<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
EDUCATIONAL MEDICAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8222 65-0038445
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1327 NORTHMEADOW PARKWAY, SUITE 132
ROSWELL, GEORGIA 30076
(770) 475-9930
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GARY D. KERBER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1327 NORTHMEADOW PARKWAY, SUITE 132
ROSWELL, GEORGIA 30076
(770) 475-9930
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
MORRIS C. BROWN, ESQ. FREDERICK W. KANNER, ESQ.
GREENBERG, TRAURIG, HOFFMAN DEWEY BALLANTINE LLP
LIPOFF, ROSEN & QUENTEL, P.A. 1301 AVENUE OF THE AMERICAS
777 SOUTH FLAGLER DRIVE NEW YORK, NEW YORK 10019
SUITE 300-EAST TOWER (212) 259-8000
WEST PALM BEACH, FLORIDA 33401
(561) 650-7900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01........ 2,875,000(2) $12.25 $35,218,750 $10,389.53
========================================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, as amended.
(2) Includes 1,873,999 shares offered by the Selling Stockholders, 626,001
shares offered by the Registrant and 375,000 shares subject to the
over-allotment option granted to the Underwriters by the Registrant.
---------------------
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.
================================================================================
<PAGE> 2
EDUCATIONAL MEDICAL, INC.
Cross-reference sheet furnished pursuant to Item 501(b) of Registration S-K
showing location in the Prospectus of information required by Part I of Form
S-1.
<TABLE>
<CAPTION>
FORM S-1 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Outside Front Cover Page; Inside Front
Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Outside Front Cover Page; Prospectus
Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Principal and Selling Stockholders
8. Plan of Distribution....................... Outside Front Cover Page; Inside Front
Cover Page; Underwriting
9. Description of Securities to be
Registered................................. Dividend Policy; Description of Capital
Stock; Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant................................. Prospectus Summary; Risk Factors; Dividend
Policy; Price Range of Common Stock,
Selected Consolidated Financial and Other
Operating Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Financial Aid and
Regulation; Management; Principal and
Selling Stockholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Underwriting; Index to Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL , 1998
PROSPECTUS
2,500,000 SHARES
EDUCATIONAL MEDICAL, INC. [LOGO]
COMMON STOCK
------------------
Of the 2,500,000 shares of common stock (the "Common Stock") offered hereby
(the "Offering"), 626,001 shares are being sold by Educational Medical, Inc.
(the "Company") and 1,873,999 shares are being sold by certain stockholders of
the Company (the "Selling Stockholders"). The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders. See "Principal
and Selling Stockholders."
The Common Stock is listed on the Nasdaq National Market (the "Nasdaq")
under the trading symbol "EDMD." The last sales price of the Common Stock as
reported on the Nasdaq on April , 1998 was $ per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- -------------------------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
=========================================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering, estimated at $150,000, which
are payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. Proceeds to Selling Stockholders will not be
affected.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------------
SALOMON SMITH BARNEY LEGG MASON WOOD WALKER
INCORPORATED
April , 1998
<PAGE> 4
[ARTWORK TO COME]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
---------------------
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."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
Prospective investors should consider carefully the information set forth under
the heading "Risk Factors." Unless otherwise indicated, the information
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,
1
<PAGE> 6
(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:
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 any of the
six acquired schools. 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.
2
<PAGE> 7
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
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.
3
<PAGE> 8
THE OFFERING
Common Stock offered by the
Company.................. 626,001 shares
Common Stock offered by the
Selling Stockholders..... 1,873,999 shares
Total................. 2,500,000 shares
Common Stock to be
outstanding after the
Offering(1).............. 8,355,530 shares(1)
Use of proceeds by the
Company.................. To repay certain outstanding indebtedness of the
Company. The remainder will be used to acquire
additional schools and for working capital and
other general corporate purposes. The Company will
not receive any of the proceeds from the sale of
Common Stock by the Selling Stockholders. See "Use
of Proceeds."
Nasdaq National Market
symbol:.................. "EDMD"
- ---------------
(1) Excludes at March 31, 1998 up to (i) 932,002 shares reserved for issuance
under the Company's 1996 Stock Incentive Plan of which options to purchase
789,999 shares have been granted, (ii) 200,000 shares reserved for issuance
under the Company's Non-Employee Director Stock Option Plan, of which
options to purchase 112,000 shares have been granted, (iii) 43,334 shares
which may be purchased upon the exercise of outstanding warrants to purchase
Common Stock and (iv) 375,000 shares which may be sold by the Company if the
over-allotment option is exercised in full. Includes 19,050 shares held in
escrow under the terms of the Nebraska Acquisition and subject to possible
return to the Company.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA
The following table sets forth certain consolidated financial and other
operating data for the Company. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. These historical results are not necessarily indicative of
the results that may be expected in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------- -----------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................................... $37,080 $43,347 $49,450 $35,764 $41,468
School operating costs
Cost of education and facilities............... 17,488 19,651 23,151 17,016 19,348
Selling and promotion expenses................. 6,216 6,534 7,531 5,416 6,272
General and administrative expenses............ 10,826 12,369 14,042 9,847 11,657
Amortization of goodwill and intangibles......... 1,255 883 886 632 938
Other expenses(1):
Merger costs................................... -- -- 391 -- --
Legal defenses and settlement costs............ -- 1,115 -- -- --
Loss on closure or relocation of schools....... 600 50 144 -- --
Impairment of goodwill and intangibles......... 176 764 -- -- --
------- ------- ------- ------- -------
Income from operations........................... 519 1,981 3,305 2,853 3,253
Interest (income) expense, net................... 935 822 284 373 (256)
------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary item............................. (416) 1,159 3,021 2,480 3,509
Provision (benefit) for income taxes............. 28 632 (845) 569 1,404
------- ------- ------- ------- -------
Income (loss) before extraordinary item.......... (444) 527 3,866 1,911 2,105
Extraordinary item............................... -- -- 309 309 --
------- ------- ------- ------- -------
Net income (loss)...................... $ (444) $ 527 $ 3,557 $ 1,602 $ 2,105
======= ======= ======= ======= =======
PRO FORMA DATA:
Pro forma income tax data(2):
Income (loss) before income taxes.............. $ (416) $ 1,159 $ 3,021 $ 2,480
Provision for income taxes..................... 97 487 409 611
------- ------- ------- -------
Income (loss) before extraordinary item.......... (513) 672 2,612 1,869
Extraordinary item, net of income taxes.......... -- -- 309 309
------- ------- ------- -------
Pro forma net income (loss)...................... $ (513) $ 672 $ 2,303 $ 1,560
======= ======= ======= =======
PER SHARE DATA (3):
Basic:
Net income (loss) before extraordinary item.... $ (0.22) $ 0.28 $ 0.58 $ 0.53 $ 0.29
Net income (loss).............................. $ (0.22) $ 0.28 $ 0.51 $ 0.44 $ 0.29
Diluted:
Net income (loss) before extraordinary item.... $ (0.22) $ 0.13 $ 0.41 $ 0.31 $ 0.28
Net income (loss).............................. $ (0.22) $ 0.13 $ 0.36 $ 0.26 $ 0.28
Weighted average number of shares outstanding:
Basic.......................................... 2,371 2,371 4,484 3,548 7,350
Diluted........................................ 2,371 5,182 6,447 6,041 7,583
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------- -----------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Number of schools at end of period(4)............ 16 16 19 19 18
Number of students at end of period.............. 4,695 4,954 5,993 5,658 5,978
Number of new student starts during period....... 6,297 6,706 7,358 4,934 5,598
Monthly withdrawal rate during period(5)......... 4.3% 4.1% 4.2% 4.3% 3.8%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
AS
ACTUAL ADJUSTED(6)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 9,303 $13,363
Total assets................................................ 40,018 44,078
Long term debt, including current portion................... 2,551 --
Total stockholders' equity.................................. 30,403 37,020
</TABLE>
- ---------------
(1) Other expenses consist of (i) charges in fiscal 1995 of $600 for legal costs
associated with the defense of the class action lawsuit, and $176 for
impairment of other intangible assets, (ii) charges in fiscal 1996 of $1,115
for the settlement of the class action lawsuit, $50 for the cost of
relocating a school, and $764 for the impairment of goodwill and other
intangible assets; and (iii) charges in fiscal 1997 of $144 for the
consolidation of two schools in Virginia and two schools in California and
$391 in merger expenses related to the Nebraska Acquisition.
