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As filed with the Securities and Exchange Commission on May 12, 1998
Registration No: 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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EDUCATIONAL MEDICAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0038445
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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)
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MR. 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)
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Copies of Communications to:
MORRIS C. BROWN, ESQ.
GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL, P.A.
777 SOUTH FLAGLER DRIVE, SUITE 300-EAST TOWER
WEST PALM BEACH, FLORIDA 33401
(561) 650-7928
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement become effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
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, other than securities offered on in connection with
dividend or reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
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, please check the following box: [ ]
<TABLE>
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO PROPOSED PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION FEE
REGISTERED PRICE(1) PRICE (1)
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<S> <C> <C> <C> <C>
$.01 Common Stock, par value 202,532 $11.04 $2,235,953.28 $659.61
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</TABLE>
(1) Offering price is calculated based pursuant to Rule 457(c), based on
the average of the high ($11.1875) and low ($10.875) prices for the
registrant's Common Stock on May 11, 1998, as reported by Nasdaq.
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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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 MAY , 1998
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PRELIMINARY PROSPECTUS
202,532 SHARES
[LOGO]
EDUCATIONAL MEDICAL, INC.
COMMON STOCK
This Prospectus relates to the possible future resale (the "Offering"),
from time to time, by the holders thereof, of up to 202,532 shares (the
"Shares") of common stock, $.01 par value per share (the "Common Stock") of
Educational Medical, Inc. (the "Company"). See "Selling Stockholders." The
Company granted registration rights to the Selling Stockholders with regard to
the resale of the Shares. Pursuant to the terms of these registration rights,
the Company is obligated to pay all fees and expenses incurred by it incident to
this Offering. It is estimated that such fees and expenses will be approximately
$26,000. The Company will not receive any proceeds from the sale of the Shares.
The Common Stock of the Company is traded over-the-counter and quoted
on Nasdaq National Market ("Nasdaq") under the symbol "EDMD." The last reported
sale price of the Common Stock on Nasdaq on May 11, 1998 was $10.875 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE COMMON STOCK.
----------------------
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.
The Selling Stockholders may offer the shares offered hereby from time
to time to purchasers directly or through agents, brokers or dealers, The Shares
may be sold at market prices prevailing at the time of sale or at negotiated
prices. The agents, brokers or dealers through whom sales are made may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any amount received by them in exchange for
their services in connection with such sales may be deemed to be underwriting
commissions. See "Plan of Distribution."
THE DATE OF THIS PROSPECTUS IS MAY , 1998.
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REPORTS TO SECURITY HOLDERS
The Company furnishes its stockholders annual reports containing
audited consolidated financial statements. In addition, the Company is required
to file periodic reports on Forms 8-K, 10-Q and 10-K with the Commission and to
make such reports available to its stockholders.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), of which this Prospectus is a part,
with respect to the Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement for further information with respect to the Company
and the Common Stock offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents and when any
such document is an exhibit to the Registration Statement, each such statement
is qualified in its entirety by reference to the copy of such document filed
with the Commission. Copies of the Registration Statement may be obtained upon
payment of the prescribed fees or examined without charge at the public
referenced facilities of the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, NW, Room 1024, Washington, D.C.
20549, and at the following Regional Offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies can also be
obtained at prescribed rates from the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. In addition,
such materials filed electronically by the Company with the Commission are
available at the Commission's World Wide Web Site at http://www.sec.gov.
The Common Stock is listed on the Nasdaq National Market. Reports,
proxy statements and other information concerning the Company can be inspected
at the offices of The Nasdaq Stock Market, Inc., 1735 K Street, NW, Washington,
D.C. 20006-1506.
REFERENCE DATA
Industry, market and market share information contained herein is based
on information appearing in publicly available reports. The Company has not
independently verified such information.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this prospectus by reference:
(1) Annual Report on Form 10-K for the fiscal year ended March 31,
1997 filed with the Commission on June 30, 1997;
(2) Annual Report on Form 10-K/A for the fiscal year ended March
31, 1997 filed with the Commission on February 3, 1998.
(3) Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed with the Commission on August 14, 1997;
(4) Quarterly Report on Form 10-Q for the quarter ended September
30, 1997, filed with the Commission on November 6, 1997;
(5) Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1997, filed with the Commission on November 10,
1997.
(6) Quarterly Report on Form 10-Q for the quarter ended December
31, 1997, filed with the Commission on February 17, 1998;
(7) Proxy Statement on Schedule 14A filed with the Commission on
July 30, 1997;
(8) Current Report on Form 8-K regarding the Company's Annual
Meeting of Shareholders and Election of Directors, filed with
the Commission on September 26, 1997;
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(9) Current Report on Form 8-K regarding the Company's acquisition
of two postsecondary schools in the Philadelphia, PA area,
filed with the Commission on February 25, 1998;
(10) Current Report on Form 8-K regarding restatement of earnings
per share data in compliance with FASB 128 and SAB 98, filed
with the Commission on February 27, 1998;
(11) Current Report on Form 8-K regarding the Company's acquisition
of four postsecondary schools in the state of New Hampshire,
filed with the Commission on March 27, 1998;
(12) Current Report on Form 8-K/A providing the financial
statements and pro forma financial information concerning the
Company's acquisition of two postsecondary schools in the
Philadelphia, PA area, filed with the Commission on April 30,
1998;
(13) Registration Statement on Form S-1 (Registration No.
333-33025) filed by the Company, effective September 24, 1997,
for the description of the Company's securities contained
therein, including any amendments or reports filed for the
purpose of updating such description;
(14) Registration statement on Form S-3 (Registration No:
333-47775) filed by the Company, effective April 3, 1998, for
the description of the Company's securities contained therein,
including any amendments or reports filed for the purpose of
updating such description;
(15) Registration Statement on Form S-1 (Registration No.50221)
filed by the Company on April 16, 1998, not yet declared
effective, for the description of the Company's securities
contained therein, including any amendments or reports filed
for the purpose of updating such description, and
(16) Registration Statement on Form 8-A filed by the Company on
August 18, 1997.
Each document filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of this Offering shall be deemed to be incorporated in this
Prospectus by reference and to be a part hereof from the date of the filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any document incorporated by reference in this Prospectus
(other than exhibits unless such exhibits are specifically incorporated by
reference in such documents). Requests should be directed to Shareholder
Relations, Educational Medical, Inc., 1327 Northmeadow Parkway, Suite 132,
Roswell, Georgia 30076, telephone: 770-475-9930.
