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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MARCH 31, 1997
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EDUCATIONAL MEDICAL, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
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(STATE OR OTHER JURISDICTION OF INCORPORATION)
000-21567 65-0038445
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(COMMISSION FILE NUMBER (IRS EMPLOYER IDENTIFICATION NO.)
EDUCATIONAL MEDICAL, INC.
1327 NORTHMEADOW PARKWAY, SUITE 132
ROSWELL, GEORGIA 30076
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 475-9930
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On March 31, 1997, Educational Medical, Inc. (the "Company")
entered into an Agreement and Plan of Reorganization dated as of March 29, 1997
(the "Agreement") with Nebraska Acquisition Corp., a Delaware corporation
("Acquisition") and Educational Management, Inc., a Nebraska corporation
("Management"). The Company owns and operates postsecondary educational
institutions. Management was the owner of two postsecondary educational
institutions in the state of Nebraska: Lincoln School of Commerce located in
Lincoln, Nebraska and Nebraska College of Business located in Omaha, Nebraska
(collectively, the "Schools"). Pursuant to the terms of the Agreement,
Management was merged into Acquisition leaving Acquisition as the surviving
corporation (the "Merger"). Acquisition, which was formed for the sole purpose
of effecting the Merger, is a wholly owned subsidiary of the Company. Pursuant
to the Agreement and the Plan of Merger attached thereto, the shareholders of
Management received shares of the Company's Common Stock based on an exchange
ratio of 1.02857 shares for the Company's Common Stock for each share previously
held in Management. In order to effect the exchange, the Company issued an
additional 761,263 shares of its Common Stock. The Company entered into the
Agreement to reflect that it is jointly and severally liable with Acquisition
with regard to the obligations which are provided for in the Agreement.
As a consequence of the Merger, the Company acquired the real property
on which the Schools are located and the Company paid off a first mortgage in
the amount of approximately $1,100,000. Title to these properties was acquired
by virtue of execution of Partnership Warranty Deeds in favor of Management
prior to the Merger. Prior to the Merger, the locations were operated as
postsecondary educational institutions and the Company intends to continue to
use the real property in the same manner.
The Company expects to account for the Merger as a pooling-of-interests
pursuant to the provisions of Accounting Principles Board Opinion No. 16 ("APB
16").
Certain of Management's key employees agreed not to compete with the
Company and its schools for a period of ten (10) years in 2 cases and five (5)
years in the remaining cases. In return for the execution of the
non-competition and confidentiality agreements, the Company is obligated to
make payments totaling $300,000 to these parties. The payments are to occur in
varied scheduled installments, with all payments to be complete 60 days from
the date of the Merger.
The foregoing description of the Agreement and Plan of Reorganization,
and the documents contemplated thereby, and the transactions contemplated by
such documents, does not purport to be complete and is qualified in its
entirety by reference to each of such documents, copies of which are filed as
exhibits hereto.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired: Will be filed by
Amendment not later than 60 days from April 15, 1997.
(b) Pro Forma Financial Information Relative to Acquired Business:
Will be filed by Amendment not later than 60 days from April
15, 1997.
(c) Exhibits
10.1 Agreement and Plan of Reorganization dated as of March
29, 1997, by and among the Company, Acquisition and
Management with attached Exhibit A - Plan of Merger;
10.2 Escrow Agreement dated as of March 29, 1997 by and
among the Company, Acquisition and Richard O. Wikert,
the Lila Rhude Trust, the Scott L. Rhude Trust, the A.
Lauren Rhude Trust, Roger B. Bojens and Sacks
Tierney, P.A. as Escrow Agent.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EDUCATIONAL MEDICAL, INC.
Date: April 15, 1997. By: /s/ Morris C. Brown
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Morris C. Brown, Secretary
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EXHIBIT 10.1
AGREEMENT AND PLAN
OF
REORGANIZATION
AMONG
EDUCATIONAL MEDICAL, INC.,
NEBRASKA ACQUISITION CORP.
AND
EDUCATIONAL MANAGEMENT, INC.