(2) The corporation which owned the two Nebraska Schools acquired by the Company
in the fourth quarter of fiscal 1996 and its predecessor were treated as a
Subchapter S-Corporation and a partnership, respectively, under relevant
provisions of the Internal Revenue Code. Accordingly, income taxes were the
responsibility of the S-Corporation's stockholders and the partnership's
partners. For informational purposes, the selected consolidated financial
data for the three years ended March 31, 1997 and the nine months ended
December 31, 1996 include a pro forma presentation that includes a provision
for income taxes as if the merging entity had operated as a C-Corporation
and was combined with the Company for those periods. Such pro forma
calculations were based on the income tax laws and rates in effect during
those periods and Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes.
(3) All earnings per share data have been restated to conform to Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share, and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Amounts for periods prior
to April 1, 1997 are based on the pro forma results described in (2) above.
(4) Two schools located in Vista, CA were combined in fiscal 1998.
(5) Represents the percentage calculated by dividing (i) the number of students
who withdrew from the Company's schools in the period by (ii) the sum of the
number of students at each month-end in the period and the number of
students who withdrew in the period.
(6) As Adjusted data assumes the net proceeds of the Offering to the Company are
applied as described in "Use of Proceeds."
6
<PAGE> 11
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 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 revenue 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.
7
<PAGE> 12
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 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
8
<PAGE> 13
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 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 Generally. 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
the Regulations through annual financial statements and audits of institutional
compliance with
9
<PAGE> 14
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.
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
10
<PAGE> 15
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 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.
11
<PAGE> 16
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 Fiscal 1998 Acquisitions. 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 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 (See "Management's Discussion
and Analysis of
12
<PAGE> 17
Financial Conditions and Results of Operations -- Liquidity and Capital
Resources") 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 has 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, 1,873,999 are Restricted Shares.
The Company will file a registration statement with respect to 202,532 shares in
April 1998 and, if and when such registration statement is declared effective by
the Commission, such restricted shares will be freely tradable. No prediction
can be made as to the effect that resale of shares of Common Stock, or the
availability of shares of Common Stock for resale, will have on the market price
of the Common Stock prevailing from time to time. The resale of substantial
amounts of Common Stock, or the perception that such resales may occur, could
adversely affect prevailing market prices of the Common Stock and could impair
the Company's ability in the future to raise additional capital through the sale
of its equity securities. The Company has agreed not to issue, and certain
current shareholders of the Company holding 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 this Prospectus without the prior
written consent of Smith Barney Inc. See "Underwriting."
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.
13
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the Offering (after deduction of
estimated underwriting discounts and commissions and Offering expenses) are
estimated to be approximately $7,100,000, assuming the Offering price of $12.25
per share. The Company will receive none of the proceeds from the sale of the
shares of Common Stock by the Selling Stockholders. If the over-allotment option
is exercised in full, the net proceeds to the Company from the Offering (after
deduction of estimated underwriting discounts and commissions and Offering
expenses) are estimated to be approximately $11,400,000, assuming the Offering
price of $12.25 per share. The Company expects to use such proceeds to repay
certain of its existing indebtedness. The Company intends to use the remainder
of the net proceeds of the Offering for general corporate purposes, including
the expansion of its operations through the acquisition of additional schools
and adding academic programs at existing Company schools. The Company
continually investigates opportunities to acquire new schools and related
businesses. Pending use for the purposes described above, the Company will
invest the net proceeds from the Offering in short-term, interest bearing
investment-grade securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq under the symbol "EDMD." The
following table sets forth, for the periods indicated, the high and low closing
prices for the Common Stock, as reported on the Nasdaq. The Company's Common
Stock began trading on the Nasdaq on October 28, 1996, following the IPO at
$10.00 per share.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1997
Third Quarter (from October 28, 1996)..................... $11.13 $10.00
Fourth Quarter............................................ 14.25 10.38
FISCAL 1998
First Quarter............................................. 11.25 7.75
Second Quarter............................................ 9.13 6.00
Third Quarter............................................. 9.25 6.50
Fourth Quarter............................................ 11.63 8.00
FISCAL 1999
First Quarter (through April 14, 1998).................... $12.38 $ 8.00
</TABLE>
As of March 31, 1998, there were approximately 96 shareholders of record.
The last sales price of the Common Stock as reported on the Nasdaq on April 14,
1998 was $12.25 per share.
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 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.
14
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization as of December 31, 1997
and, as adjusted, to reflect the sale of 626,001 shares of Common Stock offered
by the Company hereby (at an assumed Offering price of $12.25 per share), after
deduction of the estimated underwriting discounts and commissions and Offering
expenses, and the application of the net proceeds therefrom as described in "Use
of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 9,303 $13,804
======= =======
Long term debt.............................................. $ 2,551 $ --
Stockholders' equity
Preferred Stock, authorized 5,000,000 shares (actual and
as adjusted); none issued and outstanding.............. -- --
Common Stock, $.01 par value -- authorized 15,000,000
shares (actual and as adjusted) 7,369,100 shares issued
and outstanding (actual); 7,995,101 shares issued and
outstanding (as adjusted)(1)........................... 74 80
Additional paid-in capital on Common Stock................ 30,221 37,273
Retained earnings......................................... 108 108
------- -------
Total stockholders' equity........................ 30,403 37,461
------- -------
Total capitalization.............................. $32,954 $37,461
======= =======
</TABLE>
- ---------------
(1) 7,369,100 shares issued and outstanding at December 31, 1997 exclude an
aggregate of 354,342 shares issued in conjunction with the CHI Institute
Acquisition in February 1998 and the Hesser Acquisition in March 1998.