FORWARD-LOOKING INFORMATION
This Prospectus contains certain forward-looking statements that
involve substantial risks and uncertainties. When used in this Prospectus, the
words "anticipate," "believe," "estimate," "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. Actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors that could cause or contribute to such
differences include general economic and business conditions, the Company's
ability to identify, acquire and integrate additional schools, its ability to
open additional schools, its continued compliance with Title IV funding
requirements and other matters discussed in "Risk Factors."
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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 or
incorporated into it by reference (see "Incorporation of Certain Information by
Reference"). Prospective investors should consider carefully the information set
forth under the heading "Risk Factors." Unless otherwise indicated, the
information contained in this Prospectus excludes the two schools in
Pennsylvania which the Company acquired on February 14, 1998 (the "CHI Institute
Acquisition") and the four schools in New Hampshire which the Company acquired
on March 13, 1998 (the "Hesser Acquisition"). Collectively, the CHI Institute
Acquisition and the Hesser Acquisition are called the "Fiscal 1998
Acquisitions."
THE COMPANY
As of December 31, 1997, the Company provided diversified career
oriented postsecondary education to approximately 6,000 students in 18 schools
located in nine states. Those schools offer associate degree and/or diploma
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
16 schools), business (offered in seven schools), fashion and design (offered in
three schools), and image technology (offered in one school). The Company's
curricula include programs leading to employment in nine of the 15 fastest
growing occupations (measured by percentage growth from 1994 through 2005) as
projected by the U.S. Department of Labor. At December 31, 1997, approximately
64% of the Company's students were enrolled in programs in the healthcare field.
As of the same date, approximately 40% 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.
At March 31, 1998, the Company had over 9,000 students in 24 schools
located in 10 states after giving effect to the Fiscal 1998 Acquisitions. The
two schools acquired in the CHI Institute Acquisition (the "CHI Institute
Schools") offer associate degree and diploma programs. The four schools acquired
in the Hesser Acquisition (the "Hesser Schools") offer primarily bachelor degree
and associate degree programs. The acquired schools offer programs in healthcare
and business as well as other fields, such as early childhood education,
criminal justice and information technology.
In 1996, there were 6.4 million adults participating in postsecondary
education programs, 44% of whom were over the age of 24. The Company believes
the demand for postsecondary career oriented education will increase over the
next several years as a result of recognized trends, including (i) a projected
24% growth in the number of new high school graduates from approximately 2.5
million in 1994 to approximately 3.1 million in 2004, (ii) the increasing
enrollment of high school graduates attending postsecondary educational
institutions (65% in 1996 versus 53% in 1983) as they seek to enhance their
skills or retrain for new technologies, and (iii) the increasing recognition of
the income premium attributable to higher education degrees, with individuals
holding associate degrees earning on average approximately 30% more income
during their lifetimes than individuals holding only high school diplomas.
According to the United States Department of Education ("Department of
Education"), there were 1,995 accredited, proprietary postsecondary institutions
participating in Title IV programs ("Title IV Programs") administered by the
Department of Education of the Higher Education Act of 1965, as amended ("HEA")
as of March 16, 1998. The ownership of these institutions is highly fragmented.
Although the industry appears to be moving into a consolidation phase,
management believes that no organization either holds a significant national
market share or owns or operates more than 75 schools.
COMPANY STRATEGY
The Company's goal is to increase its market share in the expanding
market for postsecondary education and improve profitability by (i) promoting
internal growth at the Company's new and existing schools, (ii) acquiring
additional schools, (iii) opening new schools as new locations or branches of
existing schools, and (iv) enhancing operating efficiencies. The Company has
implemented the following strategies to achieve these goals:
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Internal Growth Strategy
The Company intends to increase student enrollment at its schools by
continuing to enhance local marketing efforts and increasing the number and
variety of program offerings at its schools. 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 including a centrally developed
information technology diploma and degree program, (ii) replicating existing
programs at selected schools where such programs were not previously offered,
and (iii) introducing associate degree programs at all of its schools currently
offering only diploma programs.
Acquisition Strategy
The Company intends to continue to make selective acquisitions of
additional schools and integrate them into its existing 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 cash on hand, its bank credit facility, and
seller financing in connection with such acquisitions. In general, the Company's
principal acquisition criteria are: historical profitability; acceptable default
rates with respect to federally guaranteed or funded student loans; established
and marketable curricula; and demographic profiles in the area which indicate a
potential for growth. The Company concentrates 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.
Additional Location Strategy
The Company intends to capitalize on its schools' existing
infrastructure and curricula by opening additional locations by branching from
existing schools in areas that exhibit strong enrollment potential and job
placement opportunities. The Company's principal criteria for determining
whether to open new schools are the demographic profile of the location and the
economic and management cost of opening the new location.
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 schools' 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. The Company believes the
combination of certain centralized services and decentralized management
significantly increases its operating efficiency.
FISCAL 1998 ACQUISITIONS
During fiscal 1998, the Company acquired a total of six schools
operating in Pennsylvania and New Hampshire. The Company has not included pro
forma consolidated financial information with respect to the operations of the
four schools acquired in New Hampshire. Based on the information provided to it
in the course of negotiations and related due diligence, analysis of historical
financial information, and its assessment of the schools' financial prospects,
the Company believes the operations of the schools will be accretive on an
earnings per share basis in fiscal 1999.
The CHI Institute Acquisition
On February 14, 1998, the Company acquired the CHI Institute Schools,
which are located in the Philadelphia, Pennsylvania area, by purchasing all of
the stock of Computer Hardware Service Company, Inc. The purchase price of the
CHI Institute Acquisition was $11,750,000, consisting of $1,500,000 in cash,
promissory notes aggregating $8,750,000 and 151,900 shares of the Company's
Common Stock. The Company intends to account for the CHI Institute Acquisition
as a purchase. Therefore, the results of its operations will be included in the
Company's consolidated results of operations effective February 1, 1998.
The CHI Institute Schools are located in Broomall and Southampton,
Pennsylvania. As of the date of the CHI Institute Acquisition, approximately 995
students attended the CHI Institute Schools, which offer associate degree and
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diploma programs in business, healthcare and information technology. For the
years ended September 30, 1996 and 1997, the CHI Institute Schools had net
revenues of $6,700,000 and $7,400,000, respectively.