DATED AS OF MARCH 29, 1997
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EXHIBIT 10.2
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of March 29, 1997, by and among EDUCATIONAL
MEDICAL, INC., a Delaware corporation ("EMI"), NEBRASKA ACQUISITION CORP., a
Delaware corporation ("ACQUISITION"), EDUCATIONAL MANAGEMENT, INC., a Nebraska
corporation ("MANAGEMENT"), RICHARD O. WIKERT, THE LILA RHUDE TRUST, THE SCOTT
RHUDE TRUST, THE A. LAUREN RHUDE TRUST, and ROGER B. BOJENS (collectively, the
"Shareholders") and Sacks Tierney P.A. ("Escrow Agent").
PRELIMINARY STATEMENT
Management is a postsecondary educational institution with schools
located in Omaha, Nebraska and Lincoln, Nebraska (individually a "School" and
collectively, the "Schools"). EMI is a publicly traded corporation engaged in
the operation of postsecondary educational institutions. Acquisition is a
wholly owned subsidiary of EMI. Shareholders are the owners of Management.
Pursuant to the provisions and subject to the conditions of that
certain Agreement and Plan of Reorganization and the Plan of Merger of even
date herewith (the "Agreement"), Management has been merged with and into
Acquisition (the "Merger") whereby each outstanding share of Management common
stock, par value $.01 per share ("Management Common Stock"), has been converted
into 1.02857 shares of EMI Common Stock, par value $.01 per share ("Common
Stock") (the "Exchange Ratio").
The parties to the Agreement desire to enter into this Escrow
Agreement for the purpose of setting forth certain representations, warranties,
covenants, and further agreements with respect to the Merger.
PROVISIONS
All capitalized words, unless otherwise defined herein, have the same
meanings as set forth in the Agreement.
1. Section 7.1, Revision of Exchange Ratio, of the Agreement
provides that the Exchange Ratio shall be adjusted with respect to any and all
liabilities arising from the resolution of (a) the alleged compliance
deficiencies asserted by DOE as of March 29, 1997 in its current program review
(PRCN: 199540712076, the "DOE Review"), including without limitation
Management's practices regarding the calculation of student refunds, the
maintenance of supporting documents in student files and the monitoring of
satisfactory academic progress regardless of whether such compliance
deficiencies occurred at the Facility located in Lincoln, Nebraska, which is
the subject of such the DOE Review, or the same compliance deficiencies
occurred at the Omaha,
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Nebraska Facility and regardless of when such compliance deficiencies occurred
prior to the date hereof (the "Program Compliance Deficiencies"), and (b) the
fund administration errors described in the Title IV Financial Aid Audits , or
as a result of excess cash held in financial aid accounts, or as a result of
students receiving incorrect amounts of Title IV funds based on their hours in
attendance, or non-compliance with the Regulations governing the administration
of the Supplemental Educational Opportunity Grant program providing for awards
first to be made to the neediest students utilizing the "0" expected family
contribution index provided for in the applicable Regulations, in each of the
cases provided for in this subclause (b), and regardless of the year or period,
prior to the date hereof, to which such errors are attributable. Collectively
the compliance deficiencies described in this subclause (b) are called
"Administration Error Refunds") The adjustments described in subclauses (a)
and (b) of the previous sentence are called the "Exchange Ratio Adjustments").
Any Exchange Ratio Adjustments shall take place as upon final payment to the
DOE with respect to the relevant Program Compliance Deficiencies or
Administration Error Refunds (a "Final DOE Payment").