15
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA
The following table sets forth certain consolidated financial and other
operating data for the Company. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. All periods have been restated to reflect the pooling of
interests of the Nebraska Acquisition. The financial information for the
Company's fiscal years ended March 31, 1993 through 1995 includes the results of
the Nebraska Schools' fiscal year ended December 31, 1992 through 1994,
respectively. The results of the Company's fiscal years ended March 31, 1996 and
1997 and nine months ended December 31, 1996 and 1997 reflect a conformed
year-end for the Nebraska Schools. The financial data set forth below for each
of the three years in the period ended March 31, 1997 and as of March 31, 1997
and 1996, have been derived from the audited Consolidated Financial Statements
of the Company included elsewhere in this Prospectus. The financial data for
each of the two years in the period ended March 31, 1994 and as of March 31,
1995, 1994, and 1993 have been derived from audited Consolidated Financial
Statements of the Company not included in this Prospectus. The information at
December 31, 1997 and December 31, 1996 and for the nine month periods then
ended is unaudited, but in the opinion of the Company reflects all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for such periods. These historical
results are not necessarily indicative of the results that may be expected in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $25,139 $32,321 $37,080 $43,347 $49,450 $35,764 $41,468
School operating costs
Cost of education and facilities........ 10,359 14,944 17,488 19,651 23,151 17,016 19,348
Selling and promotion expenses.......... 3,470 4,985 6,216 6,534 7,531 5,416 6,272
General and administrative expenses..... 6,773 10,022 10,826 12,369 14,042 9,847 11,657
Amortization of goodwill and
intangibles............................. 1,071 1,235 1,255 883 886 632 938
Other expenses(1):
Merger costs............................ -- -- -- -- 391 -- --
Legal defenses and settlement costs..... -- -- 1,115 -- -- --
Loss on closure or relocation of
schools............................... -- 1,126 600 50 144 -- --
Impairment of goodwill and
intangibles........................... -- -- 176 764 -- -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations............. 3,466 (81) 519 1,981 3,305 2,853 3,253
Interest (income) expense, net............ 572 809 935 822 284 373 (256)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary item...................... 2,894 (890) (416) 1,159 3,021 2,480 3,509
Provision for income taxes................ 749 (170) 28 632 (845) 569 1,404
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item... 2,145 (720) (444) 527 3,866 1,911 2,105
Extraordinary item........................ -- -- -- -- 309 309 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)................ $ 2,145 $ (720) $ (444) $ 527 $ 3,557 $ 1,602 $ 2,105
======= ======= ======= ======= ======= ======= =======
PRO FORMA DATA:
Pro forma income tax data(2):
Income (loss) before income taxes....... $ 2,894 $ (890) $ (416) $ 1,159 $ 3,021 $ 2,480
Provision for income taxes.............. 1,223 173 97 487 409 611
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary item... 1,671 (1,063) (513) 672 2,612 1,869
Extraordinary item, net of income taxes... -- -- -- -- 309 309
------- ------- ------- ------- ------- -------
Pro forma net income (loss)............... $ 1,671 $(1,063) $ (513) $ 672 $ 2,303 $ 1,560
======= ======= ======= ======= ======= =======
</TABLE>
16
<PAGE> 21
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(3):
Basic:
Net income (loss) before extraordinary
item.................................. $ 0.70 $ (0.45) $ (0.22) $ 0.28 $ 0.58 $ 0.53 $ 0.29
Net income (loss)....................... $ 0.70 $ (0.45) $ (0.22) $ 0.28 $ 0.51 $ 0.44 $ 0.29
Diluted:
Net income (loss) before extraordinary
item.................................. $ 0.39 $ (0.45) $ (0.22) $ 0.13 $ 0.41 $ 0.31 $ 0.28
Net income (loss)....................... $ 0.39 $ (0.45) $ (0.22) $ 0.13 $ 0.36 $ 0.26 $ 0.28
Weighted average number of shares
Basic................................... 2,371 2,371 2,371 2,371 4,484 3,548 7,350
Diluted................................. 4,331 2,371 2,371 5,182 6,447 6,041 7,583
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Number of schools at end of period(4)..... 11 16 16 16 19 19 18
Number of students at end of period....... 2,840 4,026 4,695 4,954 5,993 5,658 5,978
Number of new student starts during
period.................................. 4,581 5,504 6,297 6,706 7,358 4,934 5,598
Monthly withdrawal rate during
period(5)............................... 5.8% 4.8% 4.3% 4.1% 4.2% 4.3% 3.8%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 7,061 $ 2,737 $ 2,733 $ 3,209 $14,048 $17,301 $ 9,303
Total current assets...................... 9,918 7,364 8,125 8,375 21,800 24,501 19,850
Total assets.............................. 19,246 21,047 21,867 20,986 42,073 43,341 40,018
Long term debt, including current
portion................................. 4,756 7,688 8,974 7,755 6,129 7,581 2,551
Total liabilities......................... 9,516 13,251 15,271 14,717 13,873 16,757 9,615
Total stockholders' equity................ 9,730 7,796 6,596 6,269 28,200 26,584 30,403
</TABLE>
- ---------------
(1) Other expenses consist of (i) charges in fiscal 1995 of $600 for legal costs
associated with the defense of the class action lawsuit, and $176 for
impairment of other intangible assets, (ii) charges in fiscal 1996 of $1,115
for the settlement of the class action lawsuit, $50 for the cost of
relocating a school, and $764 for the impairment of goodwill and other
intangible assets; and (iii) charges in fiscal 1997 of $144 for the
consolidation of two schools in Virginia and two schools in California and
$391 in merger expenses related to the Nebraska Acquisition.
(2) The corporation which owned the two Nebraska Schools acquired by the Company
in the fourth quarter of fiscal 1996 and its predecessor were treated as a
Subchapter S-Corporation and a partnership, respectively, under relevant
provisions of the Internal Revenue Code. Accordingly, income taxes were the
responsibility of the S-Corporation's stockholders and the partnership's
partners. For informational purposes, the selected consolidated financial
data for the five years ended March 31, 1997 and the nine months ended
December 31, 1996 include a pro forma presentation that includes a provision
for income taxes as if the merging entity had operated as a C-Corporation
and was combined with the Company for those periods. Such pro forma
calculations were based on the income tax laws and rates in effect during
those periods and Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes.
