending the consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, each
party agrees that it will promptly advise the others of the occurrence of any
condition or event which would make any of its representations contained in
this Agreement inaccurate, incorrect, or materially misleading.
(c) Access. Prior to the Closing, Seller shall afford to
the Buyer (and its officers, attorneys, accountants and other authorized
representatives), upon reasonable notice, free and full access during usual
business hours to its offices, personnel, Facilities, books and records and
other data, financial or otherwise, so that Buyer may have full opportunity to
make such investigation as it shall desire of the School Related Assets,
business and operations of Seller, provided that such investigation shall not
unreasonably interfere with Seller's operations. The scope of the investigation
will include, but not be limited to, a verification of Seller's Financial
Statements and a review of Seller's control procedures, regulatory compliance,
each School Facility, material contracts, litigation and tax returns for prior
years. Duly authorized representatives of the Buyer shall also be entitled to
discuss with officers of Seller, its counsel, employees and independent public
accountants, all of its books, records and other corporate documents,
contracts, pricing and service policies, commitments and future prospects.
Representatives of Seller will furnish to Buyer and such other persons, copies
of all materials relating to the business affairs, operations, Facilities,
School Related Assets and liabilities of Seller which may be reasonably
requested from time to time and will cause representatives and employees of
Seller to assist Buyer in its investigation of the matters relative to Seller.
(d) Additional Documents. At the request of any party,
each party will execute and deliver any additional documents and perform in
good faith such acts as reasonably may be required in order to consummate the
transactions contemplated by this Agreement and to perfect the
__________________________________
(2) Seller paid $100,000 to its officers prior to December 31, 1992, which
payment has been disclosed to Buyer. In connection with that transaction, it
borrowed $100,000, which has been repaid.
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<PAGE> 12
conveyance and transfer of any property or rights to be conveyed or transferred
under the terms of this Agreement.
(e) Employee Notification, Termination of Employee
Benefit Plans, Etc. With respect to any employees employed by the Seller prior
to the Closing, Seller will comply with the terms of all applicable Federal and
state laws and regulations, including without limitation the provisions of the
Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section Section
2101 et. seq. or the Consolidated Omnibus Budged Reconciliation Act ("COBRA").
(f) Filing of Returns; Additional Information. Seller
will file on a timely basis all tax returns, notices of sale and other
documentation required by law in connection with the transactions provided for
in this Agreement or otherwise required by law, regulation or pursuant to the
terms of any agreement to which it is a party. Seller will supplement any
previous filing made by it in accordance with legitimate requests made by
applicable agencies or parties to the extent required by the relevant law,
regulation or agreement.
(g) Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the Closing Date, each of
the parties to this Agreement will execute such documents and take such other
actions as reasonably may be appropriate to fulfill the conditions to Closing
provided for in Section 5 of this Agreement.
5. CONDITIONS TO CLOSING BY THE RESPECTIVE PARTIES.
The obligation of EMI and Buyer, on the one hand, and Seller and
each Shareholder on the other hand, to consummate the transactions contemplated
by this Agreement shall be subject to compliance with or satisfaction of the
following conditions by the other, to the extent applicable:
(a) Bring Down. The representations and warranties set
forth in this Agreement shall be true and correct in all material respects on
and at the Closing Date as if then made by the relevant party (except for those
representations and warranties made as of a given date, which shall continue to
be true and correct as of such given date).
(b) Compliance. Each party shall have complied with all
of the covenants and agreements in this Agreement on its or their part,
respectively, to be complied with as of or prior to the Closing Date.
(c) No Material Adverse Changes. Since the date of the
Closing Interim Balance Sheet, there shall not have occurred any material
adverse change in the condition (financial or otherwise) of the, Facilities,
School Related Assets or prospects of Seller.
(d) Certificates. There shall be delivered to the Buyer
and Seller, respectively, a certificate executed by the President and Secretary
of the other, dated the Closing Date, certifying that the conditions to be
fulfilled by such party set forth in this Section 4 have been fulfilled.
(e) No Suits. No action or proceeding shall have been
instituted in any court or before any Federal, state or local governmental
agency against any party seeking to restrain or prohibit the consummation of
the transactions contemplated by this Agreement, or which could have a material
adverse effect on the Facilities, School Related Assets or prospects of any of
the parties, which shall not have been dismissed or withdrawn prior to the
Closing Date.
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<PAGE> 13
(f) Closing Financial Statements.
(1) The Buyer shall have conducted a student aid
audit confirming the accuracy of the relevant representations and warranties
contained in Section 2 of this Agreement in all material respects.
(2) Seller shall deliver to Buyer unaudited interim
financial statements, including a balance sheet (the "Closing Interim Balance
Sheet") and a statement of income and expense (the "Closing Interim Income
Statement") for the period ending the last full month preceding the Closing
Date (the "Closing Interim Financial Statements"). The Closing Interim
Financial Statements shall (A) fairly present Seller's financial condition and
its results of operations as of the date and for the period presented, and (B)
shall not disclose any materially adverse variation in the results of
operations or financial condition when compared to the Seller's Financial
Statements.
(g) Change of Seller's Name. At least ten (10) days
prior to the Closing, Seller and Shareholders shall deliver to Buyer a duly
executed and acknowledged certificate renouncing the use of the name "Dominion
Business School" or other appropriate document required to assign to the Buyer
its rights to such name, and agreeing to conduct its business under a new name
bearing no resemblance to "Dominion Business School" and will deliver to the
Buyer such further documentation as may be necessary or appropriate to make the
name "Dominion Business School" available to Buyer. Buyer is hereby authorized
to file such certificate or other documents, at Seller's expense, in order to
effectuate such change of name at or after the Closing.
(h) Documents. All documents required to be delivered to
Buyer at or prior to Closing shall have been so delivered.
(i) Authority. There shall be in full force and effect
on the Closing Date resolutions of the Boards of Directors of EMI, Buyer, and
Seller and any corporate Shareholder approving this Agreement and the
transactions contemplated in it. At or prior to the Closing, each party will
deliver to the other a copy of the resolutions of its Board of Directors and,
in the case of the Seller, the resolutions or consents of each Shareholder,
together with any and all required resolutions or consents of each Shareholder
thereof, approving the execution and delivery of this Agreement and the
consummation of all of the transactions contemplated hereby, duly certified by
an appropriate officer.
(j) Opinions of Counsel. Each party shall receive the
opinion of counsel to the other party reasonably satisfactory in form and
content to the party receiving such opinion.
(k) Consents. Seller shall have obtained written
consents to the transfer or assignment to Buyer of all agreements, Licenses,
leases and other material contracts of Seller (other than immaterial purchase
and sales orders in the ordinary course of business) where the consent of any
other party to any such contract may, in the opinion of Buyer's counsel, be
required for such assignment or transfer.
(l) Estoppel. Seller shall have obtained and delivered
to Buyer written estoppel from the landlord or lessor any lease, and/or the
holder of any note set forth in Exhibits to this Agreement stating the amount
due pursuant to such agreements, and that each is in good standing and free
from default.
(m) Current Insurance Coverage. Payments will have been
made as of the Closing Date with respect to all of Seller's insurance policies,
and all insurance coverage concerning Seller's
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<PAGE> 14
assets and operations shall be continued in force through at least 10 days
subsequent to the Closing Date, unless cancelled subsequent to the Closing Date
by Buyer.
(n) Compliance with Bulk Sales Law. Seller shall have
either (i) duly complied with the provisions of the applicable state Uniform
Commercial Code sections dealing with bulk transfers which impose requirements
on a transferror, and shall have delivered to Buyer all documents and notices
required to be furnished thereunder by a transferror, and copies of any claims
made by creditors, or (ii) delivered to Buyer an opinion of counsel, which
opinion shall be reasonably satisfactory to Buyer and its counsel, indicating
that such compliance is not required in order to complete the transactions
provided for in this agreement in accordance with its terms.
(o) Bankruptcy, Dissolution, etc. No petition or other
commencement of proceedings in bankruptcy or proceedings for dissolution,
termination, liquidation or an arrangement, reorganization or readjustment of
any party's debts under any state or Federal law enacted for the relief of
debtors or otherwise, whether instituted by or against a party, has been
effected or commenced by or against any party.
(p) Leases. The Buyer shall have entered into lease
agreements with respect to each of the facilities reasonably satisfactory to
the Buyer or been assigned such leases with the consent of the Landlord.
6. CLOSING AND POST CLOSING AGREEMENTS.
(a) Closing Date and Place; Effective Date. The closing
of the transactions provided for in this Agreement shall take as provided for
in Section 1 (b) of this Agreement at the offices of the Seller, or at such
other place or time as the parties shall mutually agree in writing.
(b) Deliveries by Buyer to Seller. At the Closing, Buyer
shall deliver to Seller:
(1) The Cash Portion of the Price;
(2) The Second Payment Promissory Note;
(3) The Purchase Money Promissory Note; and
(4) An assumption agreement (the "Assumption
Agreement" in substantially the form attached to this Agreement as EXHIBIT
22(22).
(c) Deliveries by EMI to Escrow Agent. At the Closing, EMI
shall deliver to the Escrow Agent:
(1) The Pledge Agreement, among the Seller, EMI and
counsel for the Seller, in the form attached to this Agreement as EXHIBIT
23(23) pursuant to which such counsel, as Escrow Agent, will hold the Buyer's
Stock; and
(2) Certificates representing the Buyer's Stock
along with properly endorsed stock powers.
(d) Deliveries by Seller to Buyer. At the Closing, Seller
shall deliver to Buyer:
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<PAGE> 15
(1) The Bill of Sale (the "Bill of Sale") in the
form attached to this Agreement as EXHIBIT 24(24); and
(2) An assignment of all of Seller's bank accounts;
and
(3) Such other instruments of conveyance in form and
substance reasonably satisfactory to Buyer's counsel, as shall be effective to
vest in Buyer good and marketable title to the Assets.
(e) Relocation of Virginia College. The Shareholders are
also stockholder of Career Futures Inc. ("Career Futures") which operates a
two year college under the name Virginia College (b)(i), below, currently
operates a 2 year college known as "Virginia College" in a facility adjoining
the facility at which the Roanoke School is located. Seller and the
Shareholder agree to relocate all of its Virginia College operations in Roanoke
to a location at least five (5) miles away from the Roanoke School (or to a
mutually agreeable site to be determined prior to the Closing) no later than 90
days after the Closing Date.
(f) Right of first negotiation. If Seller or the
Shareholders determine to sell, or seek to sell, any school owned or controlled
by them prior to the fifth anniversary of the Closing, it will give EMI written
notice of such intention prior to entering into negotiations with any other
party relating to such proposed sale (a "Notice to Negotiate") and thereafter,
if EMI indicates an interest in such a purchase, negotiate with EMI in good
faith with respect to such proposed sale. If EMI and the Seller are unable to
reach an agreement within 14 business days after such the Notice to Negotiate
is delivered, Seller shall have no further obligations pursuant to this Section
6 (f).
(g) Further Documents or Acts. The parties will also
execute, deliver, and/or perform at Closing and thereafter all other documents
or acts required to consummate any of the transactions contemplated by this
Agreement.
7. CONFIDENTIALITY AND JOINT NON-COMPETITION AGREEMENT.
(a) Each shareholder acknowledges that, as a result of
his ownership of the Seller and, if applicable, employment by Seller, he has
had access to and knowledge of confidential or proprietary information
developed by Seller and of a special and unique nature and value to Seller,
including, but not limited to, Seller's methods and systems, the names and
addresses of its students and sources of referral, tuition charged and paid by
Seller or its customers, curricula, related memoranda, research reports,
designs, records, student files, services, and operating procedures, and other
information, data, and documents now existing or later acquired by Shareholder
or Seller, regardless of whether any such information, data, or documents,
qualify as a "trade secret" under applicable Federal or state law (collectively
"Confidential Information"). As a material inducement to Buyer to enter into
this Agreement, each Shareholder and the Seller, jointly and severally,
covenants and agrees not at any time directly or indirectly, to divulge or
disclose for any purpose whatsoever, any Confidential Information which is in
the possession of Seller or which has been obtained by or disclosed to such
Shareholder as a result of employment by Seller, ownership of Seller, or
otherwise as a result of the relationship between such Shareholder and Seller.
Such information of a confidential nature includes, but is not limited to,
students' records, student files, charts, ledgers, accounts receivable ledgers,
price lists, methods and systems, operating procedures, technical memoranda,
curricula, accounts payable ledgers, records of amounts received from students,
student lists, referral sources, teacher lists, sources of employment for
students, placement materials, research reports, and financial
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<PAGE> 16
records of Seller and of its students. In accordance with the foregoing, each
Shareholder and the Seller agrees at no time to retain or remove from the
Facility records reflecting Confidential Information.
(b) As a material inducement to Buyer to enter into this
Agreement, each Shareholder and the Seller, jointly and severally, covenants
and agrees, except as otherwise provided in this subsection 7(b), for a period
of five (5) years after the date of this Agreement not to (i) directly or
indirectly engage in offering vocational training programs substantially
similar to those offered at the Schools or at any of the school facilities
currently operated by the Buyer and listed on EXHIBIT 25(25) (the "Prohibited
Activities") anywhere within the State of Virginia or 50 miles of any school
currently operated by the Buyer or the Schools (the "Area"); (ii) become
associated as manager, supervisor, employee, consultant, advisor, stockholder
owning more that 5% of the outstanding stock of a company or participating in
the management or direction of a company or otherwise with any person,
corporation or entity engaging in any activity competitive with the Activities
anywhere within the Area; (iii) call upon any of Buyer's students, teachers or
referral sources for the purpose of promoting any Prohibited Activities for any
person, person, corporation or entity within the Area; or (iv) divert, solicit
or take away any of Buyer's teachers or other personnel for the purpose of
engaging in any Prohibited Activities within the Area.
(i) Regardless of whether they
constitute Prohibited Activities, Career Futures may continue to offer courses
currently included in the Virginia College curricula being offered at its
Roanoke facility, which courses are described in Exhibit 26(26) (the "Exiting
Virginia College Curricula"). Seller and each Shareholder agree that Virginia
College shall not add any programs or classes to the Existing Virginia College
Curricula which would be Prohibited Activities except (i) integrated degree
granting programs structured with the objective of granting at least an
associate degree requiring the successful completion by the student of at least
ninety Quarter Hours or Sixty Semester Hours which programs are approved by
applicable state and non-governmental accrediting agencies, including without
limitatin the Standards of Accreditation of the Accrediting Commission for
Trade and Technical Schools of the Career College Association or (ii) classes
which are substantially similar to those currently included in the Existing
Virginia College Curricula or which are reasonably related to them. The
operations of Career Futures will be limited to the location described in
Section 6(e) or other locations not in the Area.
(ii) Regardless of whether they
constitute Prohibited Activities, Macon Beauty School, located in Macon,
Georgia, and Artistic Beauty College in Conyers Georgia may continue to offer
course included in their current curricula or reasonably related to them.
(iii) The Seller and the
Shareholders each agree that as a condition to any sale of the business or
substantially all of the assets constituting the Virginia College, the
purchaser will be required to specifically assume the agreements contained in
this Section 7.
(c) In the event of a breach or threatened breach by each
Shareholder of any of the provisions of this Section 7, Buyer, in addition to
and not in limitation of any other rights, remedies, or damages available to
Buyer at law or in equity, shall be entitled to a permanent injunction in order
to prevent or to restrain any such breach by Seller or any Shareholder, or by
such shareholder's partners, agents, representatives, servants, employers,
employees and/or any and all persons directly or indirectly acting for or with
him.
(d) Each Shareholder and the Seller covenants and agrees
that, if he shall violate any of his covenants or agreements provided for in
this Section 7, Buyer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remuneration, or benefits which
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<PAGE> 17
Seller or such Shareholder, directly, or indirectly, has realized and/or may
realize as a result of, growing out of, or in connection with any such
violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Buyer may be entitled to
at law or in equity or under this Agreement.
(e) Each Shareholder and the Seller has carefully read
and considered the provisions of this Section 7, and agrees that the
restrictions set forth above (including without limitation the time period and
geographical areas of restriction) are fair and reasonable and are reasonably
required for the protection of the interest of the Buyer. In the event that,
notwithstanding the foregoing, any of the provisions of this Section 7 are held
invalid or unenforceable, the remaining provisions shall continue to be valid
and enforceable. In the event that any provision of this Section 7 relating to
time period and/or areas of restriction are declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period or areas of restriction shall be
deemed to become, and thereafter be, the maximum time period and/or area which
such court deems reasonable and enforceable.