The Hesser Acquisition
On March 13, 1998, the Company acquired the Hesser Schools, which are
located in New Hampshire, by purchasing all of the stock of Hesser, Inc. and the
property in Manchester, New Hampshire at which its main campus is located. The
purchase price of the Hesser Acquisition was $15,000,000 consisting of
$2,000,000 in cash, promissory notes aggregating $11,000,000 and 202,532 shares
of the Company's Common Stock. The Company intends to account for the Hesser
Acquisition as a purchase. Therefore, the results of its operations will be
included in the Company's consolidated results of operations effective March 1,
1998.
The Hesser Schools are located in Manchester, Nashua, Portsmouth and
Salem, New Hampshire. As of the date of the Hesser Acquisition, approximately
2,249 students attended the Hesser Schools, which primarily offer bachelor
degree and associate degree programs in business, healthcare, information
technology, criminal justice, early childhood education, and other careers. For
the years ended December 31, 1996 and 1997, the Hesser Schools had net revenues
of $15,300,000 and $16,200,000, respectively.
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 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 image technology. In fiscal 1997, the Company acquired
two schools (the "Nebraska Schools") in Nebraska (the "Nebraska Acquisition"),
three schools in Texas (the "Texas Acquisition") and one school in Maryland (the
"Maryland Acquisition") (collectively, the Nebraska Acquisition, the Maryland
Acquisition and the Texas Acquisition are called the "Fiscal 1997
Acquisitions"). The Fiscal 1997 Acquisitions included schools offering programs
in the fields of healthcare and business. The Nebraska Acquisition was accounted
for as pooling of interests. As a result of its fiscal 1993, 1994 and 1997
acquisitions (3,094 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
3,153 from 2,840 at March 31, 1993 to 5,993 at March 31, 1997. At December 31,
1997, which is traditionally a seasonally lower student enrollment period, there
were 5,978 students attending the Company's schools compared to 5,658 students
at December 31, 1996. The Company's net revenues increased 97% from $25,100,000
for the year ended March 31, 1993 to $49,400,000 for the year ended March 31,
1997. For the nine months ended December 31, 1997, the Company's net revenues
were $41,500,000, compared to $35,800,000 for the nine months ended December 31,
1996.
The Company is a Delaware corporation incorporated in 1988. The Company
operates the majority of its business through 14 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.
RISK FACTORS
The following factors, among others, could cause actual results to
differ materially from those contained in forward-looking statements made in
this Prospectus and presented elsewhere by management from time-to-time.
DEPENDENCE ON TITLE IV FUNDING; REGULATORY COMPLIANCE AS A CONDITION FOR
CONTINUED ELIGIBILITY FOR TITLE IV FUNDING
The Company derives a substantial majority of its revenues from federal
financial aid received by the students at its schools under Title IV programs
administered by the United States Department of Education under the HEA. Each of
the Company's schools participates in Title IV Programs either as an individual
institution or as an additional location of another school which is the main
campus of the institution. In order to participate in Title IV Programs, an
institution 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
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by regulations (the "Regulations") promulgated and enforced by the Department of
Education. 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 institutions and locations is licensed and
approved in the state where it operates and is accredited by at least one
nationally or regionally 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 of control of the schools or the Company. Generally, each institution is
considered separately for purposes of determining compliance with the regulatory
requirements, although certain financial reporting is done on a consolidated
basis.
During fiscal 1997, approximately 76% of the Company's cash receipts
were derived from Title IV Programs. Cash receipts represented approximately 98%
of the Company's net revenues in fiscal 1997. The failure of any of the
Company's institutions 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. The HEA and the
Regulations require, as a condition of Title IV eligibility, that no more than
85 percent of an institution's revenues be derived from the Title IV Programs.
Financial Responsibility Requirements. The HEA and the Regulations
prescribe specific standards of financial responsibility which the Department of
Education must consider with respect to qualification for participation in the
Title IV Programs ("Financial Responsibility Standards"). These standards are
generally applied on an individual institutional 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 institutions fails to satisfy the Financial
Responsibility Standards, it may require that such institutions 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 institutions in the most recent federal award year ranged from
$408,000 to $4,000,000, and one-half of the total Title IV funds received by all
the Company's institutions in the most recent award year was $20,022,000.
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 (the "Acid Test
Ratio"), (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 percent of tangible net worth at
the beginning of the two year period (the "Net Operating Results Test"). Except
for the Company's school located in Roanoke, Virginia (the "Roanoke School")
which did not meet the Net Operating Results Test for fiscal 1997 on an
individual basis, the Company, on a consolidated basis, and each of the
Company's other institutions on an individual basis, were in compliance with all
of the Financial Responsibility Standards for fiscal 1997.
The Roanoke School accounted for 2.4% of the Company's net revenue in
fiscal 1997. Its failure to comply with the Net Operating Results Test may
result in the Department of Education requiring the posting of a Financial
Responsibility Bond, although no such bond was required as a result of
non-compliance in fiscal 1996, or otherwise requesting a Demonstration of
Financial Responsibility. Based on fiscal 1997 Title IV funding for the Roanoke
School, the maximum amount of such bond would be $518,000, which would be funded
from the Company's bank facility.
Although the Company had a positive tangible net worth of $16,700,000
as of March 31, 1997, primarily because of the receipt of the net proceeds of
its initial public offering of its Common Stock (the "IPO"), the Company had a
negative tangible net worth on a consolidated basis for each of the Company's
three fiscal years ending March 31, 1996, 1995 and 1994, primarily because a
large portion of the Company's assets consists of goodwill and other
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intangibles related to school acquisitions. None of the Company's schools had a
negative tangible net worth on an individual school basis as of March 31, 1997.
The Company has filed audited consolidated financial statements with the
Department of Education for each of the last three fiscal years ended March 31,
1997, 1996 and 1995, along with unaudited consolidating statements. There also
can be no assurance that the Company's acquisition program will not again result
in the Company having a negative tangible net worth and no assurance can be
given that the Department of Education may not make a request for the Company to
post a Financial Responsibility Bond in such circumstances or otherwise make a
request for a Demonstration of Financial Responsibility based on its
consolidated negative tangible net worth. If such a request were to be made,
there is no assurance that the Company (i) would be successful in persuading the
Department of Education or a court that such a request is contrary to law, (ii)
could secure the funds to post the Financial Responsibility Bond which the
Department of Education may request, or (iii) that the Company would be
successful in negotiating a more favorable Demonstration of Financial
Responsibility. If the Company were unable to post a Financial Responsibility
Bond or make a satisfactory Demonstration of Financial Responsibility, it could
become ineligible to receive Title IV funding in some or all of its schools.