(3) All earnings per share data have been restated to conform to SFAS 128 and
SAB 98. Amounts for periods prior to April 1, 1997 are based on the pro
forma results described in (2) above.
(4) Two schools located in Vista, CA were combined in fiscal 1998.
(5) Represents the percentage calculated by dividing (i) the number of students
who withdrew from the Company's schools in the period by (ii) the sum of the
number of students at each month-end in the period and the number of
students who withdrew in the period.
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with "Selected Consolidated
Financial and Other Operating Data" and the Consolidated Financial Statements of
the Company and the Notes thereto appearing elsewhere in this Prospectus. All
dollar amounts are in thousands.
GENERAL
As of December 31, 1997, the Company owned and operated 18 schools in nine
states which together provided diversified career oriented postsecondary
education to approximately 6,000 students. The Company derives its revenue
almost entirely from tuition, fees and charges paid by, or on behalf of, its
students. Most students at the Company's schools rely on funds received under
various government-sponsored student financial aid programs, especially Title IV
Programs, to pay a substantial portion of their tuition and other
education-related expenses. During fiscal 1997, approximately 76% of the
Company's cash receipts were indirectly derived from Title IV Programs. Cash
receipts represented approximately 98% of the Company's net revenue in fiscal
1997.
The Company's revenue varies based on the aggregate student population,
which is influenced by the number of students attending the Company's schools at
the beginning of a fiscal period; by the number of new students entering the
Company's schools during such period; and by student retention rates. New
students enter the Company's schools' degree granting programs four times a year
and diploma courses every four-to-six weeks. The Company believes that the size
of its student population is affected to some extent by general economic
conditions, and that, in the absence of countervailing factors, student
enrollments and retention rates would tend to increase as opportunities for
immediate employment for high school graduates decline and decrease as such
opportunities increase. The purchase of new Company schools and the introduction
of additional program offerings at existing Company schools have been
significant factors in increasing the aggregate student population in recent
years.
In the fiscal year ended March 31, 1997, the Company derived approximately
93% of its net revenue from tuition. The Company recognizes tuition revenue on
each student contract as earned on a pro rata monthly basis over the term of the
contract. Refunds are due if a student withdraws from school prior to completion
of the program and are computed using methods required by accrediting agencies
or state and federal regulations. As of the time of withdrawal, the total
earnings on the contract mandated by the applicable formula are compared to the
revenue previously recognized by the Company. This comparison can result in
either an increase or decrease in final revenue recognition, which is recorded
for accounting purposes at the time of the applicable student's withdrawal.
Historically, these net adjustments have not been material. Other educational
revenue is comprised of fees and textbook sales.
The Company incurs expenses throughout a fiscal period in connection with
the operation of its schools. The cost of education and facilities includes
faculty salaries and benefits, cost of books sold, occupancy costs, depreciation
and amortization of equipment costs and leasehold improvements, and certain
other educational and facility costs incurred by the Company's schools.
Selling and promotional expenses include admission representatives'
salaries and benefits, direct and indirect marketing expenses and advertising
expenses.
General and administrative expenses include schools', regional offices' and
home office's salaries and benefits, other direct and indirect costs of the
schools, regional offices, and home office, and the provision for losses on
accounts receivable.
Since its inception, the Company has pursued a strategy of growth through
acquisition. All of the Company's schools have been acquired. Except in the case
of a pooling of interests, the Company records as goodwill and intangibles the
difference between the purchase price of a school and the fair value of its
tangible net assets. Since inception, the Company has allocated approximately
$20,800,000 of its purchase prices of acquired schools to goodwill and
intangibles. Goodwill is amortized over 15 to 40 years. Other intangibles are
18
<PAGE> 23
amortized over two to 15 years. The Company also frequently enters into
non-competition agreements with the owners or employees of the schools it
acquires and generally records the cost of such non-competition agreements as
intangible assets which are amortized over their respective lives which range
from two to ten years. Effective July 1993, such amortization is tax deductible;
however, amortization related to acquisitions consummated prior to that date is
only partially tax deductible on a current basis.
VARIATIONS IN QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly financial data for each
of the eight fiscal quarters in the two years ended March 31, 1997 and for the
three quarters ended December 31, 1997, and, where applicable, such data
expressed as a percentage of the Company's totals with respect to such
information for the applicable fiscal year. The Company believes that this
information includes all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of such quarterly information
when read in conjunction with the consolidated financial statements included
elsewhere herein. The operating results for any quarter are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1996 FISCAL YEAR ENDED MARCH 31, 1997
------------------------------------- -------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES.......... $9,765 $10,377 $11,538 $11,667 $10,401 $12,039 $13,324 $13,686
Percentage of fiscal
year total.......... 22.5% 23.9% 26.6% 27.0% 21.0% 24.3% 26.9% 27.8%
INCOME FROM OPERATIONS
BEFORE OTHER
EXPENSES............ $ 145 $ 792 $ 1,490 $ 1,483 $ 327 $ 1,122 $ 1,404 $ 987
Percentage of fiscal
year total.......... 3.7% 20.3% 38.1% 37.9% 8.5% 29.2% 36.6% 25.7%
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1998
---------------------------------
1ST QTR 2ND QTR 3RD QTR
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET REVENUES.......... $12,909 $13,739 $14,820
Percentage of fiscal
year total.......... N/A N/A N/A
INCOME FROM OPERATIONS
BEFORE OTHER
EXPENSES............ $ 265 $ 896 $ 2,092
Percentage of fiscal
year total.......... N/A N/A N/A
</TABLE>
The Company's quarterly net revenues have fluctuated in the past and may
fluctuate significantly in the future as a result of a number of factors,
principally due to the number and timing of new students enrolling in the
Company's programs. New enrollments in the Company's schools tend to be higher
in the third and fourth fiscal quarters because the third and fourth quarters
cover periods traditionally associated with the beginning of school semesters.
The Company believes it has been less affected by this seasonal pattern than
many other educational institutions because it permits students to enroll in and
begin programs in any month of the year at most of its schools. In addition, the
impact of seasonality in new enrollments on results of operations has been
moderated to some extent by growth in the number of students attending programs
and the varying lengths of those programs. However, the Company believes its
recent CHI Institute and Hesser Acquisitions will further increase this
seasonality because many of these schools' longer programs do not allow for
monthly start dates. In addition, other factors affecting quarterly net revenues
include student withdrawals, the termination of programs, the introduction of
new programs, the upgrading or lengthening of programs, changes in tuition rates
(including changes in response to pricing actions by competitors), changes in
government-supported financial aid programs, modification of applicable
government regulations or interpretations, regulatory audits or other actions by
regulatory authorities. The Company has not experienced any material resistance
to raising its tuition rates in the past and, based on such prior experience,
anticipates that tuition increases will keep pace with inflation for the
foreseeable future. Because certain of the Company's expenses do not vary with
student enrollment, quarterly variations in net revenues are amplified at the
income from operations level.