8. INDEMNIFICATION. Seller and each Shareholder, jointly and
severally, on the one hand, and Buyer, on the other hand (respectively, the
"Indemnifying Party"), agree to defend, indemnify and hold harmless the other
party and its directors, officers, employees and agents (collectively, the
"Indemnified Parties") from and against any loss, damage, settlement, or
expense (including, without limitation, attorneys' fees and disbursements)
incurred by any Indemnified Party and arising from or related to the inaccuracy
or breach of any of the representations, warranties, covenants or agreements of
the respective Indemnifying Party contained in this Agreement or in any
document incorporated by reference into it. The relevant Indemnified Part(ies)
shall give (or cause to be given) to the relevant Indemnifying Party notice of
any claim or matter for which indemnity is (or will be) sought under this
Section 8; such notice shall be given promptly after the Indemnified Part(ies)
receive actual notice or knowledge of the claim or matter that is subject to
indemnification. With respect to any claim asserted by a third party against
any Indemnified Part(ies) for which indemnity is sought, the relevant
Indemnifying Party shall have the right to employ counsel reasonably acceptable
to the relevant Indemnified Part(ies) to defend against such assertion, and
such Indemnifying Parties shall have the right to compromise or otherwise
settle any such action or claim only with the prior written consent of the
relevant Indemnified Party, which shall not be unreasonably withheld.
9. EVENTS OF DEFAULT. If any one or more of the following events
occurs then, subject to the expiration of any specified grace period and the
giving of any prior notice required under this Section 9, such event shall
constitute an event of default (an "Event of Default") by the party responsible
for such event or against whom it should be charged.
(a) Untrue Statements. Any statement, report, financial
statement, or certificate made or delivered by any party or any of its agents
to another party is not true, complete and correct in any material respect.
(b) Warranties or Representations. Any warranty,
representation or other statement by or on behalf of any party contained in
this Agreement (or in any document between the parties furnished in compliance
with or in reference hereto) is false or misleading in any material respect.
(c) Agreements. Any party fails to take any action
required of it to comply with its obligations contained in this Agreement, or
takes any action prohibited or inconsistent with its obligations under this
Agreement, and such failure to act or action is not cured prior to ten (10)
days after written notice thereof is given to the defaulting party.
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<PAGE> 18
(d) Refusal to Close. A party refuses to consummate the
transactions provided for (and subject to the terms and conditions specified)
in this Agreement on the Closing Date, except if the failure to close is based
upon the failure of another party to meet a condition to Closing provided for
in Section 5 of this Agreement.
(e) Failure of Closing Condition. Any party is unable to
comply with the conditions of Closing provided for in Section 5 of this
Agreement, other than as a result of an Event of Default as described in
Sections 9(a), (b), (c) or (d) above.
(f) Default on Institutional Debt. Any Institutional
Debt issued by EMI is declared due and payable by its holder prior to its
scheduled maturity date ("Accelerated Debt"), and such Accelerated Debt is not
(a) paid or rescheduled pursuant to a written agreement within 60 days the date
of such declaration, or (b) the subject of a bona fide dispute, with respect to
which suit is commenced by or against EMI within 60 days after such
declaration, provided that such declaration shall become an Event of Default
upon the entry of a court order declaring such Accelerated Debt due and
payable, unless (x) such amount is paid within 30 days of the entry of such
order, or (y) execution on such order is stayed pending appeal. Institutional
Debt shall mean money borrowed by EMI from a bank or other similar lending
institution a material portion of the business of which is lending money.
10. RIGHTS AND REMEDIES ON DEFAULT.
Upon and after an Event of Default by any party, the other party
shall have the following rights and remedies:
(a) Default by Buyer. In the event that Buyer is
obligated to and fails to close by the Closing Date, and Seller and Shareholder
are not in default of their obligations under this Agreement, this Agreement
shall terminate and Seller and Shareholder shall receive, as liquidated
damages, the Deposit as their sole remedy. Seller and each Shareholder hereby
agree that they shall not be entitled to seek or file suit for specific
performance of this Agreement.
(b) Default by Seller or Shareholder. If, on the Closing
Date, there exists an Event of Default as described in Section 9 of this
Agreement, chargeable against the Seller or a Shareholder, Buyer may either (i)
waive such default and close, in which event Buyer shall have the right to seek
specific performance of this Agreement, including, without limitation, the
acquisition of the Assets and the performance by the Seller and each
Shareholder of the covenants provided for in this Agreement, or (ii) refuse to
close, and, except in the case of an Event of Default described in Section 9(e)
above, seek money damages from Seller and Shareholder, including, without
limitation, indemnification pursuant to Section 8 of this Agreement. An
election by Buyer to proceed in accordance with subclause (i) of the preceding
sentence shall constitute the acknowledgment by Buyer, Seller and Shareholder
that Buyer cannot be adequately compensated by money damages for the failure to
perform by Seller and Shareholder, that such damages are indeterminate, and
that a court of competent jurisdiction may enter an order pursuant to which
Seller and Shareholder are obligated to specifically perform their obligations
to Buyer pursuant to the terms of this Agreement.
(c) Default Subsequent to Closing. If an Event of
Default occurs or is asserted subsequent to Closing, the nondefaulting
party(ies) shall have the right to seek money damages from the defaulting
party(ies), either pursuant to Section 8 of this Agreement or otherwise. In
addition, if, but only if, because of any action taken or not taken by the
Seller in violation of any applicable law or regulation which (i) has not been
disclosed to the Buyer in this Agreement, and (ii) the occurrence or non
occurrence of which was known or reasonably should have been known to the
Seller, the
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<PAGE> 19
Prerequisite Student Aid Approvals are not received prior to 12 months from the
date of the Closing, or, if received or offered, can only be obtained on
conditions imposing substantial burdens on the Buyer in addition to those which
would otherwise be imposed in connection which such approval, THEN the Buyer
may elect to rescind the transactions provided for in this Agreement and, upon
such election, the parties will take such action as may be reasonably required
to restore the other party to its respective positions as they existed prior to
the Closing provided for in this Agreement.
(d) Nature of Remedies Cumulative. All rights and
remedies granted in this Agreement or available under applicable law shall be
deemed concurrent and cumulative and not alternative or exclusive remedies, to
the full extent permitted by law and this Agreement, and any party may proceed
with any number of remedies at the same time or in any order. The exercise of
any one right or remedy shall not be deemed a waiver or release of any other
right or remedy, and any party, upon the occurrence of an event of default by
another party under this Agreement, may proceed at any time, under any
agreement, in any order and with any available remedy.
11. FINDERS FEES.
Seller and each Shareholder, jointly and severally, on the one hand,
and the Buyer on the other, represents and warrants to the other that it has
not employed any finder or broker in connection with transactions contemplated
by this Agreement. Each party agrees to indemnify and hold harmless the others
from and against any claim, damages, liabilities, and expenses (including
without limitation, attorneys' fees and disbursements) arising from any claim
or demand asserted by any person or entity on the basis of its employment as a
finder or broker by the respective party.
12. NOTICES. All notices or other communications required or
permitted under the terms of this Agreement shall be made in writing and shall
be deemed given upon (i) hand delivery or (ii) three days after deposit of same
in the certified mail, return receipt requested, first class postage and
certification fees prepaid and correctly addressed to the parties at the
following addresses:
If to Buyer: DBS Acquisition Corp.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 30076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 30076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
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<PAGE> 20
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
If to Seller: Beta Services, Inc.
1210 20th Street South
Suite 200
Birmingham, AL 35205
With a copy to: The Harrison Firm, P.C.
P.O. Box 18186
Roanoke, VA 24014
If to Shareholder: Mr. Kenneth C. Horne
3301 Tarton Lane
Birmingham, AL. 35242
If to Shareholder: Ms. Ann S. Horne
3301 Tarton Lane
Birmingham, AL. 35242
If to Shareholder: Mr. Craig H. Miller
6030 Flamingo Drive
Roanoke, VA 24018
If to Shareholder: Ms. Diane S. Clower
1632 Carson Road
Birmingham, AL 35242
or to such other address as any of the parties hereto may designate by notice
to the others.
13. MISCELLANEOUS.
(a) Successors. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their respective successors
and permitted assigns. This Agreement may not be assigned prior to Closing
without the prior written consent of the other parties hereto.
(b) Expenses. Except as otherwise provided in this
Agreement, Buyer and Seller shall be responsible for any and all of the
respective fees, costs and expenses incurred by each, in connection with the
negotiation, preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by
this reference all Exhibits hereto and all documents executed and/or delivered
at Closing. This Agreement and the documents so incorporated into it contain
the parties' entire understanding and agreement with respect to the subject
matter hereof; and any and all conflicting or inconsistent discussions,
agreements, promises, representations and statements, if any, between the
parties or their representatives that are not incorporated in this Agreement
shall be null and void and are merged into this Agreement.
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<PAGE> 21
(d) Amendments Only in Writing. No amendment,
modification, waiver or discharge of this Agreement or any provision of this
Agreement shall be effective against any party, unless such party shall have
consented thereto in writing.
(e) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original, but all of
which together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement,
when requested by another party, shall give all reasonable and necessary
cooperation with respect to any reasonable matters relating to the transactions
contemplated by this Agreement.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia,
exclusive of its choice of law provisions.
(h) Headings. The various section headings are inserted
for purposes of reference only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.
(i) Gender; Number. All references to gender or number
in this Agreement shall be deemed interchangeably to have a masculine,
feminine, neuter, singular or plural meaning, as the sense of the context
requires.
(j) Severability. The provisions of this Agreement shall
be severable, and any invalidity, unenforceability or illegality of any
provision or provisions of this Agreement shall not affect any other provision
or provisions of this Agreement,and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
(k) Survival. Except as otherwise expressly provided in
this Agreement, the liabilities and obligations of each party with respect to
any and all of its representations, warranties, covenants and agreements set
forth in this Agreement and/or in any document incorporated into it shall not
be merged into, affected or impaired by the Closing under this Agreement, but
rather shall survive such Closing for the period of three years thereafter, so
that (except as otherwise provided below) any claim under this Agreement must
be asserted by notice given to the party claimed to be liable on or before the
third anniversary of the Closing Date. Notwithstanding the foregoing, the time
limitation shall not apply to: (i) the covenants related to confidentiality and
non-competition contained in Section 7 above and the Non-Competition
Agreements; (ii) claims relating to liabilities of the Seller that are not
Stated Liabilities; (iii) claims for indemnification under Section 8, above,
which seek indemnity for matters identified in (ii), above, or arising out of a
misrepresentation as to matters contained in section 2 (i) or 2 (j), or (iv)
fraud. All obligations and liabilities described in the previous sentence
shall survive the Closing for the period in which a claim can be asserted with
respect thereto under applicable law.
(l) No Third Party Beneficiaries. This Agreement has been
entered into solely for the benefit of the parties that have executed it, and
not to confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
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<PAGE> 22
DBS ACQUISITION CORP. BETA SERVICES, INC., D/B/A
("BUYER") DOMINION BUSINESS SCHOOLS ("SELLER")
BY: By:
------------------------ -------------------------------
Authorized Signatory Authorized Signatory
SHAREHOLDERS:
-----------------------------------
Kenneth C. Horne
-----------------------------------
Craig H. Miller
-----------------------------------
Ann S. Horne
-----------------------------------
Diane S. Clower
By executing and delivering this Agreement, EMI agrees it is jointly and
severally liable for each of the obligations of the Buyer contained in it.
EDUCATIONAL MEDICAL, INC.
By:
------------------------
Authorized Signatory
By executing and delivering this Agreement, and without in any way limiting the
obligations of any other party to this agreement, Career Futures specifically
agrees to the provisions of Section 6(e), 6(f) and Section 7 of this agreement.
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<PAGE> 23
CAREER FUTURES, INC.
By:
-----------------------------
Authorized Signatory
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<PAGE> 24
EXHIBITS
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<PAGE> 25
1. Form of Second Payment Note
2. Form of Purchase Money
Promissory Note
3. List of Excluded Assets
4. Articles of Incorporation
and By-Laws of the Seller
5. Seller's Financial Statements
6. Facility Lease
7. Inventory of FF & E
8. List of Permits
9. List of Leases, Financing
Agreements, and Other
Encumbrances relating to Real
and Personal Property
10. List of Accreditation
11. Policy Manuals and other
School Material.
12. Cohort Default Rate
Evaluation Material
13. Trademarks etc.
14. List of Material Contracts
15. Employment Agreements
16. Employee Benefit Plans
17. Insurance Policies
18. Federal Income Tax Returns
19. Actions Pending
20. List of Bank Accounts
21. EMI's Financial Statements
22. Form of Assumption Agreement
23. Pledge Agreement
24. Form of Bill of Sale
25. List of Buyer's Schools
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<PAGE> 26
26. Virginia College Curricula
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<PAGE> 1
EXIBIT 10.32
PURCHASE MONEY PROMISSORY NOTE
U.S. $900,000 Roanoke, Virginia
May 28, 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 BETA SERVICES, INC., ("BETA,"),
or assigns ("Holder") at 3710 Bosworth Drive, Roanoke, Virginia, 24014, or at
such other place or to such other party as Holder may from time to time
designate in writing, the principal sum of Nine Hundred Thousand and No/l00
Dollars (U.S. $900,000.00) 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., DBS Acquisition
Corp., Educational Medical, Inc., BETA, and the Shareholders of BETA, dated
April 30, 1993, and providing for the purchase by DBS Acquisition Corp. of
substantially all of the l of the Assets of BETA (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 eleven percent (11%) per
annum and amortize in 60 equal principal payments of $15,000.00 each, payable
annually on the 28th day of May commencing May 28, 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, which notice specifically declares the entire amount owned to Holder and
provided for in this Note immediately due and payable, or (2) May , 1998 (the
earlier of the dates referred to in the preceding two 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.
Each 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. Each 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> 2
Each 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 Virginia, 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 Roanoke, Virginia, the date first above written.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------
Authorized Signatory
DBS ACQUISITION CORP.
By:
------------------------------------
Authorized Signatory
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<PAGE> 1
EXHIBIT 10.33
PLEDGE AGREEMENT
AGREEMENT, dated as of May 28, 1993 between EDUCATIONAL MEDICAL, INC.,
a Delaware corporation (the "Pledgor"), BETA SERVICES, INC., a Virginia
corporation (the "Pledgee") and DBS ACQUISITION CORP., a Delaware corporation
(the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common
stock, par value $.10 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
$350,000 (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 $900,000, a copy of which is attached as
Exhibit 2 to this Agreement. The Second Payment Note and the Purchase Money
Note were issued pursuant to an asset purchase agreement (the "Asset Purchase
Agreement") entered into among the Pledgor, Pledgee, the Issuer and the
Shareholders of the Pledgee and dated April 30, 1993. Pursuant to the Asset
Purchase Agreement the Pledgor and the Issuer also have agreed to make
additional payments to the Pledgee and the Shareholders under certain
circumstances, which payments are defined in the Asset Purchase Agreement as
the "1991 Contingent Payment" and the "1992 Contingent Payment." The Pledgor's
obligations with respect to the payment of the Second Payment Note, the
Purchase Money Note, the 1991 Contingent Payment and the 1992 Contingent
Payment are collectively called the "Secured Obligations," and 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.
<PAGE> 2
2. Transfer to Escrow Agent. The original certificates representing
all Pledged Collateral shall be held on behalf of Pledgee by The Harrison Firm,
P.C., P.O. Box 18186, Roanoke, VA, 24014 (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 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 and shall forthwith be delivered to the
Escrow Agent (accompanied by proper instruments of assignment and/or stock
and/or bond powers executed by the Pledgor in accordance with the Pledgee's
instructions) to be held as Pledged Collateral subject to the terms of this
Pledge Agreement.
(c) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of attorney,
dividend orders, interest coupons and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
subparagraph (a) above and/or to receive the dividends and/or interest payments
which it is authorized to receive and retain pursuant to subparagraph (b)
above.
(d) Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
Section 3(a) hereof and/or to receive the dividends and interest payments which
it is authorized to receive and retain pursuant to Section 3(b) hereof shall
cease, and all such rights shall thereupon become vested in the Pledgee who
shall have the sole and exclusive right and authority to exercise such voting
and/or consensual rights and powers and/or to receive and retain the dividends
and/or interest payments which the Pledgor would otherwise be authorized to
retain pursuant to Section 3(b) hereof. Any and all money and other property
paid over to or received by the Pledgee pursuant to the provisions of this
Section 3 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
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<PAGE> 3
Event of Default:
(a) the Pledgor and the Issuer shall default in making any
payment with respect to the Secured Obligations; or
(b) if the Pledgor and the Issuer shall fail to make any
payment8 when with respect to the Non Competition Fee (as defined in the Asset
Purchase Agreement; or
(c) if either the Pledgor or the Issuer 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 any event; and
(d) except as provided for in subsection (c), if such default
or event shall continue for 10 days after the giving of written notice to the
Pledgee.