Ineligibility for Title IV funding would have an immediate material adverse
effect on the Company's operations.
In November 1997, the Department of Education published new regulations
regarding financial responsibility which are effective on July 1, 1998. The new
regulations will apply to the Company's fiscal years commencing April 1, 1999
and thereafter. The regulations provide a transition year alternative which will
permit the Company to have its institutions' financial responsibility for the
fiscal year ended March 31, 1999 measured on the basis of either the new
regulations or the current regulations, whichever are more favorable. The new
standards replace the Acid Test Ratio, the Tangible Net Worth Standard and the
Net Operating Results Test with three different ratios: an Equity Ratio, a
Primary Reserve Ratio and a Net Income Ratio. The Equity Ratio measures the
institution's capital resources, ability to borrow and financial viability. The
Primary Reserve Ratio measures the institution's ability to support current
operations from expendable resources. The Net Income Ratio measures the ability
to operate at a profit. The results of each ratio are assigned a strength factor
on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting
financial weakness and 3.0 reflecting financial strength. An institution's
strength factors are then weighted based on an assigned weighting percentage for
each ratio. The weighted scores for the three ratios are then added together to
produce a composite score for the institution. The composite score must be at
least 1.5 for the institution to be deemed financially responsible by the
Department of Education without the need for further financial monitoring. If
the institution's composite score is less than 1.5, but equal to or greater than
1.0, the institution may continue in the Title IV Program for a maximum period
of three (3) years, subject to more rigorous financial aid disbursement and
financial monitoring requirements of the Department of Education. The Company
has calculated that the application of these new standards to the Company's
financial statements for the year ended March 31, 1997 results in a composite
score of 3.0 on a consolidated basis, with each individual institution in the
consolidating statements having a composite score greater than 1.5.
Student Loan Defaults. The HEA provides that an institution may lose
its eligibility to participate in substantially all Title IV Programs if student
defaults on the repayment of federally guaranteed student loans or direct loans
are 25% or greater for the three most recent federal fiscal years for which data
is available ("Cohort Default Rates"). Cohort Default Rates are calculated by
the Department of Education for each institution for each federal fiscal year by
determining the rate at which the institution's students entering repayment in
that federal fiscal year default on repayment of their loan by the end of the
following federal fiscal year. Cohort default rates are subject to revision by
the Department of Education if new data becomes available and are subject to
appeal by schools contesting the accuracy of the data or the adequacy of the
servicing of the loans by the loan servicer. An institution 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 Student Loan Programs,
subject to a limited appeal of the determination, which appeal only can be based
on the Department of Education's having relied on erroneous data in calculating
the Cohort Default Rate, the inadequacy of the servicing of the loans by the
lender or loan servicer, or the existence of certain exceptional mitigating
circumstances. The loss of eligibility lasts for the duration of the federal
fiscal year in which the determination of ineligibility is made, plus the two
succeeding federal fiscal years. However, an institution remains eligible for
Title IV funding while an appeal of such determination is pending. The loss of
Title IV Programs eligibility at one or more of the Company's schools could have
a material adverse effect on the Company's operations.
None of the Company's schools had a Cohort Default Rate of 25% or more
for each of the three consecutive federal fiscal years ending September 30,
1993, 1994 or 1995, which are the most recent fiscal years for which data are
available. Accordingly, the Company believes that none of the schools is
currently vulnerable to termination from Title
8
<PAGE> 10
IV eligibility based on three consecutive years of excess default rates. Only
the Company's schools located in Omaha, Nebraska and Roanoke, Virginia had a
Cohort Default Rate of 25% or greater for federal fiscal 1995. The Omaha,
Nebraska school and the Roanoke, Virginia school had a Cohort Default Rate of
17.3% and 23.5%, respectively in federal fiscal 1994, and therefore, are not
vulnerable to termination of Title IV Student Loan Program eligibility unless
their rates for each of the next two federal fiscal years are 25% or greater.
The Company has appealed the Roanoke, Virginia default rate and received a
preliminary notice from the Department of Education that the rate will be
adjusted to below 25%. The Company's other schools must have Cohort Default
Rates of 25% or greater for consecutive three year periods beginning with
federal fiscal 1996 and thereafter in order to become vulnerable to termination
of Title IV Program eligibility.
An institution whose Cohort Default Rate exceeds 40% for any single
federal fiscal year may have its eligibility to participate in all Title IV
Programs limited, suspended or terminated. If the Department of Education elects
to take such action due to a single-year Cohort Default Rate in excess of the
regulatory level, it must afford the institution a hearing before an independent
Department of Education hearing officer and an opportunity to appeal any
decision to the Secretary of Education before the limitation, suspension, or
termination may take effect. Except for its school located in Albany, Georgia,
which was closed in fiscal 1995, none of the Company's schools has, or has had,
a Cohort Default Rate in excess of 40%.
Regulatory Compliance. The HEA and the Regulations impose numerous
general and program specific requirements with which institutions participating
in the Title IV Programs must comply, including but not limited to requirements
in the areas of institutional eligibility to participate in Title IV; student
eligibility to receive Title IV; administrative capability; financial
responsibility; and the packaging, disbursement, and management of Title IV
funds. The Department of Education monitors institutional compliance with the
Regulations through annual financial statements and audits of institutional
compliance with Title IV requirements, both of which must be prepared by an
independent auditor and timely submitted to the Department of Education. The
Department of Education also periodically monitors compliance through on-site
program reviews and through on-site audits conducted by the Office of Inspector
General, U.S. Department of Education.
An institution's failure to comply with any of the Title IV
requirements in the HEA and the Regulations could result in adverse action by
the Department of Education against the institution, including the limitation,
suspension or termination of an institution's Title IV eligibility; the
imposition of fines; and/or the imposition of liabilities by the Department of
Education upon the institution. The HEA and the Regulations provide the
institution with the right to appeal any such action to an administrative
hearing official and to the Secretary of the Department of Education. The
Department of Education could also transfer the institution from the advance
system of payment to the reimbursement method of payment whereby institutions
must demonstrate to the Department that each student to receive Title IV funds
meets all applicable Title IV requirements and that the amount to be received is
correctly calculated as a precondition to the Department paying an institution
for the disbursement of Title IV funds to its students.