19
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
statement of operations data to net revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------- ------------------
1995 1996 1997 1996 1997
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
School Operating Costs:
Cost of education and facilities.......... 47.2 45.4 46.8 47.6 46.6
Selling and promotional................... 16.8 15.1 15.2 15.1 15.1
General and administrative expenses....... 29.2 28.5 28.4 27.5 28.1
Amortization of goodwill and intangibles.... 3.4 2.0 1.8 1.8 2.3
------ ------ ------ ------ ------
Income before other expenses................ 3.4 9.0 7.8 8.0 7.9
Other expenses.............................. 2.1 4.4 1.1
------ ------ ------ ------ ------
Income from operations...................... 1.3 4.6 6.7 8.0 7.9
Interest expense, net............. 2.5 1.9 0.6 1.0 (0.6)
------ ------ ------ ------ ------
Income (loss) before income taxes........... (1.2) 2.7 6.1 7.0 8.5
Provision (benefit) for income taxes........ 0.1 1.5 (1.7) 1.6 3.4
------ ------ ------ ------ ------
Income (loss) before extraordinary item..... (1.3) 1.2 7.8 5.4 5.1
Extraordinary item.......................... -- -- 0.6 0.9 --
------ ------ ------ ------ ------
Net income (loss)................. (1.3)% 1.2% 7.2% 4.5% 5.1%
====== ====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH NINE MONTHS ENDED DECEMBER 31,
1996.
Net Revenues. Net revenue increased by $5,704, or 16.0%, to $41,468 for
the nine months ended December 31, 1997 from $35,764 for the nine months ended
December 31, 1996. Revenue growth was primarily attributable to an increase in
earning students at the Texas, Maryland and Nebraska schools which were acquired
in September 1996, December 1996, and March 1997, respectively. The number of
new student starts at the Company's schools during the nine months ended
December 31, 1997 increased to 5,598 from 4,934 for the corresponding nine
months of the prior year, a 13.5% increase. However, the Company's San Diego
area schools experienced a decline in new student starts of 10.1% for the
current nine months as compared to the corresponding period of the prior year.
The Company believes the decline in new student starts is attributable to
several factors in the San Diego area, including a shift in employer
requirements for medical assistants, a continued decline in military personnel,
and an increase in employment opportunities. All other schools recorded a
combined increase of 16.1% in new student starts, with overall student
population largely offsetting the declines discussed above. The monthly student
withdrawal rate decreased to 3.8% when compared to a 4.3% rate experienced by
the Company during the corresponding nine months of the prior year, due in part
to the Company's "Retention Program" in each of the schools. This program
includes commitment counseling prior to acceptance and follow-up counseling for
active students as well as counseling in the event a decision to withdraw is
made by the student.
Cost of Education and Facilities. Cost of education and facilities
increased by $2,332, or 13.7%, to $19,348 for the nine months ended December 31,
1997 from $17,016 for the nine months ended December 31, 1996, principally as a
result of facility expansions, the addition of the Texas and Maryland schools in
fiscal 1997, and costs related to the increased enrollments in the Nebraska
schools. The cost of education and facilities as a percentage of net revenue was
46.6% in 1997 compared with 47.6% in 1996.
Selling and Promotional. Selling and promotional expenses increased by
$856, or 15.8%, to $6,272 for the nine months ended December 31, 1997 from
$5,416 for the nine months ended December 31, 1996, principally as a result of
the addition of the Texas and Maryland schools. Selling and promotional expenses
as a percentage of net revenue were 15.1% in both 1997 and 1996.
20
<PAGE> 25
General and Administrative. General and administrative expenses increased
by $1,810, or 18.4%, to $11,657 for the nine months ended December 31, 1997 from
$9,847 for the nine months ended December 31, 1996. General and administrative
expenses as a percentage of net revenue increased to 28.1% in 1997 compared with
27.5% in 1996 as a result of the Company's addition of a Vice
President -- Operations, regional sales positions, and increased costs at the
Company's home office, principally related to costs attributable to its
operation as a public company.
Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased by $306, or 48.4%, to $938 for the nine months ended
December 31, 1997 from $632 for the nine months ended December 31, 1996. The
increase was primarily a result of the amortization of goodwill arising from the
acquisition of the Texas and Maryland schools.
Interest Income, Net. Net interest income increased by $629 to $256 of
interest income for the nine months ended December 31, 1997 from net interest
expense of $373 for the nine months ended December 31, 1997. The change was
principally a result of lower debt levels and increased interest income during
the nine months ended December 31, 1997 due to the investment of a portion of
the proceeds of the Company's Initial Public Offering on October 28, 1996.
Income Taxes. Income taxes increased by $835 to $1,404 for the nine months
ended December 31, 1997 from $569 for the nine months ended December 31, 1996
due to the taxation of the Nebraska operations which operated as a Subchapter
S-Corporation and partnership during the nine months ended December 31, 1996.
Income taxes for the nine month period ended December 31, 1997 as compared to
pro forma taxes for the corresponding period of 1996 increased due to the
decrease in the deferred income tax asset valuation allowance which in the 1996
period resulted in a lower income tax rate.
Net Income. Net income increased to $2,105 for the nine months ended
December 31, 1997 from net income of $1,602 (pro forma net income of $1,560) for
the nine months ended December 31, 1996. The increase is primarily a result of a
14.0% increase in income from operations and reduced net interest expense,
partially offset by an increased effective tax rate for the nine months ended
December 31, 1997.
YEAR ENDED MARCH 31, 1997 COMPARED WITH YEAR ENDED MARCH 31, 1996.
Net Revenues. Net revenues increased by $6,103, or 14.1%, to $49,450 for
the year ended March 31, 1997 from $43,347 for the year ended March 31, 1996.
Factors contributing to revenue growth included an increase in the number of
students attending the Company's schools and an approximate 4% increase in
tuition rates during fiscal 1997. The number of new student starts at the
Company's schools during the year increased to 7,358 in fiscal 1997 from 6,706
in fiscal 1996, a 9.7% increase. The Company's three San Diego area schools
experienced a decline in new student starts to 1,944 for the current year as
compared to 2,178 for the prior year, principally in its medical assistant and
medical administration programs. The Company believes the decline in new student
starts is attributable to several factors in the San Diego area, including a
shift in employer requirements for medical assistants, a continued decline in
military personnel, and an increase in employment opportunities. The Company
believes that these factors may continue to adversely impact the Company's
operations in the San Diego area. The Texas and Maryland schools, acquired in
fiscal 1997, accounted for 855 new students starts in fiscal 1997. Student
withdrawal rates did not change materially compared to withdrawal rates
experienced by the Company during fiscal 1996.