5. Remedies upon Default. If any Event of Default shall have
occurred and be continuing, then, in addition to exercising any rights and
remedies as a secured party under the Uniform Commercial Code in effect in
Virginia, 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 Secured
Obligations 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 to the other Secured Obligations and then otherwise
pursuant to this Pledge Agreement, and
(b) sell the Pledged Collateral, or any part thereof, at any
public or private sale or at any broker's board or in any securities exchange,
for cash, upon credit or for future delivery, as the Pledgee shall deem
appropriate. The Pledgee shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to
persons who will represent and agree that they are purchasing the Pledged
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Pledgee shall have the right to assign, transfer and deliver to the purchaser
or purchasers thereof the Pledged Collateral so sold, free and clear from any
claims or rights of Pledgor. Further, it shall be deemed commercially
reasonable for the Pledgee to impose sufficient conditions on any such sale so
as to preclude the necessity of registration of the Pledged Collateral under
the Securities Act of 1933, as amended. Each such purchaser at any such sale
shall hold the property sold absolutely, free from any claim or right on the
part of the Pledgor, and the Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay and/or appraisal which he now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Pledgee shall give the Pledgor at least 30 days'
written notice in the manner specified for notices under this Agreement of the
Pledgee's intention to make any such public or private sale or sales at any
broker's board or on any such securities exchange, and the Pledgor agrees that
such notice of sale will be commercially reasonable notice to
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(1) In the event of a dispute with respect to the payment of any
non-competition fee, it shall not be a default for purposes of this pledge
agreement if payments of such fee are made into the registry or similar
facility of any court of competent jurisdiction pending the outcome of such
dispute.
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<PAGE> 4
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 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 and then the other Secured Obligations and
then otherwise pursuant to 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 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
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<PAGE> 5
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 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
enter into the transactions provided for in the Asset Purchase Agreement and 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 the
Secured Obligations have 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.
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<PAGE> 6
(a) The Harrison Firm, P.C., a Virginia Professional
corporation 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:
(c) 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 notice of any
such action within 10 days after it is completed.
(d) 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 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.
(e) 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 in reliance
upon advice of counsel in reference to any matter(s) in 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
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<PAGE> 7
with its counsel, which shall include any attorney retained 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 be bound by, the
provisions of any other agreement.
(v) The Escrow Agent may at any time
resign hereunder by giving written notice of its resignation to all
parties hereto at least thirty (30) days prior to the date specified
for such resignation to take effect, and upon the effective date of
such resignation, all cash, documents and all other property then held
by the Escrow Agent hereunder shall be delivered by it to such persons
as may be designated in writing by all parties hereto, whereupon all
further obligations of 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 from
any further duties and obligations hereunder upon its filing an
impleader or other appropriate proceeding in a court of competent
jurisdiction and depositing in such court 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.
(vi) Pledgor and Pledgee shall be jointly
and severally obligated to pay the Escrow Agent its fees, and
reimburse all of its costs and expenses in connection herewith,
including reasonable counsel fees for counsel retained by the Escrow
Agent (even though the Escrow Agent is a practicing attorney) 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. The Escrow Agent may apply to a court of competent
jurisdiction for payment of its fees and expenses from the Pledged
Collateral and such claim shall have priority over the rights of the
undersigned with respect to any payment to be made pursuant to this
agreement. In that connection the Escrow Agent may sell all or any
part of the Pledged Collateral to satisfy such obligations as if they
were Secured Obligations as defined in this agreement.
(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.
(vii) Pledgor acknowledges that the Escrow
Agent is 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 impleader 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 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
relating to the subject matter of this agreement. The terms and provisions of
this Agreement cannot be terminated or
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<PAGE> 8
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 Commonwealth of Virginia, and any suit, action or proceeding
arising out of or relating to this Agreement shall be commenced and maintained
in the circuit court in the City of Roanoke, Virginia, or the United States
District Court for the Western District of Virginia 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. As between Pledgor and Pledgee, 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
certification 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 for such party as aforesaid.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
In the Presence of: EDUCATIONAL MEDICAL, INC.
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By:
- ------------------------------- -------------------------------
Authorized Signatory
DBS ACQUISITION CORP.
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By:
- ------------------------------- -------------------------------
Authorized Signatory
BETA SERVICES, INC.
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By:
- ------------------------------- -------------------------------
Authorized Signatory
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<PAGE> 9
ACCEPTANCE OF ESCROW AGENT
The Harrison Firm, P.C. acknowledges receipt of the foregoing
Agreement and agrees to act as Escrow Agent under its terms.
THE HARRISON FIRM, P.C.
By:
--------------------------------
David G. Harrison
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<PAGE> 1
EXHIBIT 10.34
AMENDMENT ONE TO THE PLEDGE AGREEMENT
AMENDMENT dated as of July 23, 1993 (the "First Amendment") to the
PLEDGE AGREEMENT, dated as of May 28, 1993 (the "Original Pledge Agreement")
between EDUCATIONAL MEDICAL, INC., a Delaware corporation (the "Pledgor"), BETA
SERVICES, INC., a Virginia corporation (the "Pledgee") and DBS ACQUISITION
CORP., a Delaware corporation (the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common
stock, par value $.10 per share (the "Pledged Securities"), of the Issuer.
The Issuer and the Pledgor have jointly and severally executed and
delivered to Pledgee (i) the "Second Payment Note", and (ii) a "Purchase Money
Note", and agreed to make (iii) the "1991 Contingent Payment" and (iv) the
"1992 Contingent Payment." The Pledgor's obligations with respect to the
payment of the Second Payment Note, the Purchase Money Note, the 1991
Contingent Payment and the 1992 Contingent Payment are collectively called the
"Secured Obligations" and are secured by the Pledged Collateral as defined in
the Original Pledge Agreement. All Capitalized terms used in this Agreement
shall have the same meaning given to them in the Original Pledge Agreement
unless the context otherwise requires.
The Pledgor has secondarily pledged the Pledged Collateral to Bank
South, N.A., as security for a bank loan facility. The parties have agreed to
amend the Original Pledge Agreement to give effect to that secondary pledge.
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:
The indicated sections of the Original Pledge Agreement are amended to
include the following additional language which is both italicized and
underlined.
Section 3 (b)
(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
<PAGE> 2
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.
Section 5 (b)
(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.
Section 6
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.
Section 14 (c)
(c) 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.
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<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
In the Presence of: EDUCATIONAL MEDICAL, INC.
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By:
- ------------------------------ ------------------------------
Authorized Signatory
DBS ACQUISITION CORP.
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By:
- ------------------------------ ------------------------------
Authorized Signatory
BETA SERVICES, INC.
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By:
- ------------------------------ ------------------------------
Authorized Signatory
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<PAGE> 4
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(e)(1) to 14(e)(v), inclusive, and by
Section 14(e)(vii) and 14(e)(viii).
THE HARRISON FIRM, P.C.
By:
------------------------------------
David G. Harrison
Acknowledged, Accepted and Agreed to as of July ____, 1993.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------
Authorized Representative
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<PAGE> 1
EXHIBIT 10.35
ASSET PURCHASE AGREEMENT
Agreement dated as of March 12, 1993, among EDUCATIONAL MEDICAL, INC.,
a Delaware corporation ("EMI"), MTSX Acquisition Corp., a Delaware corporation
wholly owned by EMI ("Buyer"), M.T. SCHOOL OF X-RAY, INC., a California
corporation (the "Seller"), Mr. JEROME CAPLAN, and Ms. DONNA CAPLAN (each such
individual is separately called a "Shareholder" and both such Shareholders are
collectively called the "Shareholders") and Mr. HARVEY CAPLAN ("Harvey Caplan").
PRELIMINARY STATEMENT
The Seller is the owner of a vocational school located, at 6180 Laurel
Canyon Boulevard Suite 101, North Hollywood, CA 91606 (the "School"). The Buyer
wants to buy the School. The Seller and each Shareholder want to sell the School
to the Buyer.
This Agreement provides for the sale and purchase of the School. It
contains the terms pursuant to which Seller has agreed to sell substantially all
of its School Related Assets to Buyer and Buyer has agreed to assume certain
related Stated Liabilities of Seller. EMI has entered into this Agreement to
reflect that it is jointly and severally liable with the Buyer with regard to
the obligations of the Buyer provided for in it.
IN CONSIDERATION OF THE COVENANTS CONTAINED IN THIS AGREEMENT, AND THE
OTHER CONSIDERATION PROVIDED FOR IN IT, THE PARTIES, EACH INTENDING TO BE
LEGALLY BOUND, AGREE AS FOLLOWS:
1. THE PURCHASE PRICE; CONVEYANCE OF THE ASSETS; ASSUMPTION OF STATED
LIABILITIES; CERTAIN DEFINITIONS; EFFECTIVE DATE OF TRANSACTION.
(a) The Purchase Price. The purchase price for the "School
Related Assets" (as defined in Section 1(g), below, is $1,550,000 (the "Purchase
Price"), subject to adjustment for "Wage Claims" as provided of in Section 1(d),
below. The Purchase Price will be allocated as follows: (i) $1,050,000 to
tangible and intangible assets allocated as mutually agreed upon by the Buyer
and Seller, and (ii) $500,000 to the Non-Competition Agreements (the
"Non-Competition agreements") contained in Section 7 of this Asset Purchase
Agreement.
(b) Conveyance of Assets. Within 3 business days of (i) the
receipt of "Satisfactory Cohort Default Rate Evaluation Material" (as defined in
Section 1(g)(3), below), or (ii) approval by the State of California Office of
Private Post Secondary Education of the sale of the School to the Buyer,
whichever is later, the Seller shall convey to Buyer all of its School Related
Assets (the "Closing Date"), PROVIDED THAT if such conditions are not satisfied
prior to July 31, 1993 this Agreement shall terminate and be void in all
respects.
(c) Assumption of Stated Liabilities. On the Closing Date
the Buyer shall assume all of the "Stated Liabilities" (as defined in Section
1(g)(2), below.
(d) Cash Payments by the Buyer. On the date this Asset
Purchase Agreement is executed Buyer shall pay to the Seller $10,000 on account
of Seller undertaking the obligations provided for in this Agreement. The
$10,000 shall be non-refundable, but applied to the Purchase Price at the
Closing. On the Closing Date the Buyer also shall pay to Seller $90,0000.00 (the
"Initial Payment"), by wire transfer or otherwise in immediately available
funds. The Initial Payment will be increased by an amount equal to any accrued
but unpaid payroll and other wage related liabilities, such
<PAGE> 2
as accrued vacation pay and sick leave, to the extent such amounts are
consistent with those incurred in prior periods and are incurred in the ordinary
course of the operations of the School by Seller prior to the Closing Date (the
"Wage Claims").
(e) Delivery of Second Payment Note and Purchase Money
Promissory Note by the Buyer. On the Closing Date the Buyer shall deliver to
Seller:
(1) its Promissory Note for $ 500,000.00 (the
"Second Payment Note") in the form attached to this Agreement as EXHIBIT 1(1),
payable the earlier of (i) the last business day within the first 30 calendar
days following the date on which the Prerequisite Student Aid Approvals are
obtained, but no later than twelve months from the date of Closing, or (ii) the
payment of "Deferred Student Receivables" (as defined in Section 1(e)(2), below)
to the Buyer. "Prerequisite Student Aid Approvals" mean the approval of a
participation agreement with the Buyer by the United States Department of
Education ("DOE") as a prerequisite to receipt of federal and state aid by the
School's students;
(2) a security agreement pursuant to which the Buyer
pledges all its interest in "Deferred Student Receivables" to the Seller as
security for the Second Payment Note in the form attached to this Agreement as
Exhibit 2(2) (the "Second Payment Security Agreement"). Deferred Student
Receivables mean tuition payments and other fees earned by the Buyer or Seller,
(i) the payment of which has been deferred pending receipt of the Prerequisite
Student Aid Approval and (ii) the source of which are grants and loans, the
availability of which are subject to such Prerequisite Student Aid Approval.
(3) its Promissory Note for $ 450,000.00, amortizing
in equal annual payments over 5 years with interest at 8% per annum in the form
attached to this Agreement as EXHIBIT 3(3) (the "Purchase Money Promissory
Note").
(4) A pledge agreement in the form attached to this
Agreement (the "Pledge Agreement") pursuant to which EMI secures the payment of
the principal and the related interest on the Purchase Money Promissory Note and
the Second Promissory Note by a pledge of all of the outstanding capital stock
(the "Buyer's Stock") of the Buyer.
(f) Non-Competition Payments. The Buyer shall also pay the
Seller and the Shareholders and Harvey Caplan, jointly, $500,000 (the
"Non-Competition Fee") on account of the Non-Competition Agreements. The
Non-Competition Fee will be paid in five equal payments ("Non- Competition
Payments (s)") commencing on the first anniversary of the Closing and thereafter
on the next four anniversaries of the Closing.
(g) Definitions of School Related Assets, Stated Liabilities
and Satisfactory Cohort Default Rate Evaluation Material.
(1) "School Related Assets" shall mean all of the
assets of the Seller utilized in the operation of the School as of the Closing
Date, including without limitation (i) the assets reflected in the Seller's 1992
Balance Sheet included in the Seller's School Financial Statements provided for
in Section 2(c) of this Asset Purchase Agreement, together with the related
goodwill and rights of Seller as a going concern, tangible and intangible, (ii)
the right to use the name "Modern Technology School of X-RAY" either alone or in
conjunction with other words or names in the context of the operation of a
school or other learning institution, and (iii) national student matching funds,
if any, but shall not
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<PAGE> 3
include "Excluded Assets." Excluded Assets are (i) unrestricted cash on hand(1),
(ii) assets disposed of in the ordinary course of business subsequent to the
date of the Seller's 1992 Balance Sheet, and (iii) those assets listed on
EXHIBIT 4(4) attached to this Agreement.
(2) "Stated Liabilities" shall mean shall mean all
liabilities, duties, and obligations of the Seller related to the operations of
the School other than February 28 Liabilities or Recomputed Liabilities (i)
which are reflected on the Seller's 1992 Balance Sheet and specifically assumed
by the Buyer, (ii) provided for in agreements made or entered into in the
ordinary course of business after the date of the Seller's 1992 Balance Sheet,
including accounts payable arising in the ordinary course of business, from
transaction with trade creditors and suppliers, regardless of whether such
agreement is in writing, which amounts or agreements are specifically identified
at the Closing by a written document making specific reference to this Section
of this Agreement (the "Closing Date Liabilities"), and (iii) provided for in
the agreements disclosed on the Exhibits attached to this Agreement and
specifically assumed by the Buyer; provided, in the case of liabilities, duties,
and obligations described in clauses (ii) and (iii) of this sentence, Stated
Liabilities shall only include the liability, duty or obligation to (x) pay
money if, and to the extent, such obligation is provided for in such agreement
and first becomes due and payable after the Effective Date, and (y) perform any
service or take any other action if, and to the extent, such service or other
action is capable of being performed in the ordinary course of business. Stated
Liabilities shall exclude, without limitation (x) obligations of the Seller to
employees whether in the nature of wages, benefits or otherwise, including,
accrued but unpaid payroll and other wage related liabilities such as accrued
vacation and (y) any contingent liabilities not specifically assumed, whether
arising prior to of after the Effective Date and regardless of whether disclosed
to Seller, including without limitation, any liabilities arising from failure to
comply with any law or regulation relating to the administration of any kind of
student aid or grant, or record keeping or reporting required in connection with
such administration.
(3) "Satisfactory Cohort Default Rate Evaluation
Material" shall mean (i) notification from the California Student Aid Commission
indicating that the student default rate for fiscal 1991 (the "1991 Default
Rate") when computed in accordance with federally mandated procedures does not
exceed 20% for all students attending the School and receiving assistance
pursuant to the Stafford Loan and supplemental loan programs, or (ii) a
computation made based on a report from the California Student Aid Commission in
which the 1991 Default Rate is calculated by dividing (x) the number of students
defaulting on relevant loans as shown on such report by (y) the number of
relevant.
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(1) Unrestricted Cash means cash on hand as of February 28, 1993, less
outstanding liabilities as of that date ("February 28 Liabilities"), but
excluding reserves for unearned tuition. Within 120 days following the Closing
Date, the Buyer shall recompute the February 28, 1993 Liabilities, such
computation to be done in accordance with generally accepted accounting
principals applied on an accrual basis ("Recomputed Liabilities"), and notify
Seller of any difference between February 28 Liabilities and Recomputed
Liabilities (the "Recomputed Amount"). If the Recomputed Amount is less than the
February 28 Liabilities, the Buyer shall pay that amount to the Seller. If the
Recomputed Amount is more than the February 28 Liabilities, Seller shall pay
such amount to the Buyer. The Buyer will apply such payment first to the
Recomputed Liabilities, to the extent not discharged, and thereafter to a
reduction in the Purchase Price. The Buyer will apply such payment first to the
Recomputed Liabilities, to the extent no discharged, and thereafter to a
reduction in the Purchase Price. Any dispute between the parties shall be
settled by Ernst & Young within 60 days after being given written notice of such
dispute by either party. Their decision shall be regarded as the decision of an
arbitrator made pursuant to a binding arbitration agreement amount the parties
and be non-appealable.