CHANGE IN OWNERSHIP RESULTING IN CHANGE OF CONTROL
Upon a change in ownership resulting in a change of 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.
The Department of Education's regulations provide that for a publicly
traded company, a change in ownership resulting in a change of control occurs
when a report on Form 8-K is required to be filed with the Securities and
Exchange Commission disclosing a change of control. The Company will not be
required to file such a report in connection with the sales provided for in this
Offering.
Most states and accrediting agencies require notification and approval
of a change in ownership resulting in a change of control, but they do not
provide a uniform definition of change of control. The Company does not believe
that this Offering will constitute a change in ownership resulting in a change
of control for purposes of such state and accrediting agencies. Although the
Offering may require notice and approval by some state agencies, the Company
does not expect interruption of Title IV funding to result from the necessity of
any such approvals.
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<PAGE> 11
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 affected. The possible loss of Title IV eligibility
resulting from a change of control may also discourage or impede a tender offer,
proxy contest or other similar transaction involving control of the Company.
PARTICIPATION IN FEDERAL DIRECT LENDING PROGRAM; RISK OF LEGISLATIVE ACTION
Prior to fiscal 1995, the Company derived all of its Title IV loan
funding from the Federal Family Educational Loan ("FFEL") loan program. Since
fiscal 1995, the Company's schools elected to administer their Title IV loan
funding pursuant to the Federal Direct Student Loan Program ("FDSLP") and were
approved for such participation by the Department of Education. The Company
expects to derive all of its Title IV loan funding pursuant to the FDSLP program
in fiscal 1998. Funding for the FDSLP, as well as for the FFEL program, must be
appropriated by Congress annually. FDSLP and FFEL loans represent a substantial
majority of the Company's revenues. There can be no assurance that funding will
continue at current levels, or that the FDSLP program itself will be continued.
If the FDSLP program were discontinued, or funding reduced so as to reduce the
amount of direct lending funds available to the Company's schools, the Company
would have to rely on loans provided pursuant to FFEL. Loans pursuant to FFEL
are administered through outside lenders, such as banking institutions and are
federally guaranteed. Although the Company believes that it would have no
difficulty finding lenders for federally guaranteed student loans to its
students under FFEL, there can be no assurance that such loans would be
available in amounts sufficient to provide for the Company's schools to operate
at current and anticipated levels, or at all.
Furthermore, there can be no assurance that federal funding for the
FFEL Program will be continued at current levels, or at all. Because the Company
derives a substantial majority of its cash receipts from Title IV funding,
discontinuance or significant reductions in the FDSLP and, if the FDSLP program
is discontinued or reduced, the FFEL program, would have a material adverse
effect on the Company's operations.
RELIANCE ON ACQUISITIONS
The Company has acquired all of its schools. Several of the schools
acquired by the Company have experienced losses following their acquisition
either in connection with their integration into the Company's operations or
because of their failure to perform as anticipated by the Company. The Company
expects that a significant part of its future growth will be based on its
ability to identify, acquire and profitably operate and integrate additional
schools. While the Company is continually searching for acquisition
opportunities, there can be no assurance that the Company will be successful in
identifying, acquiring, integrating and operating additional schools. When the
Company acquires an existing school and accounts for the acquisition as a
"purchase" rather than a "pooling of interests," 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. Such goodwill and intangibles are generally
amortized over periods ranging from 15 to 40 years, which reduces the Company's
reported earnings. If any potential acquisition opportunities are identified,
there can be no assurance that the Company will be able to consummate the
acquisition on terms favorable to the Company and successfully integrate any
such acquisition into its existing operations and there can be no assurance as
to the timing or effect on the business of the Company of any such acquisitions.
The Company's acquisition of a school constitutes a change in ownership
resulting in a change of control with respect to such school for purposes of
Title IV eligibility. Pursuant to the Regulations, a school that is acquired
loses its eligibility to participate in Title IV Programs and must apply to the
Department of Education for recertification of eligibility under the new
ownership. The school's eligibility to participate in the Title IV Programs is
temporarily suspended while the Department of Education considers the
application for recertification. The Company's experience has been that the
approval process, including obtaining prerequisite approvals from state
regulatory and appropriate accrediting agencies, typically takes from four to
six months. Since this is less than the minimum enrollment period for each of
the Company's schools, there generally should be no significant interruption of
Title IV funding caused by the need to apply for a recertification of
eligibility as a result of an acquisition. There can be no assurance, however,
that recertification applications will be acted upon on a timely basis by the
Department of Education so as to avoid any significant interruption of Title IV
funding to students at the acquired school. Prior to recertification by the
Department of Education, the Company must also obtain approval of the change of
control from applicable states and accrediting agencies. In the past, this
process has taken from four to seven months for the Company to complete. The
Company has been timely recertified for eligibility by the Department of
Education with respect to each of its acquisitions. Although
10
<PAGE> 12
the Company has had no difficulty in obtaining such recertification and approval
in the past, there can be no assurance that such state, accrediting agency and
Department of Education approvals may not be subject to unexpected delays or
difficulties which may materially and adversely affect the Company's operations.
In acquiring a school, the Company must assume any liabilities of the
institution to the Department of Education resulting from of the institution's
failure to comply with the HEA or the Regulations prior to the date of
acquisition. The Company attempts to minimize the impact of any such liabilities
by including representations as to regulatory compliance and indemnification
provisions in the relevant acquisition agreements. No material amount of
unindemnified Title IV regulatory liabilities have been asserted against the
Company with respect to any of its prior acquisitions, however, no assurance can
be given that any assertions will not be made in the future. In addition, if
available offsets are insufficient, there can be no assurance that the parties
responsible for indemnification of the Company from such liabilities will have
the financial resources necessary to indemnify the Company for all or any
portion of such possible liabilities.
ABILITY TO OPEN ADDITIONAL SCHOOLS
The Company's growth strategy assumes that it can open and profitably
operate new schools as additional locations or branches of existing
institutions. Upon opening an additional location, the Company must notify the
Department of Education and obtain its approval of the additional location
before its students may participate in the Title IV Programs, and must obtain
approvals from the relevant state authorities and accrediting agencies. Some
states limit the distance between the main campus and branch or additional
locations of existing institutions or otherwise restrict branching. Some
accrediting agencies limit the number of new branches or additional locations
that an institution may open in a specified period of time. There can be no
assurance that these restrictions will not impede the Company's ability to
implement its strategy. Furthermore, no assurance can be given that the Company
will be able to identify successfully sites for such schools which meet
demographic requirements.