Cost of Education and Facilities. Cost of education and facilities
increased by $3,500, or 17.8%, to $23,151 in fiscal 1997 from $19,651 in fiscal
1996 principally as a result of increased student count at the Company's
schools. The cost of education and facilities as a percentage of net revenue was
46.8% in fiscal 1997 compared with 45.4% in fiscal 1996, as a result of
increased costs associated with the introduction of several new programs at the
Company's two San Diego, California schools.
Selling and Promotional. Selling and promotional expenses increased by
$997, or 15.3%, to $7,531 in fiscal 1997 from $6,534 in fiscal 1996. Selling and
promotional expense as a percentage of net revenue was 15.2% in fiscal 1997
compared with 15.1% in fiscal 1996, as a result of increased advertising
spending by the Company's schools in order to increase inquiries from
prospective students.
21
<PAGE> 26
General and Administrative. General and administrative expenses increased
by $1,673, or 13.5%, to $14,042 in fiscal 1997 from $12,369 in fiscal 1996
principally as a result of an increase in the number of administrative personnel
at the Company's schools and increased costs at the Company's home office and
regional offices. Such increase in personnel was necessary to service the
increase in student population and the expansion in number of schools. General
and administrative expenses as a percentage of net revenues were 28.4% in fiscal
1997 compared with 28.5% in fiscal 1996.
Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles increased $3, or .4%, to $886 in fiscal 1997 from $883 in fiscal
1996. The increase was a result of amortizing costs associated with schools
acquired in fiscal 1997 offset by fully amortizing certain intangible assets
acquired in connection with the purchase of schools in fiscal 1992 and prior.
Other Expenses. Other expenses in fiscal 1997 consisted of a charge of
$391 for merger costs associated with the Nebraska acquisition and $144 for the
consolidation of two Virginia schools and two California schools.
Interest Expense, Net. Net interest expense decreased $538, or 65.5%, to
$284 in fiscal 1997 from $822 in fiscal 1996 principally as a result of paying
off $4,800,000 in subordinated debt with the proceeds from the Company's IPO and
increased interest income from excess cash on hand.
Income before Income Taxes and Extraordinary Item. Income before income
taxes and extraordinary item increased to $3,021 in fiscal 1997 from $1,159 in
fiscal 1996 principally as a result of the decline in other expenses and reduced
interest expense, net.
Extraordinary Item. Extraordinary item consisted of a one time charge of
$309 after tax to write off unamortized deferred debt issuance costs and
unamortized debt discount for early payoff of subordinated debt from the
proceeds of the Company's IPO.
Income Taxes. The income tax benefit was $845 in fiscal 1997 as compared
to expense of $632 in fiscal 1996 due to the 1997 recognition of a benefit from
establishing deferred tax assets when the Nebraska Acquisition terminated its
status as a Subchapter S-Corporation and the 1997 elimination of the deferred
tax asset valuation allowance of $1,320 due to the Company's profitable
operations in fiscal 1997 and the acquisition of other historically profitable
schools. Pro forma income tax expense of $409 in fiscal 1997 as compared to the
pro forma income tax benefit of $487 in fiscal 1996 reflects the taxation of the
Nebraska Acquisition as a C-corporation filing a consolidated return with the
Company for all periods and other differences arising from the application of
the liability method of accounting for income taxes.
Net Income. Net income increased in fiscal 1997 to $3,557 as compared to
$527 in fiscal 1996 due primarily to the acquisition of the Texas and Maryland
schools, improved results in the Nebraska schools, the reduction in the other
expenses such as the class action lawsuit settlement and the impairment of
goodwill and intangibles, and reduced interest expense, combined with the income
tax benefit described above in fiscal 1997.
YEAR ENDED MARCH 31, 1996 COMPARED WITH YEAR ENDED MARCH 31, 1995.
Net Revenues. Net revenues increased by $6,267, or 16.9%, to $43,347 for
the year ended March 31, 1996 from $37,080 for the year ended March 31, 1995.
Factors contributing to revenue growth included an increase in the number of
students attending the Company's schools and an approximate 5% increase in
tuition rates during fiscal 1996. The number of students attending the Company's
schools increased 16.6% from the beginning of fiscal 1995 to the beginning of
fiscal 1996. The number of new student starts at the Company's schools during
the year increased to 6,706 in fiscal 1996 from 6,297 in fiscal 1995, a 6.5%
increase. The seven new schools acquired in fiscal 1994 and the two Nebraska
schools accounted for 2,845 new student starts in fiscal 1996 compared with
2,559 in fiscal 1995 representing a 11.2% increase. Student withdrawal rates did
not change materially compared to withdrawal rates experienced by the Company
during fiscal 1995.
Cost of Education and Facilities. Cost of education and facilities
increased by $2,163, or 12.4%, to $19,651 in fiscal 1996 from $17,488 in fiscal
1995 principally as a result of increased student count at the
22
<PAGE> 27
Company's schools. The cost of education and facilities as a percentage of net
revenue was 45.4% in fiscal 1996 compared with 47.2% in fiscal 1995, reflecting
the Company's ability to serve a greater student population without a
corresponding proportional increase in faculty and facilities costs.
Selling and Promotional. Selling and promotional expenses increased by
$318, or 5.1%, to $6,534 in fiscal 1996 from $6,216 in fiscal 1995. Selling and
promotional expenses as a percentage of net revenues was 15.1% in fiscal 1996
compared with 16.8% in fiscal 1995, due to an increased percentage of new
student starts resulting from student referrals.
General and Administrative. Administrative expenses increased by $1,543,
or 14.3%, to $12,369 in fiscal 1996 from $10,826 in fiscal 1995 principally as a
result of an increase in the number of administrative personnel at the schools.
Such increase in personnel was necessary to service the increased student
population. Administrative expense as a percentage of net revenues declined to
28.5% in fiscal 1996 compared with 29.2% in fiscal 1995 resulting from the
Company's ability to leverage fixed costs at the home office, regional and
school level.
Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles declined $372, or 29.6%, to $883 in fiscal 1996 from $1,255 in
fiscal 1995. The decline was a result of fully amortizing certain intangible
assets acquired in connection with the purchase of schools in fiscal 1992 and
prior.
Other Expenses. Other expenses in fiscal 1996 consisted of a charge of
$1,115 for the settlement of a class action lawsuit and a $50 charge related to
the relocation of one of the Company's schools, and $764 for the impairment of
goodwill and intangibles due to operating losses of the Company's Roanoke,
Virginia school.
Interest Expense, Net. Net interest expense decreased $113, or 12.1%, to
$822 in fiscal 1996 from $935 in fiscal 1995 principally as a result of lower
debt levels during fiscal 1996.