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<PAGE> 4
loans, utilizing the number of such loans included in calculating the 1990
Cohort Default Rate for purposes of such calculation or a number derived from
material to be supplied to Buyer by Seller, in either case indicating that such
1991 Default Rate does not exceed 20%.
(h) Effective Date. The effective date of this transaction for
all accounting purposes shall be February 28, 1993, provided that the selection
of such effective date shall not be considered to impose on the Buyer any
liability of the Seller other than with respect to the assumption of Stated
Liabilities.
2. REPRESENTATIONS OF THE SELLER AND THE SHAREHOLDER.
Seller and each Shareholder, jointly and severally, represent and
warrant to Buyer:
(a) No Misstatements. The representations of the Seller and
each Shareholder and the information supplied by Seller or each Shareholder
contained in this Agreement, the Exhibits attached to it and the documents
incorporated into it by reference do not contain any untrue statement of a
material fact or omit to state any fact necessary to make such representations
or information not materially misleading.
(b) Validity of Actions. Seller (i) is duly organized, validly
existing and in good standing under the laws of its organization, (ii) has all
requisite corporate and other appropriate authorization to conduct its business
as currently conducted, (iii) is qualified to do business in all jurisdictions
in which such qualification is necessary, and (iv) has full power and authority
to enter into this Agreement and to carry out all acts contemplated by it. This
Agreement has been duly executed and delivered on behalf of the Seller and each
Shareholder, has received all necessary corporate authorization and is a legal,
valid and binding obligation of the Seller and each Shareholder, enforceable
against each of them in accordance with its terms. Entering into this Asset
Purchase Agreement and the consummation of the transactions contemplated by it
will not violate any provision of the Articles of Incorporation or Bylaws of
Seller or conflict with or result in any breach of any of the provisions of any
agreement to which the Seller or and or any of the Shareholders is a party or by
which any of them or any of their respective assets are bound, or cause a breach
of any applicable law, governmental regulation, order, or other decree of any
court or governmental agency. The Articles of Incorporation and Bylaws of
Seller, as presently in effect, are attached to this Agreement as EXHIBIT 5(5).
(c) Seller's Financial Statements
(1) Attached as EXHIBIT 6(6) to this Agreement
are unaudited balance sheets of the Seller's operations of the School at
December 31, 1990, 1991, and 1992, and statements of income and expense and cash
flows for the years then ending. All of such financial statements are called the
"Seller's School Financial Statements." Included in EXHIBIT 6 are an audited
consolidated balance sheet and statement of income and expense and cash flow for
the year ended December 31, 1991 (the "Audited Consolidated 1991 Statement").
(2) The Seller's School Financial Statements and
the Audited Consolidated 1991 Statement: (i) except for the 1990 fiscal year
have been prepared on the accrual basis in accordance with generally accepted
accounting principles consistently applied ("GAAP"), except as otherwise
disclosed in the reports accompanying them or in the notes attached to them, and
(ii) fairly present Seller's financial condition and its results of operations
at the times and for the periods presented.
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<PAGE> 5
(3) There have been no adverse changes in the
financial condition or in the operations, business, prospects, properties of
assets of Seller since the date of the Seller's Financial Statements.
(d) Liabilities of Seller. Seller has no liabilities,
contingent or otherwise, including, without limitation, liabilities for state or
Federal income, withholding, sales, or other taxes, except to the extent
reflected, reserved against, or provided for, in the Seller's 1992 Balance Sheet
included in the Seller's Financial Statements, and trade payables and other
obligations incurred after the date of the Seller's 1992 Balance Sheet in
amounts consistent with those incurred in prior periods in the ordinary course
of business, including without limitation liabilities for unearned tuition.
(e) Assets of Seller. Seller has good and marketable title to
all of its School Related Assets. Except as otherwise disclosed in the Seller's
1992 Balance Sheet or related notes accompanying it, all of the School Related
Assets are owned free and clear of any adverse claims, security interests, or
other encumbrances or restrictions, except liens for current taxes not yet due
and payable, landlords' liens as provided for in the relevant leases or by
applicable law, or liens or similar security interests granted as part of
personal property financing agreements made in the ordinary course of business
and which in the aggregate are not material.
(f) Facilities and Facility Operations.
(1) Attached to this Agreement as EXHIBIT 7(7)
is the existing lease relating to the school facilities located at 6180 Laurel
Canyon Boulevard in North Hollywood, California (the "School Facility"). All of
the Seller's School operations are conducted at the School Facility and all of
the tangible Assets used in connection with such operations are located at the
School Facility. All of the improvements located on the School Facility are in
good operating condition and repair. There is no pending or threatened
condemnation proceeding with respect to the School Facility.
(2) Attached as EXHIBIT 8(8) to this Agreement
is a schedule of furnishings, fixtures and equipment located on, or used in
connection with, the operation of the School Facility as of MARCH 11, 1993.
(3) Without regard to the specific instances
provided for in Section 2(h) below, all activities at, and the physical
condition of, the School Facility are in compliance with all legal and
regulatory requirements applicable to the Seller, the conduct of its business,
and the use of the School Facility, including without limitation, applicable
environmental requirements and the Seller had not received any notice to the
contrary. Seller has paid for and obtained all licenses, permits, and other
authorizations required for the conduct its business and the use of the School
Facility (the "Permits"). All Permits currently in effect and pertaining to the
Seller, the School Facility or the Seller's activities are listed on EXHIBIT
9(9) to this Agreement. The representations contained in the subsection 3 shall
not apply to incidental instances of non-compliance occurring in the ordinary
course of business without the knowledge of the Seller of any of the
Shareholders, which are immaterial to the operation of the School and capable of
being cured without significantly disrupting the School's operations.
(4) To the best of the knowledge of Seller and
each Shareholder there are no
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<PAGE> 6
Hazardous Substances(2) in, on or under the Facilities and Seller is not now
engaged in any litigation, proceedings or investigations, nor knows of any
pending or threatened litigation, proceedings or investigations regarding the
presence of Hazardous Substances in, on or under the Facilities.
(g) Equipment Leases and Financing Agreements. Except for the
School Facility Lease, all of the leases and financing agreements to which
Seller is a party or any other encumbrances which relate to the School Facility
or any School Related Asset are described in EXHIBIT 10(10) to this Agreement
(the "Financing and Related Agreements"). Copies of the Financing and Related
Agreements are attached to such Exhibit. Except as reflected in such Exhibit,
there have been no modifications to any of the Financing and Related Agreements;
all of them are in good standing, and free from default; and none of the
interests of Seller in any of them is subject to any restriction except as
stated in the applicable document or as provided by applicable law.
(h) Accreditation. Attached as EXHIBIT 11(11) to this
Agreement is a list of all Federal, state or other licenses and approvals,
including without limitation all accreditation, granted to Seller with respect
to the conduct of its educational or training business (the "Accreditations"),
and the governmental body or agency or other entity granting such Accreditation.
Included in such Exhibit are copies of all such Accreditations. Except for the
Permits and the Accreditations, no license or approval is necessary for the
conduct of Seller's business as it is now being conducted, and the Seller has
received no notice that any other license or approval is necessary for the
continued conduct of such business or that any such license or approval will not
be renewed. Seller is accredited by the Career College Association and the
Accrediting Commission for Trade and Technical Schools and is certified by the
United States Department of Education and is a party to, and in compliance with,
valid program participation agreements with that agency with respect to the
operations being conducted at each
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(2) The term "Hazardous Substance" shall include without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any
California Statute and in the regulations promulgated pursuant to any
California Statute;
(iii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or which
are classified as hazardous or toxic under federal, state, or local
laws or regulations; and
(v) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C) polychlorinated biphenyl, (D) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act,
33 U.S.C. Sections 1251 et seq. or listed pursuant to Section 307
of THE Clean Water Act, (E) flammable explosive, or (F) radioactive
materials.
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<PAGE> 7
Facility. Seller has not received any notice, not previously complied with, with
respect to any alleged violation of the rules or regulations of such agency or
any applicable accrediting agency in respect of any of the Facilities or the
terms of any program participation agreement to which it is or was a party. If
any such notices have been received and complied with, Seller has disclosed
their receipt and disposition to Buyer prior to the execution of this Agreement
in writing by a letter making specific reference to this Section of this
Agreement. Seller is not aware of any investigation or review of its student
financial aid programs or any review of any of its Accreditation whether by a
party to any relevant agreement, the issuer of such Accreditation or otherwise.
(i) Recruitment; Admissions Procedures; Attendance; Reports.
Attached as EXHIBIT 12(12) to this Agreement are copies of all policy manuals
and other statements of procedures or instruction relating to recruitment of
students, including procedures for assisting in the application by prospective
students for direct or indirect state or Federal financial assistance;
admissions procedures, including any descriptions of procedures for insuring
compliance with state or Federal or other appropriate standards or tests of
eligibility; procedures for encouraging and verifying attendance, minimum
required attendance policies, and other relevant criteria relating to course
completion and certification (collectively referred to as the "Policy
Guidelines").
Seller's operations have in all material respects been conducted in
accordance with the Policy Guidelines and all relevant standards imposed by
applicable accrediting agencies, agencies administering state or Federal
government programs in which the Seller participates, or applicable laws or
regulations.
Seller has submitted all reports, audits, and other information,
whether periodic in nature or pursuant to specific requests, ("Compliance
Reports") to all agencies or other entities with which such filings are required
relating to its compliance with (i) applicable accreditation standards governing
its activities or (ii) laws or regulations governing programs pursuant to which
the Seller or its students receive funding, including, without limitation, the
Perkins Loan Program, the Stafford Student Loan Program, the Pell Grant program
and the Supplemental Educational Opportunity Grant Programs.
Complete and accurate records in all material respects for all present
and past students attending Seller have been maintained consistent with the
operations of a school business. All forms and records have been prepared,
completed, maintained and filed in all material respects in accordance with all
applicable federal and state laws and regulations, and are true and correct in
all material respects. As of December 31, 1992 all financial aid grants and
loans, disbursements and record keeping relating to them have been completed in
compliance with all federal and state requirements, and there are no material
deficiencies in respect thereto. No student has been funded prior to the date
for which such student was eligible for funding and such student's records
conform in form and substance to all relevant regulatory requirements. All
appropriate reports and surveys have been accurately prepared, taken and filed
prior to delinquency.
(j) Default. Attached as EXHIBIT 13(13) is a schedule
indicating the cohort default rate, as calculated by the United States
Department of Education, of all students attending the School receiving
assistance pursuant to the Stafford Loan and Supplemental Loans for Students
programs (or their applicable predecessor programs) for the years ended
September 30, 1990 and September 30, 1989. To the best of the knowledge of the
Seller and each of the Shareholders, such schedule is materially accurate in all
respects.
(k) Trademarks, etc. Attached to this Agreement as EXHIBIT
14(14) is a list of all tradenames, trademarks, service marks, copyrights and
the registrations for them owned or used by
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<PAGE> 8
Seller. Seller has not infringed and is not now infringing, any trademark,
tradename, service mark, or copyright belonging to any other person. Except as
set forth on such exhibit, Seller is not a party to any license, agreement or
arrangement, whether as licensor, licensee or otherwise, with respect to any
trademark, tradename, service mark, or copyright used by Seller. Seller's
business may be conducted without license by others for the use of any
tradename, trademark, service mark, or copyright.
(l) Material Contracts; Notes; Loan Agreements. Attached as
composite EXHIBIT 15(15) to this Agreement is (i) a schedule identifying all
material contracts relating to operations of the School, including, without
limitation, all agreements relating to state or Federal funding of educational
services provided by the Seller through grants, loans or direct payments either
to the Seller, individual students or otherwise, and any agreements relating to
the placement of students following their completion of relevant educational
programs provided by the Seller other than agreements with students involving
the teaching of standard courses,for standard prices as set forth in the Sellers
catalog or in the enrollment agreement for such students (the "Contracts") and
all promissory notes (the "Notes") and loan or security agreements (the "Loan
Agreements") to which the Seller is a party or by which any of the Assets or
Facilities may be bound; (ii) a summary of all material provisions of the
Contracts that are not reduced to written documents, including but not limited
to all provisions of each Contract regarding amounts payable by and/or to the
Seller and termination of the Contract; and (iii) an accurate copy of all
written Contracts, Notes and Loan Agreements, including all amendments. Except
as disclosed in Exhibit 15: (i) all of the Contracts remain unmodified and in
full force and effect; (ii) Seller is not in default of any material nature (nor
does any state of facts exist which, with the giving of notice, the passing of
time, or otherwise, would constitute a default of any material nature by Seller)
with respect to any of the Contracts, Notes or Loan Agreements; and (iii) the
consummation of the transactions contemplated by this Agreement (including the
purchase of the Assets by Buyer) will not constitute a default by Seller with
respect to or otherwise permit any termination or modification of any provision
of any of the Contracts, Notes or Loan Agreements.
(m) Maintenance and Employment Agreements. Attached to this
Agreement as composite EXHIBIT 16(16) is (i) a schedule of all written
agreements between the Company and independent contractors, employees and agents
who are employed or engaged in the management or operation of the School, the
Facilities or the personal property used by Seller and (ii) a copy of all
written contracts for such services. There are no material oral agreements in
effect for any such services.
(n) Employee Benefit Plans. Seller maintains employee benefit
plans as listed on EXHIBIT 17(17) to this Agreement (the "Employee Benefit
Plans"). Copies of such plans are attached to such Exhibit. Except as listed on
such Exhibit, Seller does not maintain any profit sharing, pension or other
employee benefit plan. Seller has no unfunded obligations pursuant to any
insurance, retirement, pension, profit sharing or deferred compensation plan or
program.
(o) Labor. There is no existing labor dispute affecting
Seller's business. None of Seller's employees are covered by any union or
collective bargaining agreement.
(p) Insurance. A schedule of all of the policies of insurance
maintained by Seller in connection with the operation of its business is
attached as EXHIBIT 18(18) to this Agreement. The insurance coverage provided by
such policies complies with all agreements to which Seller is a party, and
applicable legal requirements to which it is subject. All such policies are
currently in effect.
(q) Taxes. Complete and accurate copies of all of the
Seller's Federal, state and
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other income tax returns for the years ended December 31, 1989, 1990, and 1991
have been supplied to the Buyer. The Company has filed timely all Federal, state
and local tax returns which it is required to file and has no outstanding
liability for any Federal, state or local taxes or interest or penalties
thereon, whether disputed or not, except taxes not yet payable which have been
provided for in accordance with GAAP and are disclosed in the Seller's School
Financial Statements. Seller's Federal income tax returns have not been audited
nor has Seller received notice of audit; there is not now in force any extension
of time with respect to the date on which any tax return was or is due to be
filed by or with respect to Seller, or any waiver or agreement by it for the
extension of time for the assessment of any tax.
(r) Actions Pending. Except as disclosed in EXHIBIT 19(19) to
this Agreement: (i) there are no actions, suits, proceedings or claims pending
or threatened against Seller or any Shareholder which, if determined adversely
to Seller or each Shareholder, could (A) have a material adverse effect on
Seller, the Assets, or the businesses of Seller when taken as a whole, or (B)
prevent or delay the consummation of any of the transactions contemplated by
this Agreement; (ii) Seller, is not (to its knowledge or the knowledge of each
Shareholder) the subject of any pending or threatened investigation relating to
any aspect of Seller's operations, including the operations of any of the
Facilities, by any Federal, state or local governmental agency or authority;
(iii) Seller, is not and has not been (to its knowledge or the knowledge of each
Shareholder) the subject of any formal or informal complaint, investigation or
inspection under the Equal Employment Opportunity Act or the Occupational Safety
and Health Act (or their state or local counterparts) or by any other Federal,
state or local authority.
(s) Accounts Receivable. Each of the accounts receivable of
Seller constitutes a valid claim in its full amount against the debtor charged
on Seller's books and has arisen in the ordinary course of Seller's business. No
account debtor has any valid setoff, deduction or defense with respect thereto,
and no account debtor has asserted any such setoff, deduction or defense.
(t) No Guaranties. None of Seller's obligations or
liabilities is guaranteed by any other person, firm or corporation, nor has
Seller guaranteed the obligations or liabilities of any other person, firm or
corporation.
(u) Bank Accounts and Deposit Boxes. Attached to this
agreement as EXHIBIT 20(20) are the names and addresses of all banks or
financial institutions in which Seller has an account, deposit or safety deposit
box relating to the operations of the School, with the names of all persons
authorized to draw on these accounts or deposits or to have access to the boxes,
and an indication of which accounts or deposits or boxes contain financial aid
funds.
(v) Records. The books of account, minute books, stock
certificate books and stock transfer ledgers of Seller are complete and correct
in all material respects, and there have been no transactions involving the
business of Seller which properly should have been set forth therein and which
have not been accurately so set forth.