LACK OF PRO FORMA FINANCIAL STATEMENTS FOR FISCAL 1998 ACQUISITIONS
The Company has not included pro forma consolidated financial
information with respect to the operations of the Hesser Acquisition. Based on
the information provided to it in the course of negotiations and related due
diligence, including historical financial information, and its assessment of the
schools' financial prospects after giving effect to the acquisitions, the
Company believes the operations of the schools will be accretive on an earnings
per share basis in fiscal 1999. However, no assurance can be given that the
operations of all or any of the schools included in the Fiscal 1998 Acquisitions
will meet the Company's expectations.
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.
Traditionally, 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.
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 with 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.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends upon the availability and performance of
its senior management, particularly Gary D. Kerber, the Company's Chairman and
President. Mr. Kerber has entered into an employment contract with the
11
<PAGE> 13
Company, however, it may be terminated by him at any time. Although the Company
maintains key man life insurance on Mr. Kerber in the amount of $1,000,000, the
loss of Mr. Kerber's services could have a material adverse affect on the
Company.
ABSENCE OF DIVIDENDS
The Company has not paid any dividends to date. The Company does not
currently intend to declare or pay dividends on its Common Stock in the
foreseeable future, but plans to retain any earnings for use in its business
operations. In addition, the Bank Credit Facility contains restrictions which
prohibit the Company from paying dividends while such credit line is in effect.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1998, the Company had outstanding 7,729,529 shares of
Common Stock. The Company has reserved an additional (i) 932,002 shares of
Common Stock for issuance pursuant to the Stock Option Plan, (ii) 200,000 shares
of Common Stock for issuance pursuant to the Directors' Plan, 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, pursuant to registration
statements previously filed and declared effective, 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 the outstanding
shares, 3,958,164 are freely transferable without restriction under the
Securities Act by persons other than "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act. The remaining 3,771,365 shares
of Common Stock (the "Restricted Shares") were acquired in a transaction exempt
from registration under the Securities Act and, accordingly, are "restricted
securities" as that term is defined in Rule 144 and may be sold thereafter in
compliance with 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. Of the
shares being offered pursuant to this Offering, 202,532 are Restricted Shares.
On April 15, 1998, the Company filed a registration statement (the "Additional
Offering") with respect to 1,873,999 Restricted Shares to be sold by certain
shareholders and 626,001 shares to be sold by the Company and, if and when such
registration statement is declared effective by the Commission, such restricted
shares will be freely tradable. The Company has agreed not to issue, and certain
current shareholders of the Company holding 2,338,038 shares of Common Stock
have agreed not to sell, any shares of Common Stock or other equity securities
of the Company for 90 days after the date of the Additional Offering without the
prior written consent of Smith Barney Inc., the Underwriter in the Additional
Offering. No prediction can be made as to the effect that resale of shares of
Common Stock, or the availability of shares of Common Stock for resale, will
have on the market price of the Common Stock prevailing from time to time. The
resale of substantial amounts of Common Stock, or the perception that such
resales may occur, could adversely affect prevailing market prices of the Common
Stock and could impair the Company's ability in the future to raise additional
capital through the sale of its equity securities.
ANTI-TAKEOVER PROVISIONS AND TITLE IV CHANGE OF CONTROL REGULATIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws authorize the issuance of "Blank Check" preferred stock and establish
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.
Provisions in the applicable Regulations pursuant to which the Company would
lose its Title IV eligibility in the event of a change in ownership resulting in
a change of control could have a similar discouraging effect.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares.
DIVIDEND POLICY
The Company anticipates that it will not pay dividends on the Common
Stock for the foreseeable future and that it will retain its earnings to finance
future growth. The declaration and payment of dividends by the Company are
subject to the discretion of its Board of Directors and applicable corporation
law. Any determination as to the payment
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<PAGE> 14
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. No dividends have been declared or paid on the Common
Stock since the Company's inception.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders and the beneficial ownership of Common Stock by each of
them before and after the Offering being made hereby. At May 1, 1998, the
Company had 7,739,862 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
SHARES OWNED SHARES TO BE SHARES OWNED
NAME AND ADDRESS OF PRIOR TO THE SOLD IN THE AFTER THE
BENEFICIAL OWNER OFFERING(1) OFFERING OFFERING(2)
- ----------------------------------------------------- ------------------ ------------- -----------------
Number Percent Number Percent
------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
The Linwood W. Galeucia Revocable Trust of 1997(3) 101,266 1.3% 101,266 0 0.00
c/o Linwood W. Galeucia, Trustee
Hesser College
3 Sundial Avenue
Manchester, New Hampshire 03103
Richard D. Galeucia(4) 101,266 1.3% 101,266 0 0.00
c/o Hesser College
3 Sundial Avenue
Manchester, New Hampshire 03103
------- --- ------- - ----
Total of Selling Stockholders 202,532 2.6% 202,532 0 0.00
</TABLE>
(1) The Shares stated in the table were issued to the Selling Stockholders
in connection with the New Hampshire Acquisition in which the Company
acquired four schools located in New Hampshire on March 13, 1998. The
Shares are being offered pursuant to certain registration rights
granted in that transaction. None of the Selling Stockholders had any
material relationship with the Company or any of its affiliates prior
to the transaction.
(2) Assumes all Shares offered hereby are sold.
(3) Subsequent to the Hesser Acquisition, Mr. Linwood W. Galeucia became
employed by the Company as President of its Hesser Division, which is
comprised of the four schools acquired in the Hesser Acquisition.
(4) Subsequent to the Hesser Acquisition, Mr. Richard D. Galeucia became
employed by the Company as the Treasurer of its Hesser Division.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue (i) 15,000,000 shares of Common
Stock, $0.01 par value, of which 7,739,862 are issued and outstanding as of the
date of this Prospectus and (ii) 5,000,000 shares of "blank check" Preferred
Stock, $0.01 par value, of which none are issued and outstanding as of the date
of this Prospectus.