2. In the case of each Exchange Ratio Adjustment, the total
number of shares of Common Stock of EMI into which the outstanding Shares of
Common Stock of Management are converted (the "Conversion Stock") shall be
reduced by 1.02857 shares of EMI Common Stock for each dollar of such Exchange
Ratio Adjustment(s), provided however, that no Exchange Ratio Adjustment shall
be made if, and to the extent, previously reflected in a prior adjustment. To
facilitate such adjustment, each of the shareholders of Management shall place
in escrow (the "DOE Compliance Adjustment Escrow") with counsel for Management
(the "Escrow Agent") 12.48% of the shares of Conversion Stock acquired by such
shareholder pursuant to the terms of this Agreement until 10 business days
following, but not including, the date upon which Management's liability has
been established with respect to each of (a) the DOE Adjustments and (b) the
Administration Error Refunds (the "Escrow Termination Date"). For purposes of
this Agreement, liability shall be conclusively established upon the earlier of
the relevant final DOE Payment with respect to applicable instances of Program
Compliance Deficiencies or Administration Error Refunds or final settlement
indicating no liability is due to the DOE with respect thereto which final
settlement will be conclusively evidenced by the DOE's final acceptance of the
audit of the Title IV Financial Aid Programs for the applicable period
submitted by Management or its successor. Upon such termination, the number of
remaining Conversion Shares shall be distributed to the relevant Management
shareholders. In addition, beginning September 30, 1997 there shall be
released from the DOE Adjustment Escrow each calendar quarter that number of
shares of EMI common stock which have a value as (computed on the basis of the
value of the EMI stock used in computing the Exchange Ratio) which exceeds 150%
of the amount Exchange Ratio Adjustments which have been asserted by the DOE or
which EMI, after consultation with the Management shareholders entitled to
receive such shares, shall in good faith determine are reasonably likely to be
asserted by the DOE.
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3. If and when any Exchange Ratio Adjustment is to be made
pursuant to this Agreement, or any Conversion Shares are to be released from
the DOE Compliance Adjustment Escrow, EMI or one or more Shareholders shall
promptly give each of the other parties to this Agreement and the Escrow Agent
notice thereof, along with a detailed calculation of the Exchange Ratio
Adjustment or number of Conversion Shares to be released (the "Adjustment
Notice"). If, prior to 5:00 p.m. in Phoenix, Arizona, five business days
following such delivery of the Adjustment Notice no other party has delivered
notice to the Escrow Agent and each of the other parties of its objection (a
"Adjustment Objection") the Escrow Agent shall immediately deliver to EMI or
the Shareholders, as the case may be, an appropriate number of the Conversion
Shares and any dividends paid or accrued with respect thereto in accordance
with the terms of the Adjustment Notice. If any of the parties deliver an
Adjustment Objection, the Escrow Agreement shall continue to hold such
Conversion Shares in accordance with the terms of the Escrow Agreement. Upon
the Escrow Termination Date the Escrow Agent shall deliver all Conversion
Shares held by it, as to which no claim has been asserted pursuant to this
section, to the appropriate Shareholder in accordance with the terms of this
Agreement.
4. In order to induce the Escrow Agent to act under this
Agreement, the parties hereto 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 (3), above) without being required to determine the
authenticity or the correctness of any fact stated therein, the
propriety of validity of the service thereof, or the jurisdiction of
the court issuing such judgment or order.
(ii) The Escrow Agent may act in reliance upon any
document, instrument or signature believed by it to be genuine, and
the Escrow Agent may assume that any person purporting to give any
notice or instructions in accordance with the provisions hereof has
been duly authorized to do so.
(iii) The Escrow Agent may act relative hereto in
reliance upon advice of counsel in reference to any matter(s)
connection herewith, and shall not be liable for any mistake of fact
or error of judgment, or for any acts or omissions of any kind, unless
caused by the Escrow Agent's willful misconduct or gross negligence.
The Escrow Agent shall be entitled to consult with its counsel, which
shall include any attorney employed by it, and the Escrow Agent
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shall not be liable for any action taken, suffered or omitted by it in
accordance with the advice (whether written or oral) of such counsel.
(iv) This Agreement sets forth exclusively the
Escrow Agent's duties with respect to any and all matters pertinent
hereto. The Escrow Agent shall not refer to, and shall not be bound
by, the provisions of any other agreement.