(w) Transactions With Certain Persons. Seller does not owe
any amount to, or have any contract with or commitment to, any Shareholder,
other than compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business. No
Shareholder owes any amount to Seller except as reflected in the Seller's
Financial Statements. Seller has made no distributions or other payments to the
Shareholders subsequent to the date of the Seller's 1992 Balance Sheet except
for the reimbursement of expenses incurred in the ordinary course of
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business or with respect to cash included in Excluded Assets.
3. REPRESENTATIONS AND WARRANTIES OF EMI AND BUYER. Each of EMI
and Buyer represents to Seller and each Shareholder as follows:
(a) No Misstatements. The representations and the information
supplied by it contained in this Agreement and the documents incorporated by
reference into it do not contain any untrue statement of a material fact or omit
to state any fact necessary to make such representations or information not
materially misleading.
(b) Validity of Actions. It is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the authority to carry on it business as currently conducted, and is qualified
to do business in all jurisdictions in which such qualification is necessary. It
has full power and authority to enter into this Agreement and to carry out all
acts contemplated by it. This Agreement and each of the documents provided for
in it to be delivered as part of this transaction, have been duly executed and
will be delivered pursuant to all appropriate corporate authorization on its
behalf and is its legal, valid and binding obligation and is enforceable against
it in accordance with its terms. The execution and delivery of this Agreement,
the Second Payment Promissory Note, the Purchase Money Promissory Note and the
consummation of the transactions contemplated by them will not violate any
provision of its Certificate of Incorporation or Bylaws nor violate, conflict
with or result in any breach of any of the terms, provisions of or conditions
of, or constitute a default or cause acceleration of any indebtedness under, any
indenture agreement or instrument to which it is a party or by which it or its
assets may be bound, or cause a breach of any applicable Federal or state
governmental law or regulation, or any applicable order, judgment, writ, award,
injunction or decree of any court or governmental instrumentality.
(c) EMI's Financial Statements
(1) Attached as EXHIBIT 21(21) to this Agreement
are (A) EMI's audited balance sheets at March 31, 1991, and 1992, and statements
of income and expense and cash flows for the years then ending (the "Annual
Statements"), and (B) EMI's unaudited balance sheet at December 31, 1992 (the
"Interim Balance Sheet"), and statements of income and expenses and cash flow
for the period then ending (collectively the Interim Balance Sheet and such
statements are called the "Interim Financial Statements"). The Annual Statements
and the Interim Financial Statements are called the "EMI's Financial
Statements."
(2) EMI's Financial Statements: (i) have been
prepared on the accrual basis in accordance with generally accepted accounting
principles consistently applied ("GAAP"), except as otherwise disclosed in the
reports accompanying them or in the notes attached to them, and (ii) fairly
present EMI's financial condition and its results of operations at the times and
for the periods presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects, properties
of assets of Buyer since the date of the Interim Financial Statements.
(d) Buyer's Financial Condition. The Buyer is a newly formed
corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
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4. COVENANTS OF THE PARTIES.
(a) Prohibited Acts. Pending consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, Seller
and each Shareholder agree that, without prior written consent of Buyer, given
in a letter which specifically refers to this Section of the Agreement:
(1) not to perform any act or omit to take any
act that would make any of their respective representations made in Section 2
above, inaccurate or materially misleading as of the Closing Date;
(2) to cause Seller to conduct its businesses in
the ordinary and regular course, maintain the School Facility and carry on its
business practices, protect its Accreditation and Permits, and keep its books of
account, records and files in substantially the same manner as at present.
(b) Notice. Pending the consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, each
party agrees that it will promptly advise the others of the occurrence of any
condition or event which would make any of its representations contained in this
Agreement inaccurate, incorrect, or materially misleading.
(c) Access. Prior to the Closing, Seller shall afford to the
Buyer (and its officers, attorneys, accountants and other authorized
representatives), upon reasonable notice, free and full access during usual
business hours to its offices, personnel, Facilities, books and records and
other data, financial or otherwise, so that Buyer may have full opportunity to
make such investigation as it shall desire of the Real Property, Assets,
business and operations of Seller, provided that such investigation shall not
unreasonably interfere with Seller's operations. The scope of the investigation
will include, but not be limited to, a verification of Seller's Financial
Statements and a review of Seller's control procedures, regulatory compliance,
the School Facility, material contracts, litigation and tax returns for prior
years. Duly authorized representatives of the Buyer shall also be entitled to
discuss with officers of Seller, its counsel, employees and independent public
accountants, all of its books, records and other corporate documents, contracts,
pricing and service policies, commitments and future prospects. Representatives
of Seller will furnish to Buyer and such other persons, copies of all materials
relating to the business affairs, operations, Facilities, Assets and liabilities
of Seller which may be reasonably requested from time to time and will cause
representatives and employees of Seller to assist Buyer in its investigation of
the matters relative to Seller.
(d) Additional Documents. At the request of any party, each
party will execute and deliver any additional documents and perform in good
faith such acts as reasonably may be required in order to consummate the
transactions contemplated by this Agreement and to perfect the conveyance and
transfer of any property or rights to be conveyed or transferred under the terms
of this Agreement.
(e) Employee Notification, Termination of Employee Benefit
Plans, Etc. With respect to any employees employed by the Seller prior to the
Closing, Seller will comply with the terms of all applicable Federal and state
laws and regulations, including without limitation the provisions of the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101 et.
seq. or the Consolidated Omnibus Budged Reconciliation Act ("COBRA"). Seller
will terminate all Employee Benefit Plans in accordance with all applicable laws
and regulations as of a date no later than the Closing Date.
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<PAGE> 12
(f) Filing of Returns; Additional Information. Seller will
file on a timely basis all tax returns, notices of sale and other documentation
required by law in connection with the transactions provided for in this
Agreement or otherwise required by law, regulation or pursuant to the terms of
any agreement to which it is a party. Seller will supplement any previous filing
made by it in accordance with legitimate requests made by applicable agencies or
parties to the extent required by the relevant law, regulation or agreement.
(g) Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the Closing Date, each of
the parties to this Agreement will execute such documents and take such other
actions as reasonably may be appropriate to fulfill the conditions to Closing
provided for in Section 5 of this Agreement.
5. CONDITIONS TO CLOSING BY THE RESPECTIVE PARTIES.
The obligation of EMI and Buyer, on the one hand, and Seller and each
Shareholder on the other hand, to consummate the transactions contemplated by
this Agreement shall be subject to compliance with or satisfaction of the
following conditions by the other, to the extent applicable:
(a) Bring Down. The representations and warranties set forth
in this Agreement shall be true and correct in all material respects on and at
the Closing Date as if then made by the relevant party (except for those
representations and warranties made as of a given date, which shall continue to
be true and correct as of such given date).
(b) Compliance. Each party shall have complied with all of
the covenants and agreements in this Agreement on its or their part,
respectively, to be complied with as of or prior to the Closing Date.
(c) No Material Adverse Changes. Since the date of the
Interim Balance Sheet, there shall not have occurred any material adverse change
in the condition (financial or otherwise) of the Real Property, Facilities,
Assets or prospects of Seller.
(d) Certificates. There shall be delivered to the Buyer and
Seller, respectively, a certificate executed by the President and Secretary of
the other, dated the Closing Date, certifying that the conditions to be
fulfilled by such party set forth in this Section 4 have been fulfilled.
(e) No Suits. No action or proceeding shall have been
instituted in any court or before any Federal, state or local governmental
agency against any party seeking to restrain or prohibit the consummation of the
transactions contemplated by this Agreement, or which could have a material
adverse effect on the Real Property, Facilities, Assets or prospects of any of
the parties, which shall not have been dismissed or withdrawn prior to the
Closing Date.
(f) Closing Financial Statements.
(1) No later than 10 days prior to the Closing, the
Buyer shall receive audited financial statements, including a balance sheet,
income statement and statement of cash flow, for the twelve months ending
December 31, 1992 (the "Audited Financial Statements"). The Audited Financial
Statements shall be prepared on the accrual basis in accordance with generally
accepted accounting standards and not reflect any material adverse change when
compared to the Seller's Financial Statements. For purposes of this section, a
material adverse change is one in which the Audited
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Financial Statements reflect a reduction in Gross Revenue, Net Pre-tax profit or
Net Assets (total assets minus total liabilities) of more than 5% when compared
to the Seller's Financial Statements.
(2) The Buyer shall have received a Student Aid
Audit confirming the accuracy of the relevant representations and warranties
contained in Section 2 of this Agreement in all material respects.
(3) Not more than 15 days prior to the Closing,
Seller shall prepare and deliver to Buyer unaudited interim financial
statements, including a balance sheet (the "Closing Interim Balance Sheet") and
a statement of income and expense (the "Closing Interim Income Statement") for
the period ending the last full month preceding the Closing Date (the "Closing
Interim Financial Statements"). The Closing Interim Financial Statements shall
be (A) prepared in accordance with GAAP, (B) fairly present Seller's financial
condition and its results of operations as of the date and for the period
presented, and (C) shall not disclose any materially adverse variation in the
results of operations or financial condition when compared to the Seller's
Financial Statements.
(g) Utilization of Name. At least ten (10) days prior to the
Closing, Seller and Buyer shall have taken all action necessary to allow Buyer
to utilize the name "Modern Technology School of X-Ray" at the Facility or any
other facility , including without limitation consent to the publication of
intention to do business under such name pursuant to applicable laws relating to
fictitious names.
(h) Documents. All documents required to be delivered to
Buyer at or prior to Closing shall have been so delivered.
(i) Authority. There shall be in full force and effect on the
Closing Date resolutions of the Boards of Directors of the Buyer, and Seller and
any corporate Shareholder approving this Agreement and the transactions
contemplated in it. At or prior to the Closing, each party will deliver to the
other a copy of the resolutions of its Board of Directors and, in the case of
the Seller, the resolutions or consents of each Shareholder, together with any
and all required resolutions or consents of each Shareholder thereof, approving
the execution and delivery of this Agreement and the consummation of all of the
transactions contemplated hereby, duly certified by an appropriate officer.
(j) Consents. Seller shall have obtained written consents to
the transfer or assignment to Buyer of all agreements, Licenses, leases and
other material contracts of Seller (other than immaterial purchase and sales
orders in the ordinary course of business) where the consent of any other party
to any such contract may, in the opinion of Buyer's counsel, be required for
such assignment or transfer. Seller and Buyer shall have obtained all approvals
from the State of California necessary to consummate the transactions provided
for in this Agreement.
(k) Estoppel. Seller shall have obtained and delivered to
Buyer written estoppel from the holders of any leases, and/or notes set forth in
Exhibits to this Agreement stating the amount due pursuant to such agreements,
and that each is in good standing and free from default.
(l) Current Insurance Coverage. Payments will have been made
as of the Closing Date with respect to all of Seller's insurance policies, and
all insurance coverage concerning Seller's assets and operations shall be
continued in force through at least 10 days subsequent to the Closing Date,
unless cancelled subsequent to the Closing Date by Buyer.
(m) Bankruptcy, Dissolution, etc. No petition or other
commencement of
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proceedings in bankruptcy or proceedings for dissolution, termination,
liquidation or an arrangement, reorganization or readjustment of any party's
debts under any state or Federal law enacted for the relief of debtors or
otherwise, whether instituted by or against a party, has been effected or
commenced by or against any party.
6. CLOSING.
(a) Closing Date and Place; Effective Date. The closing of
the transactions provided for in this Agreement shall take place as provided in
Section 1(b) of this Agreement.
(b) Deliveries by Buyer to Seller. At the Closing, Buyer
shall deliver to Seller:
(1) The Cash Portion of the Price;
(2) The Second Payment Promissory Note;
(3) The Second Payment Security Agreement;
(4) The Purchase Money Promissory Note;
(5) The Pledge Agreement; and
(6) An assumption agreement (the "Assumption Agreement"
in substantially the form attached to this Agreement as EXHIBIT 22(22).
(c) Deliveries by EMI to Escrow Agent. At the Closing, EMI
shall deliver to the Escrow Agent:
(1) An Escrow Agreement among the Seller, EMI and
counsel for the Seller, in the form attached to this Agreement as EXHIBIT
23(23), (the "Escrow Agreement") pursuant to which such counsel, as Escrow
Agent, will hold the Buyer's Stock in accordance with the terms of the Pledge
Agreement; and
(2) Certificates representing the Buyer's Stock along
with properly endorsed stock powers.
(d) Deliveries by Seller to Buyer. At the Closing, Seller
shall deliver to Buyer:
(1) The Bill of Sale (the "Bill of Sale") in the form
attached to this Agreement as EXHIBIT 24(24); and
(2) An Assignment of all of Seller's Bank Accounts; and
(3) Such other instruments of conveyance in form and
substance reasonably satisfactory to Buyer's counsel, as shall be effective to
vest in Buyer good and marketable title to the Assets.
(d) Further Documents or Acts. The parties will also
execute, deliver, and/or perform at Closing all other documents or acts required
to consummate any of the transactions
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contemplated by this Agreement.
7. CONFIDENTIALITY AND JOINT NON-COMPETITION AGREEMENT; FINANCIAL
COVENANTS; RELEASE FROM LEASE OBLIGATIONS.
(a) Each Shareholder and Harvey Caplan acknowledges that, as
a result of his ownership of the Seller and, if applicable, employment by
Seller, he has had access to and knowledge of confidential or proprietary
information developed by Seller and of a special and unique nature and value to
Seller, including, but not limited to, Seller's methods and systems, the names
and addresses of its students and sources of referral, tuition charged and paid
by Seller or its customers, curricula, related memoranda, research reports,
designs, records, student files, services, and operating procedures, and other
information, data, and documents now existing or later acquired by Shareholder
or Harvey Caplan or Seller, regardless of whether any such information, data, or
documents, qualify as a "trade secret" under applicable Federal or state law
(collectively "Confidential Information"). As a material inducement to Buyer to
enter into this Agreement, each Shareholder and Harvey Caplan and the Seller,
jointly and severally, covenants and agrees not at any time directly or
indirectly, to divulge or disclose for any purpose whatsoever, any Confidential
Information which is in the possession of Seller or which has been obtained by
or disclosed to such Shareholder or Harvey Caplan as a result of employment by
Seller, ownership of Seller, or otherwise as a result of the relationship
between such Shareholder or Harvey Caplan or Seller, except as may be necessary
or appropriate in connection with the operation of the Anaheim School. Such
information of a confidential nature includes, but is not limited to, students'
records, student files, charts, ledgers, accounts receivable ledgers, price
lists, methods and systems, operating procedures, technical memoranda,
curricula, accounts payable ledgers, records of amounts received from students,
student lists, referral sources, teacher lists, sources of employment for
students, placement materials, research reports, and financial records of Seller
and of its students. In accordance with the foregoing, each Shareholder or
Harvey Caplan or the Seller agrees at no time retain or remove from the Facility
records of any kind or description whatsoever for any purpose whatsoever unless
authorized by Buyer, except to the extent such records relate solely to the
operations of the Anaheim School.
(b) As a material inducement to Buyer to enter into this
Agreement, each Shareholder, Harvey Caplan and the Seller, jointly and
severally, covenants and agrees for a period of five (5) years after the date of
this Agreement not to (i) engage in any business in direct or indirect
competition with that currently conducted by the Seller which is being sold to
the Buyer pursuant to this Agreement or by EMI or its affiliates, including the
Buyer (the "Prohibited Activities") anywhere within 25 miles of any the location
of any school now or hereafter owned by EMI or its Affiliates (the "Area"); (ii)
become associated as manager, supervisor, employee, consultant, advisor,
stockholder owning more that 5% of the outstanding stock of a company or
participating in the management or direction of a company or otherwise with any
person, corporation or entity engaging in any Prohibited Activities anywhere
within the Area; (iii) call upon any of Buyer's students, teachers or referral
sources for the purpose of promoting any Prohibited Activities for any person,
person, corporation or entity within the Area; (iv) divert, solicit or take away
any of Buyer's teachers or other personnel for the purpose of engaging in any
Prohibited Activities within the Area, or (v) enter into any arrangements with
any entity with which the Anaheim School has externship programs existing or in
process with the State of California as of the Closing Date.
(c) In the event of a breach or threatened breach by each
Shareholder or Harvey Caplan of any of the provisions of this Section 7, Buyer,
in addition to and not in limitation of any other rights, remedies, or damages
available to Buyer at law or in equity, shall be entitled to a permanent
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<PAGE> 16
injunction in order to prevent or to restrain any such breach by Seller or any
Shareholder, or by such shareholder's partners, agents, representatives,
servants, employers, employees and/or any and all persons directly or indirectly
acting for or with him.
(d) Each Shareholder, Harvey Caplan and the Seller covenants
and agrees that, if he shall violate any of his covenants or agreements provided
for in this Section 7, Buyer shall be entitled to an accounting and repayment of
all profits, compensation, commissions, remuneration, or benefits which Seller,
Harvey Caplan or such Shareholder, directly, or indirectly, has realized and/or
may realize as a result of, growing out of, or in connection with any such
violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Buyer may be entitled to
at law or in equity or under this Agreement.