Income Taxes. Income taxes increased by $604 to $632 in fiscal 1996 from
$28 in fiscal 1995 due principally to not recognizing a tax benefit for the
impairment of goodwill and intangibles and a portion of the legal settlement. As
a result, the effective income tax rate in fiscal 1996 was substantially higher
than in fiscal 1995.
Net Income. Net income increased to $527 in fiscal 1996 from a loss of
$444 in fiscal 1995 principally as a result of increased net revenues and
reduced expenses as a percentage of net revenues.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended December 31, 1997 and the last three fiscal
years, the Company financed its operating activities and capital requirements,
including debt repayments, principally from cash provided by operating
activities and by a $2,200,000 subordinated debt borrowing in March 1995. Cash
provided by operating activities for fiscal 1996 and fiscal 1997 was $4,300,000
and $2,700,000, respectively, and cash provided by operating activities for the
nine months ended December 31, 1996 and 1997 was $7,900,000 and $700,000,
respectively. Cash provided by operating activities decreased for the nine month
period due to increased payments of income taxes, professional fees, and other
merger expenses related to the Nebraska Acquisition, and working capital
provided to fund the Nebraska Schools during the change in ownership period when
federal funding was suspended by the Department of Education. The Company's
principal source of funds at December 31, 1997 was cash and cash equivalents of
$9,300,000 and accounts receivable of $7,800,000. The $2,600,000 increase in net
trade accounts receivable experienced for the nine months ended December 31,
1997 was primarily a result of revenue recognized for the Nebraska Schools
during the change in ownership period when federal funding was suspended.
Historically, the Company's investment activity has primarily consisted of
capital asset purchases and the purchase of schools. Capital expenditures,
excluding capital leases and purchases of businesses, totaled $1,300,000 and
$2,100,000 for fiscal 1996 and 1997, respectively, and capital expenditures for
the nine months ended December 31, 1996 and 1997 totaled $2,600,000 and
$1,600,000, respectively. Capital expenditures are a result of purchasing
additional equipment and upgrading and replacing existing equipment such as
23
<PAGE> 28
computers and medical equipment for school programs, and expanding facilities at
several locations. Purchases of the Texas and Maryland businesses, including
goodwill and intangibles, totaled $5,800,000 for the nine months ended December
31, 1996.
The Company's capital assets consist primarily of classroom and laboratory
equipment (such as computers and medical devices), classroom and office
furniture, and leasehold improvements. All building facilities are leased with
the exception of the land and buildings owned by the Company in Dayton, Ohio,
Lincoln, Nebraska and Omaha, Nebraska. The Company plans to continue to expand
current facilities, upgrade and replace equipment, and open new schools. The
Company expects fiscal 1998 capital expenditures for its existing schools to be
approximately $2,200,000. The Company expects that its fiscal 1999 operations
and planned capital expenditures can be funded through cash to be generated from
existing operations.
Cash flow from operations on a long term basis is highly dependent on the
receipt of funds from Title IV Programs, and presently a majority of the
Company's net revenues are derived from Title IV Programs. Disbursement of Title
IV Program funds is dictated by federal regulations. For students enrolled in
"non-term" programs (i.e., not divided into quarters or semesters), payments are
generally made in two equal installments, one in the first 30 days following the
student's first day of class and the second when the student reaches the
midpoint of the program. For students enrolled in term programs (i.e., quarters
or semesters), payments are made at the beginning of each term, with the
exception of the initial disbursement which is made 30 days following the
student's first day of class. In addition, the Title IV regulations set forth
other financial standards for the Company and its schools including restrictions
for (i) positive tangible net worth, (ii) an "acid" test ratio of at least
1-to-1, (iii) a 10% limitation on losses as a percentage of tangible net worth
and (iv) the maintenance of a minimum cash reserve equal to 25% of prior year
school refunds in the event of certain non-compliance. Except with respect to
the operating losses incurred at the Company's Roanoke school, the Company
believes each of its schools satisfied the financial responsibility standards.
Because the HEA and the Regulations are subject to amendment, and because the
Department of Education may change its interpretation of the HEA and the
Regulations, there can be no assurance that the Department of Education will
agree in the future with the Company's interpretation of each such requirement
or that such requirements will not change in the future.
Other than the Roanoke, Virginia school, none of the Company's schools had
operating losses in fiscal 1996 or fiscal 1997 which, in the aggregate, exceeded
10% of the tangible net worth at the beginning of the period. Therefore, only
the Roanoke School, which represented 2.4% of the Company's total revenue in
fiscal 1997, is in violation of the Financial Responsibility Standard relating
to operating losses.
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
24
<PAGE> 29
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.
In the routine course of acquiring other schools, the Company must obtain
certain regulatory approvals, typically from accrediting agencies, state
agencies and the Department of Education. Upon a school being acquired by new
ownership, the Department of Education suspends payments of the school's Title
IV funding until the Department of Education completes a recertification. This
recertification process including obtaining prerequisite approvals from state
regulatory and appropriate accrediting agencies typically takes from four to
seven months.
In connection with the Texas Acquisition, the Company made payments of
approximately $1,150,000 to the sellers in May 1997 and is required to make note
payments of approximately $250,000 per year for five years, beginning in fiscal
1998. The Company's Title IV funding from its Texas Acquisition was suspended
pending Department of Education recertification, which was received in April
1997. In connection with the Maryland Acquisition, the Company made payments of
$1,350,000 in May 1997. No further amounts are due. The Company's Title IV
funding from the schools included in its Maryland Acquisition was suspended
pending Department of Education recertification, which was received in April
1997. The Company's Title IV funding for the schools included in its Nebraska
Acquisition was suspended pending Department of Education recertification, which
was received in October 1997.
In connection with the CHI Institute Acquisition, the Company paid
$1,500,000 in February 1998. The Company is required to make additional note
payments to the seller in fiscal 1999 of $3,800,000 and the balance over four
years. The Company's Title IV Funding for the CHI Institute Schools was
suspended pending Department of Education recertification.
In connection with the Hesser Acquisition, the Company paid $2,000,000 in
March 1998. The Company is required to make a final note payment to the seller
in fiscal 1999 of $11,000,000. The Company's Title IV Funding for the Hesser
Schools was suspended pending Department of Education recertification.
The Company expects to make the note payments for the CHI and Hesser
Acquisitions with cash on hand and/or borrowings under its bank facility.
Pending recertification by Department of Education for Title IV funding at the
CHI Institute and Hesser Schools, the Company expects to fund its operations at
the related schools from cash on hand and/or bank debt.