(v) The Escrow Agent may at any time resign
hereunder by giving written notice of its resignation to all parties
hereto at least thirty (30) days prior to the date specified for such
resignation to take effect, and upon the effective date of such
resignation, all cash, documents and all other property then held by
the Escrow Agent hereunder shall be delivered by it to such persons as
may be designated in writing by all parties hereto, whereupon all its
prospective obligations as Escrow Agent hereunder shall cease and
terminate. The Escrow Agent's sole responsibility thereafter shall be
to keep safely all property then held by it and to deliver same to a
person designated by all parties hereto or in accordance with the
directions of a final order or judgment of a court of competent
jurisdiction. In addition, the Escrow Agent shall be discharged of
its prospective duties and obligations hereunder upon its
interpleading in a court of competent jurisdiction all of the funds
and property then held by it hereunder. All parties hereto hereby
submit to the personal jurisdiction of said court (but solely for the
purpose of implementing this Agreement) and waive all rights to
contest said jurisdiction. However, the Escrow Agent's resignation
and/or interpleading of the Property shall not in any manner affect or
impair any of its obligations under this Agreement.
(vi) The parties hereto shall be jointly and
severally obligated to reimburse the Escrow Agent for all its fees,
costs and expenses in connection herewith, including reasonable
counsel fees, and to indemnify it and hold it harmless against any
claim asserted against it or any liability, loss or damage incurred by
it in connection herewith.
(vii) Nothing herein contained shall be deemed to
obligate the Escrow Agent to deliver any securities, cash,
instruments, documents or any other property referred to herein,
unless the same shall have first been received by the Escrow Agent
pursuant to this Agreement.
(viii) EMI and Acquisition acknowledge that the
Escrow Agent is general counsel of the Shareholders and Management,
and agree that no action taken by the Escrow Agent under this
Agreement shall affect or impair the right of the Escrow Agent to
represent the Shareholders and Management in any matter, including an
interpleader action pursuant to this Agreement.
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5. Miscellaneous. This Agreement shall be binding on and inure to the
benefit of the respective parties hereto and their successors and assigns.
This Agreement may be executed simultaneously in counterparts, each of which
shall be deemed an original, but both of which together shall constitute one
and the same instrument. This Agreement represents the entire understanding of
the parties hereto, and supersedes any and all other prior agreements between
the parties. The terms and provisions of this Agreement cannot be terminated
or modified or amended except in writing and signed by the party against whom
enforcement is sought. This Agreement shall be construed in accordance with
the laws of the state of Arizona, and any suit, action or proceeding arising
out of or relating to this Agreement may be commenced and maintained in any
court of competent subject-matter jurisdiction in the county of Maricopa, state
of Arizona, and each party waives objection to such jurisdiction and venue.
The provisions of this Agreement are severable, and any invalidity,
unenforceability or illegality in any provision or provisions hereof shall not
affect the remaining provisions of this Agreement. In any suit, action or
proceeding arising out of or in connection with this Agreement, the prevailing
party shall be entitled to an award of the amount of attorneys' fees and
disbursements actually billed to such party in connection herewith, including
fees and disbursements on one or more appeals.
6. All notices required or allowed hereunder shall be in writing
and shall be deemed given upon (i) hand delivery or (ii) deposit of same in the
United States Certified Mail, Return Receipt Requested, first class postage and
registration fees prepaid and correctly addressed to the party for whom
intended at their address written in the first paragraph hereof, or such other
address as is most recently noticed for such party as aforesaid.
SIGNATURES CONTAINED ON FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties have caused this Escrow to be duly
executed and delivered, as of the date first above written.
EDUCATIONAL MEDICAL, INC.
By: /S/ GARY D. KERBER
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Authorized Signatory
NEBRASKA ACQUISITION CORP.
By: /S/ GARY D. KERBER
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Authorized Signatory
/S/ RICHARD O. WIKERT
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RICHARD O. WIKERT
THE LILA RHUDE TRUST
By: /S/ LILA J. RHUDE
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Authorized Signatory
THE SCOTT L. RHUDE TRUST
By: /S/ SCOTT L. RHUDE
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Authorized Signatory
THE A. LAUREN RHUDE TRUST
By: /S/ A. LAUREN RHUDE
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Authorized Signatory
/S/ ROBER B. BOJENS
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ROGER B. BOJENS
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ACCEPTANCE OF ESCROW AGENT
Sacks Tierney P.A. acknowledges receipt of the foregoing Agreement and
agrees to act as Escrow Agent under its terms.
SACKS TIERNEY P.A.
By: /S/ MICHAEL R. ROONEY, ESQ.
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Authorized Signatory
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