(e) As a material inducement to Seller, Harvey Caplan and
each Shareholder to enter into this Agreement, EMI covenants and agrees for a
period of five (5) years after the date of this Agreement neither it nor any of
its Affiliates will (i) engage in any business in direct or indirect competition
with that currently conducted by the Seller at the Anaheim School (the "Buyer's
Prohibited Activities") anywhere within 25 miles of any the location of any
school now or hereafter owned by The Seller, the Shareholders or Harvey Caplan
(the "Seller's Area"); (ii) become associated as manager, supervisor, employee,
consultant, advisor, stockholder owning more that 5% of the outstanding stock of
a company or participating in the management or direction of a company or
otherwise with any person, corporation or entity engaging in any Buyer's
Prohibited Activities within the Seller's Area; (iii) call upon any of Seller's
students, teachers or referral sources for the purpose of promoting any Buyer's
Prohibited Activities for any, person, corporation or entity within the Seller's
Area; (iv) divert, solicit or take away any of Seller's teachers or other
personnel for the purpose of engaging in any Buyer's Prohibited Activities
within the Seller's Area, or (v) enter into any arrangements with any entity
with which the Anaheim School has externship programs existing or in process
with the State of California as of the Closing Date.
(f) In the event of a breach or threatened breach by Buyer or
any Affiliate of any of the provisions of this Section 7, each Shareholder,
Harvey Caplan and the Seller, in addition to and not in limitation of any other
rights, remedies, or damages available to each of them at law or in equity,
shall be entitled to a permanent injunction in order to prevent or to restrain
any such breach or any or by EMI's partners, agents, representatives, servants,
employers, employees and/or any and all persons directly or indirectly acting
for or any of them.
(g) EMI covenants and agrees that, if it or any of its
Affiliates, shall violate any of his covenants or agreements provided for in
this Section 7, the Shareholders, Harvey Caplan and the Seller shall be entitled
to an accounting and repayment of all profits, compensation, commissions,
remuneration, or benefits which it directly, or indirectly, has realized and/or
may realize as a result of, growing out of, or in connection with any such
violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Buyer may be entitled to
at law or in equity or under this Agreement.
(h) Each of the parties has carefully read and considered the
provisions of this Section 7, and agrees that the restrictions set forth above
(including without limitation the time period and geographical areas of
restriction) are fair and reasonable and are reasonably required for the
protection of the interest of the Buyer. Each acknowledge that it is the
intention of the Buyer to solicit students on a nationwide basis, that the
market for the schools curricula is national and limited, and that the Buyer is
considering introducing all or parts of the schools curricula in other locations
as part
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of its national marketing program. In the event that, notwithstanding the
foregoing, any of the provisions of this Section 7 are held invalid or
unenforceable, the remaining provisions shall continue to be valid and
enforceable. In the event that any provision of this Section 7 relating to time
period and/or areas of restriction are declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period or areas of restriction shall be
deemed to become, and thereafter be, the maximum time period and/or area which
such court deems reasonable and enforceable.
(i) EMI and Buyer agree that until the Purchase Money
Promissory Note is paid in full, one or the other of them will be in compliance
with at least two of the three following financial covenants: (1) maintain a 1:1
ratio of Current Assets to Current Liabilities(3); (2) maintain a positive net
worth, and (3) not incur losses on a annual basis for any two consecutive years.
The requirements described in the preceding sentence shall be considered
fulfilled unless not complied with for two consecutive quarters. EMI will supply
to Seller its annual and quarterly financial statements within 90 days of the
end of each fiscal year and within 60 days after the end of each quarter other
than that ending at the end of the fiscal year.
(j) EMI and Buyer agree to use their best efforts to cause
Seller and each Shareholder from all obligations pursuant to the Facility Lease,
provided that nothing shall require either Buyer or EMI to incur and additional
financial detriment with respect to such lease, other than the unconditional
assumption of the obligations currently provided for in it.
8. INDEMNIFICATION. Seller, Harvey Caplan and each Shareholder,
jointly and severally, on the one hand, and Buyer and EMI, on the other hand
(respectively, the "Indemnifying Party"), agree to defend, indemnify and hold
harmless the other party and its directors, officers, employees and agents
(collectively, the "Indemnified Parties") from and against any loss, damage,
settlement, or expense (including, without limitation, attorneys' fees and
disbursements) incurred by any Indemnified Party and arising from or related to
the inaccuracy or breach of any of their respective representations, warranties,
covenants or agreements of the respective Indemnifying Party contained in this
Agreement or in any document incorporated by reference into it or the Seller's
determination that it is not subject to the California Bulk Sales Act. The
relevant Indemnified Part(ies) shall give (or cause to be given) to the relevant
Indemnifying Party notice of any claim or matter for which indemnity is (or will
be) sought under this Section 8; such notice shall be given promptly after the
Indemnified Part(ies) receive actual notice or knowledge of the claim or matter
that is subject to indemnification. With respect to any claim asserted by a
third party against any Indemnified Part(ies) for which indemnity is sought, the
relevant Indemnifying Party shall have the right to employ counsel reasonably
acceptable to the relevant Indemnified Part(ies) to defend against such
assertion, and such Indemnifying Parties shall have the right to compromise or
otherwise settle any such action or claim only with the prior written consent of
the relevant Indemnified Party, which shall not be unreasonably withheld.
9. EVENTS OF DEFAULT. If any one or more of the following events
occurs then, subject to the expiration of any specified grace period and the
giving of any prior notice required under this Section 9, such event shall
constitute an Event of Default by the party responsible for such event or
against whom it should be charged.
- -------------------------
(3) Current Assets and Current Liabilities are to be computed in
accordance with GAAP on a basis consistent with that utilized by EMI in
presenting its annual audited financial statement.
-17-
<PAGE> 18
(a) Untrue Statements. Any statement, report, financial
statement, or certificate made or delivered by any party or any of its agents to
another party is not true, complete and correct in any material respect.
(b) Warranties or Representations. Any warranty,
representation or other statement by or on behalf of any party contained in this
Agreement (or in any document between the parties furnished in compliance with
or in reference hereto) is false or misleading in any material respect.
(c) Agreements. Any party fails to take any action required
of it to comply with its obligations contained in this Agreement, or takes any
action prohibited or inconsistent with its obligations under this Agreement, and
such failure to act or action is not cured prior to ten (10) days after written
notice thereof is given to the defaulting party.
(d) Refusal to Close. A party refuses to consummate the
transactions provided for (and subject to the terms and conditions specified) in
this Agreement on the Closing Date, except if the failure to close is based upon
the failure of another party to meet a condition to Closing provided for in
Section 5 of this Agreement.
(e) Failure of Closing Condition. Any party is unable to
comply with the conditions of Closing provided for in Section 5 of this
Agreement, other than as a result of an Event of Default as described in
Sections 9(a), (b), (c) or (d) above.
10. RIGHTS AND REMEDIES ON DEFAULT.
Upon and after an Event of Default by any party, the other party shall
have the following rights and remedies:
(a) Default Prior to Closing. If, on the Closing Date, there
exists an Event of Default as described in Section 9 of this Agreement,
chargeable against either party, the other party may either (i) waive such
default and close, in which event such party shall have the right to seek
specific performance of this Agreement, including, without limitation, the
acquisition of the Assets and the performance by the other party of the
covenants provided for in this Agreement, or (ii) refuse to close, and, except
in the case of an Event of Default described in Section 9(e) above, seek money
damages from the other party, including, without limitation, indemnification
pursuant to Section 8 of this Agreement. An election by either party to proceed
in accordance with subclause (i) of the preceding sentence shall constitute the
acknowledgment by each of the parties that the party so electing cannot be
adequately compensated by money damages for the failure to perform and that such
damages are indeterminate, and that a court of competent jurisdiction may enter
an order pursuant to which such defaulting party is obligated to specifically
perform its obligations pursuant to the terms of this Agreement.
(b) Default Subsequent to Closing. If any party breaches this
Agreement subsequent to Closing, or if a default occurs pursuant to Sections
9(a) or 9(b), the nondefaulting party(ies) shall have the right to seek money
damages from the defaulting party(ies), either pursuant to Section 8 of this
Agreement or otherwise. In addition, if, (i) as a result of any action taken or
not taken by the Seller in violation of any applicable law or regulation which
(ii) has not been disclosed to the Buyer in this Agreement, and which (iii) the
occurrence or non occurrence of which was known or reasonably should have been
known to the Seller, the Prerequisite Student Aid Approvals are not received
prior to 12 months from the date of the Closing, or, if received or offered, can
only be
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<PAGE> 19
obtained on conditions imposing substantial burdens on the Buyer in addition to
those which would otherwise be imposed in connection which such approval, the
Buyer may elect to rescind the transactions provided for in this Agreement and,
upon such election, the parties will take such action as may be reasonably
required to restore the other party to its respective positions as they existed
prior to the Closing provided for in this Agreement.
(c) Nature of Remedies Cumulative. All rights and remedies
granted in this Agreement or available under applicable law shall be deemed
concurrent and cumulative and not alternative or exclusive remedies, to the full
extent permitted by law and this Agreement, and any party may proceed with any
number of remedies at the same time or in any order. The exercise of any one
right or remedy shall not be deemed a waiver or release of any other right or
remedy, and any party, upon the occurrence of an event of default by another
party under this Agreement, may proceed at any time, under any agreement, in any
order and with any available remedy.
11. FINDERS FEES.
Seller and each Shareholder, jointly and severally, represents and
warrants that it has not employed any finder or broker in connection with
transactions contemplated by this Agreement except for Barab/Williams &
Associates or their affiliates, and shall be responsible for any commissions or
fees payable to any such finder or broker fee incurred by Seller and/or each
Shareholder in connection with this Agreement. Each party agrees to indemnify
and hold harmless the others from and against any claim, damages, liabilities,
and expenses (including without limitation, attorneys' fees and disbursements)
arising from any claim or demand asserted by any person or entity on the basis
of its employment as a finder or broker by the respective party.
12. NOTICES. All notices or other communications required or permitted
under the terms of this Agreement shall be made in writing and shall be deemed
given upon (i) hand delivery or (ii) three days after deposit of same in the
Certified Mail, Return Receipt Requested, first class postage and registration
fees prepaid and correctly addressed to the parties at the following addresses:
If to Buyer: MTSX Acquisition Corp.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 33076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
If to Seller: M.T. SCHOOL OF X-RAY
6180 Laurel Canyon Boulevard
Suite 101
North Hollywood, CA 91606
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<PAGE> 20
With a copy to: Sacks, Tierny & Kasen
2929 North Central Avenue
14th Floor
Phoenix, AZ 85012
Attn: Michael Rooney, Esq.
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 33076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
If to Shareholders: 1463 Marion Drive
Glendale California 91205
With copies to: Mr. Harvey Caplan
12425 St. James Way
Tustin, CA 92680
Sacks, Tierny & Kasen
2929 North Central Avenue
14th Floor
Phoenix, AZ 85012
Attn: Michael Rooney, Esq.
If to Harvey Caplan: 12425 St. James Way
Tustin, CA 92680
With a copy to: Sacks, Tierny & Kasen
2929 North Central Avenue
14th Floor
Phoenix, AZ 85012
Attn: Michael Rooney, Esq.
or to such other address as any of the parties hereto may designate by notice to
the others.
13. MISCELLANEOUS.
(a) Successors. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned prior to Closing without
the prior written consent of the other parties hereto.
(b) Expenses. Except as otherwise provided in this Agreement,
or in subsection
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<PAGE> 21
(1) below, Buyer and Seller shall be responsible for any and all of the
respective fees, costs and expenses incurred by each, in connection with the
negotiation, preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by this
reference all Exhibits hereto and all documents executed and/or delivered at
Closing. This Agreement and the documents so incorporated into it contain the
parties' entire understanding and agreement with respect to the subject matter
hereof; and any and all conflicting or inconsistent discussions, agreements,
promises, representations and statements, if any, between the parties or their
representatives that are not incorporated in this Agreement shall be null and
void and are merged into this Agreement.
(d) Amendments Only in Writing. No amendment, modification,
waiver or discharge of this Agreement or any provision of this Agreement shall
be effective against any party, unless such party shall have consented thereto
in writing.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement, when
requested by another party, shall give all reasonable and necessary cooperation
with respect to any reasonable matters relating to the transactions contemplated
by this Agreement.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, exclusive of
its choice of law provisions.
(h) Headings. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.
(i) Gender; Number. All references to gender or number in this
Agreement shall be deemed interchangeably to have a masculine, feminine, neuter,
singular or plural meaning, as the sense of the context requires.
(j) Severability. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement,and each term and provision of this Agreement shall
be construed to be valid and enforceable to the full extent permitted by law.
(k) Survival. Except as otherwise expressly provided in this
Agreement, the liabilities and obligations of each party with respect to any and
all of its representations, warranties, covenants and agreements set forth in
this Agreement and/or in any document incorporated into it shall not be merged
into, affected or impaired by the Closing under this Agreement, but rather shall
survive such Closing for the period of one year thereafter, so that (except as
otherwise provided below) any claim under this Agreement must be asserted by
notice given to the party claimed to be liable on or before the first
anniversary of the Closing Date. Notwithstanding the foregoing, the time
limitation shall not apply to: (i) the covenants related to confidentiality and
non-competition contained in Section 7 above and the Non-Competition Agreements;
(ii) claims relating to liabilities of the Seller that are not Stated
Liabilities; (iii) claims for indemnification under Section 8, above, which seek
indemnity for matters identified in (ii), above, or arising out of a
misrepresentation as to matters contained in section 2 (h) or 2 (i), or (iv)
fraud. All obligations and liabilities described in the previous sentence shall
survive
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<PAGE> 22
the Closing for the period in which a claim can be asserted with respect thereto
under applicable law.
(l) No Third Party Beneficiaries. This Agreement has been entered
into solely for the benefit of the parties that have executed it, and not to
confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it.
(m) Limitation on Seller's Liability. Any action by the Buyer or
EMI for money damages against Seller, any Shareholder or Harvey Caplan based on
the provisions of this Agreement shall be limited to the amount of the Purchase
Price. Neither the Buyer nor EMI shall bring any such action unless the actual
damages sought in such action exceed $20,000.00.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
MTSX ACQUISITION CORP. M.T. SCHOOL OF X-RAY, INC.
BY: S/S VINCE PISANO By: S/S JEROME CAPLAN
------------------------------ -----------------------------
Authorized Signatory Authorized Signatory
HARVEY CAPLAN
S/S HARVEY CAPLAN
- -----------------------------------
DONNA CAPLAN
S/S DONNA CAPLAN
- -----------------------------------
JEROME CAPLAN
S/S JEROME CAPLAN
- -----------------------------------
By executing and delivering this Agreement, EMI agrees it is jointly and
severally liable for each of the obligations of the Buyer contained in it.
EDUCATIONAL MEDICAL INC.
By: S/S VINCE PISANO
------------------------------
Authorized Signatory
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<PAGE> 23
EXHIBITS
1. Form of Second Payment Note
2. Second Payment Security Agreement
3. Form of Purchase Money Promissory Note
4. List of Excluded Assets
5. Articles of Incorporation and By-Laws of the Seller
6. Seller's Financial Statements
7. Facility Lease
8. Inventory of FF & E
9. List of Permits
10. List of Leases, Financing Agreements, and Other
Encumbrances relating to Real and Personal Property
11. List of Accreditation
12. Policy Manuals and other School Material.
13. Cohort Default Rate Evaluation Material (N/A)
14. Trademarks etc.
15. List of Material Contracts
16. Employment Agreements
17. Employee Benefit Plans
18. Insurance Policies
19. Actions Pending
20. List of Bank Accounts
21. EMI's Financial Statements
22. Form of Assumption Agreement
23. Pledge Agreement (which includes Escrow
Agreement)
24. Form of Bill of Sale
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<PAGE> 1
EXHIBIT 10.36
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 15 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 (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
- --------
(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> 2
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.
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.
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<PAGE> 3
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
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<PAGE> 1
EXHIBIT 10.37
SECOND PAYMENT PROMISSORY NOTE
U.S. $500,000 Hollywood, California
_______________, 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. SCHOOL OF 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.
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
<PAGE> 2
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
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<PAGE> 1
EXHIBIT 10.41
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT made as of June 22, 1993 between INSTITUTE OF
COMPUTER MANAGEMENT OF BALTIMORE, INC., a Maryland corporation (the "Seller")
with a registered office at 10 Wood Street, Pittsburgh, Pennsylvania and ICM
ACQUISITION CORP., a Delaware corporation the registered office of which is
located at 1327 Northmeadow Parkway, Suite 132, Roswell, Georgia 30076
("Buyer").