PLAN OF DISTRIBUTION
The distribution of the Shares may be effected from time to time in one
or more transactions (which may include block transactions) on the Nasdaq
National Market or on any national or regional securities exchange in which the
Common Stock is listed or traded, in negotiated transactions, or a combination
of such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker dealers, and such broker dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholders
or purchasers of Shares for whom they may act as agent (which compensation may
be in excess of customary commissions). Such brokers or dealers may be deemed to
be "underwriters" within the meaning of the
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<PAGE> 15
Securities Act in connection with such sales and any commissions received by
them may be deemed to be underwriting compensation.
The Selling Stockholders will pay the commissions and discounts of
underwriters, dealers or agents, if any, incurred in connection with the sale of
the Shares. The Company will pay all expenses incident to the offering and sale
of the Shares by the Selling Stockholders including but not limited to, fees and
expenses of compliance with state securities or "blue sky" laws. No underwriters
are employed with respect to the sale of the Shares, nor will the Company pay
any fees upon their sale.
In accordance with applicable rules and regulations promulgated under
the Exchange Act, any person engaged in the distribution of any of the Shares
may not simultaneously engage in market activities with respect to any of the
Common stock for a period of nine business days prior to the commencement of
such distribution. In addition and without limiting the foregoing, the Selling
Stockholders may be subject applicable provisions of the Exchange Act and the
rules and regulations promulgated thereunder, including, without limitation,
Regulation M, which provisions may limit the timing of purchases and sales of
Shares by the Selling Stockholders.
The Company has agreed to keep the Registration Statement, of which
this Prospectus is a part, effective until all the Shares are sold or can be
sold freely under an appropriate exemption from the securities laws of the
United States and the states, without limitation. In addition, any shares that
qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as
amended, may be sold under Rule 144 rather than pursuant to this Prospectus.
The Company and the Selling Stockholders have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act. The Company will not receive any proceeds from the sale of the Shares.
LEGAL MATTERS
The validity of the issuance of the Common Stock being offering hereby
has been passed upon by the firm of Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A., West Palm Beach, Florida 33401.
EXPERTS
The consolidated financial statements and schedule of Educational
Medical, Inc. (the "Company") at March 31, 1997 and 1996, and for each of the
three years in the period ended March 31, 1997, appearing in the Company's
Annual Report (Form 10-K/A) for the year ended March 31, 1997, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
and incorporated by reference elsewhere herein, which is based in part on the
reports of Winther Stave & Co. LLP, independent auditors. The consolidated
financial statements and schedule are incorporated herein by reference in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.
The combined financial statements of San Antonio College of Medical and
Dental Assistants, Inc. and Career Centers of Texas - El Paso, Inc. as of
December 31, 1996 and 1995 and for the years then ended appearing in the
Company's Annual Report (Form 10-K/A) for the year ended March 31, 1997, have
been audited by Tsakopulos Brown Schott & Anchors, independent auditors, as set
forth in their report thereon and incorporated by reference elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The divisional financial statements of Hagerstown Business College (a
division of O/E Learning, Inc.) as of October 31, 1995 and 1994 and for the
years then ended appearing in the Company's Annual Report (Form 10-K/A) for the
year ended March 31, 1997, have been audited by Plante & Moran, LLP, independent
auditors, as set forth in their report thereon and incorporated by reference
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The divisional financial statements of CHI Institute (a division of
Computer Hardware Service Company, Inc.) as of September 30, 1997 appearing in
the Company's Current Report (Form 8-K/A) for the year ended on September 30,
1997, have been audited by Asher & Company, Ltd., independent auditors, as set
forth in their report thereon and incorporated by reference elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
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<PAGE> 16
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank of North Carolina, N.A., Charlotte, North Carolina 28228-1179.
15
<PAGE> 17
- --------------------------------------------------------------------------------
No underwriter, dealer, salesperson or other person has been authorized to give
any information or to make any representations in connection with the offering
made by this Prospectus and, if given or made, such information or
representations may not be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell, or a solicitation of any
offer to buy, any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any person to whom it
is unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information herein is correct as
of any time subsequent to the date of this Prospectus.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Incorporation of Certain Information
by Reference ......................................2
Available Information.....................................2
Prospectus Summary........................................4
Risk Factors..............................................6
Use of Proceeds..........................................12
Dividend Policy..........................................12
Selling Stockholders.....................................13
Description of Capital Stock.............................13
Plan of Distribution.....................................13
Legal Matters............................................14
Experts..................................................14
Transfer Agent...........................................15
</TABLE>
- --------------------------------------------------------------------------------
EDUCATIONAL MEDICAL, INC.
202,532 SHARES
OF COMMON STOCK
PROSPECTUS
MAY , 1998
---
- --------------------------------------------------------------------------------
16
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities being registered hereby.
The Selling Stockholders will pay the commissions and discounts of underwriters,
dealers or agents, if any, incurred in connection with the sale of the Shares.
The Company will pay all other expenses incident to the offering and sale of the
Shares. All amounts, with the exception of the SEC Registration Fee and the
Nasdaq National Market Fee, are estimated.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee ................... $ 659.61
Nasdaq National Market Fee ............. $ 4,050.64
Accountants' Fees and Expenses ......... 5,000.00
Legal Fees and Expenses ................ 10,000.00
Printing and Filing Expenses ........... 5,000.00
Miscellaneous .......................... 1,289.75
----------
TOTAL .................................. $26,000.00
==========
</TABLE>
ITEM 15. 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.
The Company maintains insurance against liabilities under the
Securities Act of 1933 for the benefit of its officers and directors.
II-1
<PAGE> 19
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS.
<S> <C>
4.1* Form of Common Stock Certificate (incorporated by reference from
Exhibit 4.1 to Amendment No. 3 to Registration Statement on Form S-1
(File No. 333-09777) filed with the Commission on October 22, 1996).
5.1** Opinion of counsel to the Company concerning the legality of the
securities being offered.
23.1** Consent of Ernst & Young LLP
23.2** Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
(contained in Exhibit 5.1 hereto).
23.3** Consent of Winther, Stave & Co., LLP
23.4** Consent of Plante & Moran, LLP
23.5** Consent of Tsakopulos Brown Schott & Anchors
23.6** Consent of Asher & Company, Ltd.
24.1** Power of Attorney (contained on signature page of the Registration
Statement).
27.1** Financial Data Schedule (for SEC use only).
</TABLE>
*The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.
**Filed with this Registration Statement.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement 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.