Preliminary Statement
Buyer, Educational Medical, Inc., which is the parent corporation of
the Buyer, Seller and Seller's shareholder, have entered into an Agreement dated
as of May 19, 1993 (the "Asset Purchase Agreement") pursuant to which, among
other things, Buyer has agreed to assume certain stated liabilities and
obligations of Seller relating to the operation of its School. All of the
capitalized terms in this Assumption Agreement shall have the meaning given to
them in the Asset Purchase Agreement unless the context clearly demands
otherwise.
NOW THEREFORE, in consideration of the agreements set forth herein and
in the Asset Purchase Agreement, and other good and valuable considerations, the
receipt and adequacy of which are hereby conclusively acknowledged by Buyer, and
to induce Seller and the Shareholder to consummate the transactions contemplated
by the Asset Purchase Agreement, and intending to be legally bound hereby Buyer
agrees as follows:
1. Assumption Obligation. Buyer hereby assumes and undertakes to
perform, pay, satisfy, and discharge each of the Stated Liabilities.
The Buyer shall perform, pay, satisfy, and discharge, as the case
may be, each of the Stated Liabilities at or before such time as payment or
performance thereunder is due.
2. Right to Contest. Buyer may contest, in good faith, its
obligation to perform or pay Stated Liabilities in the event and to the extent
Buyer reasonably believes that such payment or performance is not due to the
creditor or other party claiming entitlement to payment or performance. In the
event that Buyer contests its obligation to pay or perform any of the Stated
Liabilities, (a) Buyer shall promptly notify Seller of the Stated Liability
being contested, and the reasons therefor, and (b) regardless of whether such
notice is given, Buyer shall, at its cost and expense, protect, defend,
indemnify and hold harmless Seller and the Shareholder from, against and in
respect of any
<PAGE> 2
cost, expense (including reasonable attorneys' fees and costs), liability,
obligation or claim asserted against, incurred by or imposed upon Seller or
Shareholder arising from, or in connection with or related to Buyer's contest of
any Stated Liabilities.
3. Costs of Enforcement. In connection with any action arising from or
in connection with the enforcement of this Agreement, the prevailing party shall
be entitled to an award of its expenses, including reasonable attorneys' fees
and disbursements, incurred or paid in any proceeding which may be instituted.
4. Jury Trial Waiver. BUYER KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, OR THE TRANSACTIONS
OR OBLIGATIONS CONTEMPLATED IN THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING
TO THIS AGREEMENT. BUYER CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF SELLER,
NOR SELLER'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD
NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO
JURY TRIAL PROVISION.
5. Modifications; Waivers Remedies Cumulative. No amendment,
modification, waiver or discharge of this Agreement, or any provision hereof,
shall be valid or effective unless in writing and signed by Seller and Buyer. No
delay or omission of Seller to exercise any right, power or remedy accruing
under or pursuant to this Agreement, at law, in equity, or otherwise, shall
exhaust or impair any right, power or remedy or shall be construed to waive any
such right, power or remedy. Every right, power and remedy of Seller created
under this Agreement may be exercised from time to time and as often as may be
deemed expedient by Seller in its sole discretion. No right, power or remedy
conferred upon or reserved to Seller is 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
under this Agreement or under any other instrument executed in connection
herewith (including, without limitation, the Asset Purchase Agreement), or now
or hereafter existing at law, in equity, or otherwise. No obligation of Buyer
under this Agreement shall be deemed waived by any course or pattern of conduct
by any party.
6. Choice of Law; Venue. This Agreement shall be construed in
accordance with the internal laws of the Commonwealth of Pennsylvania.
7. Severability. The provisions of this Agreement shall be severable.
In the event that a court of competent jurisdiction
2
<PAGE> 3
determines that any provision of this Agreement is invalid or unenforceable, and
is not reformed by such court, such invalid or unenforceable provision shall not
affect or impair the validity or enforceability of any other provision of this
Agreement and this Agreement shall be construed as if the invalid or
unenforceable provision had not been included in this Agreement.
8. Captions. The captions used in this Agreement are for convenience
of reference only and shall not be construed to extend, limit or modify the
scope of meaning of the respective paragraphs to which they relate.
9. Enforceability; Successors and Assigns. This Agreement shall be
binding upon Buyer and Buyer's successors and assigns and shall inure to the
benefit of Seller and its successors and assigns.
IN WITNESS WHEREOF, Buyer has executed and delivered this Agreement on
the date first above written.
ICM ACQUISITION CORP
By:
---------------------------------
Authorized Signatory
Educational Medical, Inc. joins in this agreement for the purpose of confirming
that it is jointly and severally obligated with ICM Acquisition Corp. pursuant
to the terms of this Assumption Agreement.
EDUCATIONAL MEDICAL, INC.
By:
--------------------------------
Authorized Signatory
3
<PAGE> 1
EXHIBIT 10.42
Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
December 31, 1992
Mr. Gary D. Kerber
Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
Re: Employment Agreement
Dear Mr. Kerber:
The following are the revised terms of your employment as President and
Chief Executive Officer of Educational Medical, Inc. (the "Company"). These
revised terms, all of which are included in this Revised Agreement, are
effective immediately.
1. Term; Residence; Duties. You will serve as the President
and Chief Executive Officer of the Company until your employment is terminated
as provided below (the "Employment Period"). During the Employment Period you
will devote substantially all of your time to the duties provided for under the
terms of this Revised Agreement.
As President and Chief Executive Officer of the Company, you shall have
such duties as are delegated by the By-laws of the Company or are assigned to
you by the Board of Directors of the Company, provided that such duties shall be
reasonably consistent with those duties (x) assigned to the President and Chief
Executive Officer of organizations comparable to the Company and (y) assigned to
you by the Board of Directors prior to the date of this Revised Agreement. In
connection with the performance of your duties, the Company will supply you with
services and facilities reasonably appropriate to such duties and your position.
The Company agrees that it will maintain its headquarters in the metropolitan
Atlanta area, where you will maintain you principle office.
2. Salary. Your salary will be $160,000 per year as of
March 21, 1992. Your salary will be reviewed by the Company's Board of Directors
on an annual basis prior to the end of each fiscal year, with the next such
review to occur prior to the end of fiscal 1992 (March 31, 1993). In
<PAGE> 2
Gary D. Kerber
December 31, 1992
Page 2
connection with such reviews your salary will be subject to increase as of the
beginning of the next fiscal year at the sole discretion of the Board of
Directors (e.g., April 1, 1993 in the case of the review conducted prior to
March 31, 1993).
3. Incentive Compensation. You will propose an appropriate
incentive plan for yourself and the other executive officers of the Company (the
"Incentive Plan(s)") to the Board of Directors for each fiscal year no later
than 30 days after it begins or such latter date as you and the Board of
Directors may agree. Concurrently or prior to the submission of the Incentive
Plan(s) you will submit a proposed budget for the applicable fiscal year to the
Board of Directors. The Board of Directors will promptly consider the proposed
Incentive Plan(s), and approve them or propose alternative incentive
compensation within 30 days of receipt of your recommendations. No Incentive
Plan(s) shall be implemented without the approval of the Board of Directors or
its designated representative.
4. Vacation. During the term of this Revised Agreement, you
shall be entitled to four (4) weeks of annual vacation. The time for which you
will be absent from the office shall be at your sole discretion, provided such
time is compatible with reasonable needs of the Company.
5. Insurance. In addition to the compensation provided in the
foregoing provisions of this Revised Agreement, the Company agrees to continue
to provide you with a term life insurance contract insuring your life in the
principal amount of Five Hundred Thousand Dollars ($500,000) Dollars, as
currently in effect. You or your designee shall be owner/beneficiary thereof.
Notwithstanding the foregoing, if the Company is unable to obtain term life
insurance on your life at a normal and customary cost thereof for a male of your
age, then this provision and the obligation of the Company hereunder shall be
limited to a contribution toward the payment of such premium of the amount of
such customary fees and expenses (the "Company Funded Premium"). At your
election, the Company Funded Premium may be applied toward such lesser amount of
term life insurance as it may procure.
<PAGE> 3
Gary D. Kerber
December 31, 1992
Page 3
6. Fringe and Medical Benefits. You, your spouse and your
children will be entitled to reasonable medical insurance benefits, including up
to an aggregate of $5,000 of annual unallocated reimbursements for medically
related expense ("Unallocated Reimbursements"); any unused amounts may be
carried forward to subsequent years. You shall be eligible to participate in the
Company's stock option and other benefit programs. In addition, the Company may
provide such fringe benefits to you, either through direct payments by the
Company or by reimbursement, as the Company may determine from time to time.
7. Disability. In the event of disability, the Company either
directly, through insurance or a combination of both, will provide you with
payments equal to the salary provided for in this Revised Agreement through the
end of the first three months of such disability. In any event, the Company
shall maintain in force the current disability policy or, in the event of
cancellation, a substantially similar policy if available on reasonable terms,
providing in each case for continuation through your sixty-fifth birthday of
disability payments in an amount substantially equivalent to your annualized
compensation at the time such disability occurs. The obligations of the Company
pursuant to this Section 7 shall continue regardless of whether the Company
elects to terminate the Employment Period as provided in Section 8 of this
Revised Agreement on account of such disability. For purposes of this Revised
Agreement disability means a reasonable determination by the Board of Directors
of the Company based on reasonable medical evidence, that you are physically
incapable of substantially performing your obligations pursuant to the terms of
this Revised Agreement, provided that a determination by the issuer of any
disability policy described in this Section 7 that you are "disabled" pursuant
to the provisions of such policy shall be conclusive evidence of such disability
for purposes of this Revised Agreement.
8. Termination. You may terminate the Employment Period
by at least 30 days' prior notice to the
<PAGE> 4
Gary D. Kerber
December 31, 1992
Page 4
Company. The Company may terminate the Employment Period for cause, which shall
mean (a) your death, (b) your disability that prevents you from performing your
obligations to the Company for any three (3) consecutive months; (c) acts of
serious moral turpitude; gross negligence in connection with the performance of
your duties as provided for in this Revised Agreement; fraud; the imposition of
any sanctions against you by regulatory agencies governing the Company or you
with respect to the business of the Company; or a material violation by you of
any of the rules and regulations contained in the By-Laws of the Company
relating to your duties. The Board of Directors may make a preliminary
determination that Cause (a "Preliminary Determination of Cause") exists at any
time. If a Preliminary Determination of Cause is made, the Board of Directors,
in its absolute discretion, may suspend you, with full pay, from all offices
provided for in this Agreement pending a Final Determination of Cause as
described in the next sentence. If the Board of Directors makes a Preliminary
Determination of Cause, you shall be notified of such determination in writing
within 24 hours after such determination is made, such notice to specifically
identify the basis for such determination, and scheduling a special meeting of
the Board of Directors at which you may appear for purposes of considering
whether Cause for Termination exists (a "Final Determination of Cause'). A Final
Determination of Cause shall only be made by the Company's Board of Directors at
a meeting duly called, with respect to which you shall have been given (i)
reasonable written notice as described above, specifying in reasonable detail
the basis for the charge that cause for termination exists and (ii) a reasonable
opportunity to contest such charge.
In the event of termination by the Company without cause you will be
entitled to a termination payment (the "Termination Payment") equal to the
greater of (X) $160,000 or (Y) the amount of compensation paid to you or accrued
to your benefit for the fiscal year last ending prior to the date of such
termination, less the amount of bonus included in such compensation, times a
fraction, the denominator of which is 12 and the numerator of which is six, if
the Final Determination
<PAGE> 5
Gary D. Kerber
December 31, 1992
Page 5
of Cause occurs prior to April 1, 1993, and thereafter six plus 1 for each
additional fiscal year you are employed by the company pursuant to this
Agreement or any amendments to it. For example, if you are still employed
pursuant to this Agreement as of April 1, 1993, the numerator of such fraction
would be 7 and would increase to 8 as of April 1, 1994. The increases in the
numerator of the fraction provided for in prior two sentences shall be limited,
however, so that such numerator shall never exceed 12.
9. Continued Applicability of Prior Agreement. The
Non-Competition, Non-Disclosure and Proprietary Information Agreement dated
March 31, 1988 between you and the Company, a copy of which is attached to this
Revised Agreement as Exhibit 2, is specifically reaffirmed and incorporated into
this Revised Agreement by reference.
10. Governing Law. This Revised Agreement shall be governed
by, and construed in accordance with (a) the laws of the State of New York
applicable to contracts made and to be performed wholly therein, and (b) the
laws of the State of Delaware applicable to corporations organized under the
laws of such state.
11. Entire Agreement. This Revised Agreement and the
agreements referred to in it contain the entire agreement between the parties
hereto with respect to the transactions contemplated herein and supersedes all
previously written or oral negotiations, commitments, representations, and
agreements.
12. Counterparts. This Revised Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
13. Amendments. This Revised Agreement, or any provisions
hereof, may not be amended, changed or modified without the prior written
consent of each of the parties hereto.
<PAGE> 6
Gary D. Kerber
December 31, 1992
Page 6
If the foregoing confirms your understanding of our agreements
concerning your employment by the Company, please so indicate by signing in the
space provided below and return a signed copy to us.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
[SEAL] By:
--------------------------------
Morris C. Brown,
Secretary
Confirmed and Agreed to:
- -----------------------------------
Gary D. Kerber
<PAGE> 1
EXHIBIT 10.43
EDUCATIONAL MEDICAL, INC.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
July 14, 1993
Re: CONSULTING AGREEMENT
Dear Mr. K. Terry Guthrie:
This letter will confirm your agreement to render consulting
services (the "Consulting Services") to Education Medical, Inc. ("EMI") from
time to time for the next 36 month period in connection with EMI's operation of
its photography college (the "School") in Dayton, Ohio. The Consulting Services
described in this letter are those provided for in the Asset Purchase Agreement
dated June 23, 1993, among EMI, OIOPT ACQUISITION CORP. (the "Buyer"), OHIO
INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY, INC. ("Seller"), and the other
shareholders of the Seller, pursuant to which the Buyer acquired the School (the
"Asset Purchase Agreement").
In rendering the Consulting Services, you shall not be required to
travel to the School or any other place. You shall be available to consult with
the officers and designees of the Buyer and EMI from time to time by telephone
with respect to the operations of the School during normal business hours. Each
of the parties recognize that you are occupied with various other business
ventures on a full time basis, and your obligation to be available for such
consultations is therefore limited to such amount of time as is reasonable so as
not to interfere with your other activities. You shall be reimbursed for any
expenses you incur at the request of the Buyer or EMI in connection with
rendering such Consulting Services.
You specifically accept no responsibility for any action taken by
Buyer or EMI or any of its affiliates with respect to School operations or
otherwise, regardless of whether such action is taken based in whole or part
upon advice given by you.
This Agreement shall terminate on the third anniversary of the Closing as
defined in the Asset Purchase Agreement. It contains all of our agreements with
respect to your consulting services and may not be changed except by written
agreement signed by both of us.
If this letter sets forth your understanding, please sign below and return
a signed copy to us.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Authorized Signatory
Accepted and Agreed
/s/ K. Terry Guthrie
- ------------------------------
[Shareholder]
<PAGE> 1
EXHIBIT 10.44
EDUCATIONAL MEDICAL, INC.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
July 14, 1993
Re: CONSULTING AGREEMENT
Dear Mr. Richard L. Cretcher:
This letter will confirm your agreement to render consulting
services (the "Consulting Services") to Education Medical, Inc. ("EMI") from
time to time for the next 36 month period in connection with EMI's operation of
its photography college (the "School") in Dayton, Ohio. The Consulting Services
described in this letter are those provided for in the Asset Purchase Agreement
dated June 23, 1993, among EMI, OIOPT ACQUISITION CORP. (the "Buyer"), OHIO
INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY, INC. ("Seller"), and the other
shareholders of the Seller, pursuant to which the Buyer acquired the School (the
"Asset Purchase Agreement").
In rendering the Consulting Services, you shall not be required to
travel to the School or any other place. You shall be available to consult with
the officers and designees of the Buyer and EMI from time to time by telephone
with respect to the operations of the School during normal business hours. Each
of the parties recognize that you are occupied with various other business
ventures on a full time basis, and your obligation to be available for such
consultations is therefore limited to such amount of time as is reasonable so as
not to interfere with your other activities. You shall be reimbursed for any
expenses you incur at the request of the Buyer or EMI in connection with
rendering such Consulting Services.
You specifically accept no responsibility for any action taken by
Buyer or EMI or any of its affiliates with respect to School operations or
otherwise, regardless of whether such action is taken based in whole or part
upon advice given by you.
This Agreement shall terminate on the third anniversary of the Closing as
defined in the Asset Purchase Agreement. It contains all of our agreements with
respect to your consulting services and may not be changed except by written
agreement signed by both of us.