II-2
<PAGE> 20
(c) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities 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 whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Roswell, State of Georgia, on May 12, 1998.
Educational Medical, Inc. (registrant)
By: /s/ Gary D. Kerber
--------------------------------------------
Gary D. Kerber, Chairman of the Board,
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints GARY D. KERBER his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign 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 attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on May 12, 1998 by the following
persons in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ Gary D. Kerber
---------------------------------- Chairman of the Board, President
Gary D. Kerber and Chief Executive Officer
By: /s/ Vince Pisano
---------------------------------- Vice President Finance and Chief
Vince Pisano Financial Officer
By: /s/ Robert J. Cresci
---------------------------------- Director
Robert J. Cresci
By: /s/ Carl S. Hutman
---------------------------------- Director
Carl S. Hutman
By:
---------------------------------- Director
Richard E. Kroon
By: /s/ W. Patrick Ortale, III
---------------------------------- Director
W. Patrick Ortale, III
</TABLE>
II-4
<PAGE> 1
Exhibit 5.1
GREENBERG TRAURIG LETTERHEAD
May 12, 1998
Educational Medical, Inc.
1327 Northmeadow Parkway, Suite 132
Roswell, Georgia 30076
Ladies and Gentlemen:
We have acted as counsel to Educational Medical, Inc. (the
"Corporation") in connection with the preparation and filing with the Securities
and Exchange Commission of a registration statement on Form S-3, and any
amendments thereto (the "Registration Statement"). The Registration Statement
relates to a proposed public offering pursuant to which up to 202,532 Shares are
being offered by certain stockholders of the Corporation (the "Selling
Stockholder Shares"). Based upon and subject to the foregoing and the other
qualifications, limitations and assumptions contained herein, we are of the
opinion that:
The Selling Stockholder Shares, when sold as contemplated in the
Registration Statement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us in the Prospectus contained
therein under the caption "Legal Matters."
Very Truly yours,
GREENBERG TRAURIG HOFFMAN
LIPOFF ROSEN & QUENTEL, P.A.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 and related Prospectus of Educational
Medical, Inc. for registration of 202,532 shares of its common stock and to the
incorporation by reference therein of our report dated June 30, 1997, except for
the second paragraph of Note 3 as to which the date is August 27, 1997, with
respect to the consolidated financial statements and schedule of Educational
Medical, Inc. included in its Annual Report (Form 10-K/A) for the year ended
March 31, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Atlanta, Georgia
May 12, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm as "Experts" and to the use of
our report dated April 18, 1997 with respect to the audited combined financial
statements of Educational Management, Inc. and Wikert and Rhude, general
partnership, as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996 and our reports dated May 16, 1997 with
respect to the balance sheet of Nebraska College of Business (a division of
Nebraska Acquisition Corp., a wholly-owned subsidiary of Educational Medical,
Inc.) as of March 31, 1997 and the balance sheet of Lincoln School of Commerce
(a division of Nebraska Acquisition Corp., a wholly owned subsidiary of
Educational Medical, Inc.) as of March 31, 1997 in the Registration Statement on
Form S-3 of Educational Medical, Inc. for the registration of 202,532 shares of
its common stock.
/s/ Winther, Stave & Co. LLP
Winther, Stave & Co., LLP
Spencer, Iowa
May 7, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated
December 30, 1996 on the divisional financial statements of Hagerstown Business
College (a division of O/E Learning, Inc.) for the years ended October 31, 1996
and 1995 in the Registration Statement on Form S-3 of Educational Medical, Inc.
for the registration of 202,532 shares of its common stock. We also consent to
the reference to us under the heading "Experts" in the Registration Statement.
/s/ Plante & Moran, LLP
Southfield, Michigan
May 12, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
Educational Medical, Inc.
1327 Northmeadow Parkway, Suite 132
Roswell, GA 30076
We consent to the reference to our firm under the caption "Experts" and
to the use of our report with respect to the combined financial statements of
San Antonio College of Medical and Dental Assistants, Inc. and Careers of Texas
- - El Paso, Inc. dated March 12, 1996, except for Note 1, as to which the date is
August 2, 1996, in the Registration Statement on Form S-3 of Educational
Medical, Inc. for the registration of 202,532 shares of its Common Stock.
/s/ Tsakopulos Brown Schott & Anchors
--------------------------------------
TSAKOPULOS BROWN SCHOTT & ANCHORS
San Antonio, Texas
May 8, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
Educational Medical, Inc.
1327 Northmeadow Parkway, Suite 132
Roswell, GA 30076
As independent certified accountants, we hereby consent to the use of
our report dated March 20, 1998 relating to the financial statements of CHI
Institute (a division of Computer Hardware Service Company, Inc.) as of
September 30, 1997, appearing in Educational Medical, Inc.'s Current Report
(Form 8-K/A), in the Registration Statement on Form S-3 of Educational Medical,
Inc. for the registration of 202,532 shares of its Common Stock. We also
consent to the reference to our firm under the caption "Experts."
/s/ Asher & Company, Ltd.
-------------------------------------
Asher & Company, Ltd.
Philadelphia, Pennsylvania
May 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EDUCATIONAL MEDICAL, INC. FOR THE 9 MONTHS ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,303,194
<SECURITIES> 0
<RECEIVABLES> 8,838,422
<ALLOWANCES> 1,021,824
<INVENTORY> 0
<CURRENT-ASSETS> 19,849,731
<PP&E> 14,911,805
<DEPRECIATION> 6,547,348
<TOTAL-ASSETS> 40,017,796
<CURRENT-LIABILITIES> 7,114,256
<BONDS> 2,551,079
0
0
<COMMON> 73,691
<OTHER-SE> 30,329,496
<TOTAL-LIABILITY-AND-EQUITY> 40,017,796
<SALES> 41,468,515
<TOTAL-REVENUES> 41,468,515
<CGS> 36,473,977
<TOTAL-COSTS> 36,473,977
<OTHER-EXPENSES> 938,233
<LOSS-PROVISION> 803,414
<INTEREST-EXPENSE> (256,082)
<INCOME-PRETAX> 3,508,973
<INCOME-TAX> 1,403,715
<INCOME-CONTINUING> 2,105,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,105,258
<EPS-PRIMARY> 0.29<F1>
<EPS-DILUTED> 0.28
<FN>
<F1>TAG (EPS - PRIMARY) DENOTES BASIC EPS.
</FN>
</TABLE>