If this letter sets forth your understanding, please sign below and return
a signed copy to us.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Authorized Signatory
Accepted and Agreed
/s/ Richard L. Crethcher
- ------------------------------
[Shareholder]
<PAGE> 1
EXHIBIT 10.45
EDUCATIONAL MEDICAL, INC.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
July 14, 1993
Re: CONSULTING AGREEMENT
Dear Mr. Stephen T. McLain:
This letter will confirm your agreement to render consulting
services (the "Consulting Services") to Education Medical, Inc. ("EMI") from
time to time for the next 36 month period in connection with EMI's operation of
its photography college (the "School") in Dayton, Ohio. The Consulting Services
described in this letter are those provided for in the Asset Purchase Agreement
dated June 23, 1993, among EMI, OIOPT ACQUISITION CORP. (the "Buyer"), OHIO
INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY, INC. ("Seller"), and the other
shareholders of the Seller, pursuant to which the Buyer acquired the School (the
"Asset Purchase Agreement").
In rendering the Consulting Services, you shall not be required to
travel to the School or any other place. You shall be available to consult with
the officers and designees of the Buyer and EMI from time to time by telephone
with respect to the operations of the School during normal business hours. Each
of the parties recognize that you are occupied with various other business
ventures on a full time basis, and your obligation to be available for such
consultations is therefore limited to such amount of time as is reasonable so as
not to interfere with your other activities. You shall be reimbursed for any
expenses you incur at the request of the Buyer or EMI in connection with
rendering such Consulting Services.
You specifically accept no responsibility for any action taken by
Buyer or EMI or any of its affiliates with respect to School operations or
otherwise, regardless of whether such action is taken based in whole or part
upon advice given by you.
This Agreement shall terminate on the third anniversary of the Closing as
defined in the Asset Purchase Agreement. It contains all of our agreements with
respect to your consulting services and may not be changed except by written
agreement signed by both of us.
If this letter sets forth your understanding, please sign below and return
a signed copy to us.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Authorized Signatory
Accepted and Agreed
/s/ Stephen T. McLain
- ------------------------------
[Shareholder]
<PAGE> 1
EXHIBIT 10.46
EDUCATIONAL MEDICAL, INC.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
July 14, 1993
Re: CONSULTING AGREEMENT
Dear Mr. Gerald D. Guthrie:
This letter will confirm your agreement to render consulting
services (the "Consulting Services") to Education Medical, Inc. ("EMI") from
time to time for the next 36 month period in connection with EMI's operation of
its photography college (the "School") in Dayton, Ohio. The Consulting Services
described in this letter are those provided for in the Asset Purchase Agreement
dated June 23, 1993, among EMI, OIOPT ACQUISITION CORP. (the "Buyer"), OHIO
INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY, INC. ("Seller"), and the other
shareholders of the Seller, pursuant to which the Buyer acquired the School (the
"Asset Purchase Agreement").
In rendering the Consulting Services, you shall not be required to
travel to the School or any other place. You shall be available to consult with
the officers and designees of the Buyer and EMI from time to time by telephone
with respect to the operations of the School during normal business hours. Each
of the parties recognize that you are occupied with various other business
ventures on a full time basis, and your obligation to be available for such
consultations is therefore limited to such amount of time as is reasonable so as
not to interfere with your other activities. You shall be reimbursed for any
expenses you incur at the request of the Buyer or EMI in connection with
rendering such Consulting Services.
You specifically accept no responsibility for any action taken by
Buyer or EMI or any of its affiliates with respect to School operations or
otherwise, regardless of whether such action is taken based in whole or part
upon advice given by you.
This Agreement shall terminate on the third anniversary of the Closing as
defined in the Asset Purchase Agreement. It contains all of our agreements with
respect to your consulting services and may not be changed except by written
agreement signed by both of us.
If this letter sets forth your understanding, please sign below and return
a signed copy to us.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Authorized Signatory
Accepted and Agreed
/s/ Gerald D. Guthrie
- ------------------------------
[Shareholder]
<PAGE> 1
EXHIBIT 10.47
EDUCATIONAL MEDICAL, INC.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
July 14, 1993
Re: CONSULTING AGREEMENT
Dear Mr. James R. Madden:
This letter will confirm your agreement to render consulting
services (the "Consulting Services") to Education Medical, Inc. ("EMI") from
time to time for the next 36 month period in connection with EMI's operation of
its photography college (the "School") in Dayton, Ohio. The Consulting Services
described in this letter are those provided for in the Asset Purchase Agreement
dated June 23, 1993, among EMI, OIOPT ACQUISITION CORP. (the "Buyer"), OHIO
INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY, INC. ("Seller"), and the other
shareholders of the Seller, pursuant to which the Buyer acquired the School (the
"Asset Purchase Agreement").
In rendering the Consulting Services, you shall not be required to
travel to the School or any other place. You shall be available to consult with
the officers and designees of the Buyer and EMI from time to time by telephone
with respect to the operations of the School during normal business hours. Each
of the parties recognize that you are occupied with various other business
ventures on a full time basis, and your obligation to be available for such
consultations is therefore limited to such amount of time as is reasonable so as
not to interfere with your other activities. You shall be reimbursed for any
expenses you incur at the request of the Buyer or EMI in connection with
rendering such Consulting Services.
You specifically accept no responsibility for any action taken by
Buyer or EMI or any of its affiliates with respect to School operations or
otherwise, regardless of whether such action is taken based in whole or part
upon advice given by you.
This Agreement shall terminate on the third anniversary of the Closing as
defined in the Asset Purchase Agreement. It contains all of our agreements with
respect to your consulting services and may not be changed except by written
agreement signed by both of us.
If this letter sets forth your understanding, please sign below and return
a signed copy to us.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Authorized Signatory
Accepted and Agreed
/s/ James R. Madden
- ------------------------------
[Shareholder]
<PAGE> 1
EXHIBIT 10.49
FIRST AMENDMENT TO
EMPLOYEE LOAN AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYEE LOAN AGREEMENT dated as of September
12, 1994 executed by VINCE PISANO and GAIL PISANO (collectively, the "Borrower")
and EDUCATIONAL MEDICAL, INC., a Delaware corporation ("EMI").
PRELIMINARY STATEMENT
WHEREAS, Borrower and EMI entered into an Employee Loan Agreement (the
"Loan Agreement") dated September 20, 1991; and
WHEREAS, the undersigned parties desire to amend the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, and intending to
be legally bound, the undersigned parties agree to modify the Loan Agreement as
follows:
1. The date "September 12, 1994" appearing in
Section 2 of the Loan Agreement is amended to
read "September 12, 1996."
2. Except as modified above, all terms and
conditions of the Loan Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed this First
Amendment to Employee Loan Agreement as of September 12, 1994.
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Authorized Signatory
------------------------------------
VINCE PISANO
------------------------------------
GAIL PISANO
<PAGE> 1
EXHIBIT 10.51
AMENDMENT TO
MORTGAGE LOAN PROMISSORY NOTE
THIS AMENDMENT TO THE MORTGAGE LOAN PROMISSORY NOTE dated as of
September 12, 1994 executed by VINCE PISANO and GAIL PISANO (collectively, the
"Borrower") and EDUCATIONAL MEDICAL, INC., a Delaware corporation ("EMI").
PRELIMINARY STATEMENT
WHEREAS, the Borrower executed a Promissory Note (the "Promissory
Note") in favor of EMI dated September 20, 1991 in the original principal sum of
$75,000.00; and
WHEREAS, the undersigned parties now desire to amend the Promissory
Note.
NOW, THEREFORE, for good and valuable consideration, and intending to
be legally bound, the undersigned parties agree to modify the Promissory Note as
follows:
1. The date "September 12, 1994" set forth in the
first paragraph of the Promissory Note is
amended to read "September 12, 1996."
2. Except as specifically provided for in this
Amendment, the terms of the Note remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
as of September 12, 1994.
EDUCATIONAL MEDICAL, INC.
By:
--------------------------------
Authorized Signatory
-----------------------------------
VINCE PISANO
-----------------------------------
GAIL PISANO
<PAGE> 1
EXHIBIT 10.52
[EDUCATIONAL MEDICAL, INC. LETTERHEAD]
November 21, 1988
Mr. Robert L. Heidrick
The Heidrick Partners, Inc.
Suite 4000
20 North Wacker Drive
Chicago, IL 60606
Dear Bob:
This letter will formalize the stock option portion of the search you did for
Educational Medical, Inc.'s CFO. As we discussed, our original agreement called
for options on 15,000 shares. Since we ended up with one million shares, rather
than the 2,333,332 we originally planned, the number has been proportionately
reduced to 6,429 options.
This will confirm the grant to you of an option to buy 6,429 shares of our
company's common stock for a ten-year period commencing on the effective date of
an initial public offering of our common stock. The option price will be the
public offering price. The number of shares will be subject to adjustment for
stock splits.
If you have any further questions, please don't hesitate to call.
Sincerely,
Gary D. Kerber
Gary D. Kerber
President
GDK/bw
<PAGE> 1
EXHIBIT 10.55
April 6, 1995
VIA AIRBORNE EXPRESS
Mr. Vince Pisano
Chief Financial Officer
Educational Medical, Inc.
1327 North Meadow Parkway, Suite 132
Roswell, Georgia 30076
Dear Vince:
As we agreed, I am enclosing our statement for services rendered regarding the
recently completed $2.0 million financing by Sirrom Capital Corporation. We
also agreed that the warrant to Equitable Securities dated July 23, 1991 for
16,000 shares of Educational Medical, Inc. with a current maturity date of
July 31, 1996 will be modified to extend the maturity date of the warrant to
July 31, 1999. Please acknowledge that this is our understanding by signing
below and returning one copy of this letter for our files.
Best regards,
/s/ R. Riley Sweat
- ------------------------
R. Riley Sweat
Managing Director
Investment Banking Group
ACKNOWLEDGED AND AGREED:
EDUCATIONAL MEDICAL, INC.
/s/ Vince Pisano
- -----------------------
Vince Pisano
Chief Financial Officer
<PAGE> 1
EXHIBIT 11.1
EDUCATIONAL MEDICAL, INC.
COMPUTATION OF PRO FORMA NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------ -----------------------
1995 1996 1995 1996
----------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Primary and fully diluted:
Weighted average common stock and common
stock equivalents outstanding during the
period(1)................................. 1,647,662 1,815,042 $1,647,662 $1,815,042
Convertible Preferred Stock converted into
Common Stock upon consummation of initial
public offering(2)........................ 1,705,082 1,705,082 1,705,082 1,705,082
Exercise of common stock purchase warrants
upon consummation of initial public
offering(2)............................... 1,167,242 1,167,242 1,167,242 1,167,242
Effect of Common Stock equivalents issued
subsequent to August 7, 1995 computed in
accordance with the treasury stock method
as required by the SEC(3)................. 126,538 126,538 126,538 126,538
----------- ----------- ----------- -----------
Total................................ 4,646,524 4,813,904 4,646,524 4,813,904
=========== =========== =========== ===========
Net income (loss).............................. $(1,428,376) $ 79,424 $ (62,119) $ 65,511
=========== =========== =========== ===========
Pro forma net income (loss) per share of Common
Stock........................................ $ (.31) $ .02 $ (.01) $ .01
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) Weighted average common stock outstanding during fiscal 1995 excludes all
common stock equivalents as such equivalents are antidilutive during the
period.
(2) Pro forma income (loss) per share reflects preferred stock automatically
converted into Common Stock and warrants to be exercised upon consummation
of the initial public offering as if such conversion and exercises had
occurred at the beginning of fiscal 1995.
(3) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, 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 prior to the initial public offering.
<PAGE> 1
EXHIBIT 11.2
EDUCATIONAL MEDICAL, INC.
COMPUTATION OF PRO FORMA SUPPLEMENTAL NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
--------------
<S> <C>
Primary and fully diluted:
Weighted average common stock and common stock equivalents outstanding during
the period(3)............................................................. 2,191,965
Convertible Preferred Stock converted into Common Stock upon consummation of
initial public offering(1)................................................ 1,705,082
Exercise of common stock purchase warrants upon consummation of initial
public offering(1)........................................................ 1,167,242
Effect of Common Stock equivalents issued subsequent to August 7, 1995
computed in accordance with the treasury stock method as required by the
SEC(2).................................................................... 126,538
----------
Total................................................................ 5,190,827
==========
Net income..................................................................... $ 79,424
Plus: Reduction in interest expense from repayment of long-term notes payable,
net of income taxes(3)....................................................... 473,593
----------
Pro forma supplemental net income.............................................. $ 553,017
==========
Pro forma supplemental net income per share of Common Stock(3)................. $ .11
==========
</TABLE>
- ---------------
(1) Pro forma supplemental net income per share reflects preferred stock
automatically converted into Common Stock and warrants to be exercised upon
consummation of the initial public offering as if such conversion and
exercises had occurred at the beginning of fiscal 1996.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, 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 prior to the initial public offering.
(3) Pro forma supplemental net income per share reflects the number of shares of
Common Stock issued upon consummation of the initial public offering used
to repay $4.9 million in current and long-term debt as if such issuance had
occurred at the beginning of fiscal 1996, the period immediately preceding
the initial public offering (or date of issuance of the notes payable, if
later) and the related reduction in interest expense.
<PAGE> 1
EXHIBIT 11.3
EDUCATIONAL MEDICAL, INC.
COMPUTATION OF HISTORICAL NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED JUNE 30,
-------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Primary and fully diluted:
Weighted average common stock and
common stock equivalents
outstanding during the
period(1)..................... 1,647,662 1,647,662 4,346,477 1,647,662 4,674,557
Effect of common stock
equivalents issued subsequent
to August 7, 1995 computed in
accordance with the treasury
stock method as required by
the SEC(2).................... 12,629 -- 79,834 -- 126,538
----------- ----------- ---------- ----------- -----------
1,660,291 1,647,662 4,426,311 1,647,662 4,801,095
=========== =========== ========== =========== ===========
Net income (loss).................. $(1,561,305) $(1,428,376) $ 79,424 $ (62,119) $ 65,511
=========== =========== ========== =========== ===========
Net income (loss) per share of
Common Stock..................... $ (.94) $ (.87) $ .02 $ (.04) $ .01
=========== =========== ========== =========== ===========
</TABLE>
- ---------------
(1) Common stock equivalents were antidilutive in 1994 and 1995, 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.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, 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 prior to the initial public offering.
<PAGE> 1
EXHIBIT 11.4
EDUCATIONAL MEDICAL, INC.
COMPUTATION OF HISTORICAL SUPPLEMENTAL NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1996
--------------
<S> <C>
Primary and fully diluted:
Weighted average common stock and common stock equivalents outstanding during
the period(2)............................................................. 4,723,400
Effect of common stock equivalents issued subsequent to August 7, 1995
computed in accordance with the treasury stock method as required by the
SEC(1).................................................................... 79,834
----------
Total................................................................ 4,803,234
==========
Net income..................................................................... $ 79,424
Plus: Reduction in interest expense from repayment of long-term notes payable,
net of income taxes(2)....................................................... 473,593
----------
Supplemental net income........................................................ $ 553,017
==========
Historical supplemental net income per share of Common Stock(2)................ $ .12
==========
</TABLE>
- ---------------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, 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 prior to the initial public offering.
(2) Historical supplemental net income per share reflects the number of shares
of common stock issued upon consummation of the initial public offering used
to repay $4.9 million in current and long-term debt as if such issuance had
occurred at the beginning of fiscal 1996, the period immediately preceding
the initial public offering (or date of issuance of notes payable, if later)
and the related reduction in interest expense.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF
EDUCATIONAL MEDICAL, INC.
Andon Colleges, Inc.
California Academy of Merchandising, Art and Design, Inc.
DBS Acquisition Corp.
ICM Acquisition Corp.
Maric Learning Systems
MTSX Acquisition Corp.
OIOPT Acquisition Corp.
Palo Vista College of Nursing and Allied Health Sciences, Inc.
Scottsdale Educational Center for Allied Health Careers, Incorporated
<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 the Registration Statement
(Form S-1) and the related Prospectus of Educational Medical, Inc. for the
registration of 2,700,000 shares of its common stock.
/s/ Ernst & Young LLP
--------------------------------------
Atlanta, Georgia
August 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EDUCATIONAL MEDICAL, INC. FOR THE THREE MONTHS ENDED
JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,645,418
<SECURITIES> 0
<RECEIVABLES> 3,696,680
<ALLOWANCES> (733,750)
<INVENTORY> 0
<CURRENT-ASSETS> 6,605,681
<PP&E> 7,264,104
<DEPRECIATION> (2,915,724)
<TOTAL-ASSETS> 17,118,302
<CURRENT-LIABILITIES> 4,762,915
<BONDS> 5,678,640
0
6,742,390
<COMMON> 16,803
<OTHER-SE> (1,164,121)
<TOTAL-LIABILITY-AND-EQUITY> 17,118,302
<SALES> 0
<TOTAL-REVENUES> 9,203,279
<CGS> 0
<TOTAL-COSTS> 8,699,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 198,360
<INTEREST-EXPENSE> 195,992
<INCOME-PRETAX> 109,185
<INCOME-TAX> 43,674
<INCOME-CONTINUING> 65,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,511
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