The Company anticipates it will need additional debt or equity financing in
order to carry out its strategy of growth through acquisitions. In March 1998,
the Company amended its loan agreement with a major U.S. bank increasing its
loan facilities to the Company of up to $36,000,000 (the "Bank Credit
Facility"). Of the total amount of the Bank Credit Facility, $10,000,000 is to
be provided in the form of a three year revolving line of credit and $11,000,000
and $15,000,000 in the form of a term loan facilities maturing on the fourth and
third anniversary of the Bank Credit Facility, respectively. As of March 31,
1998, $16,000,000 was available under the Bank Credit Facility. Interest is
charged on borrowings at different floating rates above LIBOR depending on
certain financial conditions of the Company and depending on whether drawn under
the revolving line of credit or the term loan. In addition, the Bank Credit
Facility provides for commitment fees to be paid on the unused portion of the
facility. The Bank Credit Facility also contains restrictions on the payment of
dividends and incurrence of additional debt, and various other financial
covenants. The Bank Credit Facility is secured by substantially all of the
assets of the Company. The Company believes this Bank Credit Facility will be
adequate to meet its financing needs for at least the next twelve months.
Effect of Inflation. The Company does not believe its operations have been
materially affected by inflation.
Other Matters. The Company is currently in the process of evaluating its
computer software and database to ensure that any modifications required to be
year 2000 compliant are made in a timely manner. Management does not expect the
financial impact of such modifications, which are expected to be implemented in
1999, to be material to the Company's financial position or results of
operations in any given year.
25
<PAGE> 30
BUSINESS
OVERVIEW
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.
After giving effect to the Fiscal 1998 Acquisitions, at March 31, 1998, the
Company had over 9,000 students in 24 schools located in 10 states. The two CHI
Institute Schools offer associate degree and diploma programs. The four Hesser
Schools primarily offer 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.
The Company derives a substantial majority of its revenues from federal
financial aid received by the students of its schools under Title IV Programs
administered by the Department of Education under the HEA. Each of the Company's
schools participates in Title IV Programs.
According to the Department of Education, there were 1,995 accredited,
proprietary postsecondary institutions participating in Title IV programs as of
March 16, 1998. The ownership of these schools 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:
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
26
<PAGE> 31
diploma and degree programs, (ii) replicating existing programs at schools where
such programs were not previously offered, and (iii) introducing associate
degree granting programs at all of its schools currently offering only diploma
programs.
The Company's ability to increase enrollment is limited by the capacity of
its facilities and its ability to attract teachers to maintain appropriate
student/teacher ratios. In the past, the Company has not had any difficulty in
expanding its facilities to accommodate increased enrollment or relocating
facilities if expansion was not feasible. The Company has also been able to
maintain appropriate student/teacher ratios by offering its existing teachers
the opportunity to work additional hours and by recruiting additional teachers.
Based on its experience, the Company anticipates that neither facilities nor
faculty will constitute a significant barrier to increasing enrollment.
The Company intends to continue to create new programs at individual
schools and to replicate its new and existing programs for introduction into
additional schools on a market-selected basis to increase student enrollment and
revenue at its existing schools.
The Company intends to continue to increase the number of associate degree
programs at those schools already approved to grant degrees and to introduce
degree granting programs at all of its other schools. Associate degree programs
generally generate greater revenue to the Company on a per student basis than
diploma programs because generally they take longer to complete and are more
expensive than diploma programs. In addition, the Company believes the ability
of its individual schools to offer one or more associate degree programs enables
the schools to attract additional students from market segments with different
academic goals. The Company also believes such programs attract diploma students
because of the increased prestige the associate degree programs bring to the
diploma programs. Furthermore, the continued participation in the schools'
associate degree programs by students desiring to continue their studies beyond
the diploma level has the same economic impact as a newly enrolled degree
student. In order to introduce additional degree programs, the Company must
secure approval from relevant state and accrediting agencies.
Acquisition Strategy
The Company intends to continue to make selective acquisitions and
integrate them into its existing school system. The Company believes that the
fragmentation of the postsecondary education market provides significant
opportunities to consolidate existing independently owned schools. The Company
expects to utilize 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 indicates a potential for growth. Each of the
Company's acquisitions during fiscal 1997 and 1998 met these criteria. The
Company intends to concentrate its acquisition efforts on schools which satisfy
its general eligibility criteria regardless of whether they offer programs in
the fields of study in which programs are currently being offered at the
Company's schools. However, the Company will consider other school acquisitions
which it believes will further its long-term goals. The Company believes the
newly acquired schools can benefit from its marketing analysis, accounting,
information systems, financial aid and regulatory compliance systems to increase
enrollment and enhance operating efficiencies. The Company also believes that
both new and existing schools will benefit from the ability to replicate
successful programs among the schools.
Upon the Company's acquiring a Title IV eligible school, the school's
eligibility to participate in the Title IV Programs is suspended pending the
approval by the Department of Education of an application for participation
under the new ownership. In the past, such suspensions have lasted from four to
seven months and have not resulted in any material adverse effect on the
Company's operations.
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
27
<PAGE> 32
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 costs of opening the new location. When opening a new
additional location of an existing school, the Company must obtain approvals
from the relevant state authorities and accrediting agency, and must notify the
Department of Education and obtain its approval prior to disbursing Title IV
Program funding at such additional 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.
The Company's decentralized marketing strategy makes use of centralized
marketing data which tracks, among other things, lead sources, media
expenditures and individual school enrollments on a weekly basis. Individual
schools utilize these statistics to monitor their own marketing efforts. These
statistics, combined with placement statistics, allow the individual schools to
respond quickly to changing employment markets by developing new programs or
changing the emphasis placed on existing programs, and to identify new
populations of student candidates. The constant monitoring of enrollment
activity also allows the Company to determine whether it is appropriate to
increase its capital commitment to additional marketing efforts either to
improve unsatisfactory performance or to take advantage of successfully marketed
programs.
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. The Fiscal 1997 Acquisitions included
schools offering programs in the fields of healthcare and business. 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. During the
same period, 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 period 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.
28
<PAGE> 33
SCHOOLS
The following table shows the location of each of the Company's schools,
the name under which it operates, the date of its acquisition, the primary
fields of study in which it offers its programs, its degree granting status and
number of students attending the school at December 31, 1997 and at the time of
its acquisition.
<TABLE>
<CAPTION>
APPROXIMATE
STUDENT STUDENT
ASSOCIATE INSTITUTIONAL POPULATION POPULATION AT
DATE DEGREE ACCREDITING AT DATE OF DECEMBER 31,
INSTITUTION ACQUIRED CURRICULUM GRANTING(1) AGENCY(2) ACQUISITION 1997
- ----------- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Maric College of Medical Careers...... 4/88 Healthcare Yes ACCSCT 135 787
San Diego, CA
Maric College of Medical Careers...... 4/88 Healthcare Yes(4) ACCSCT 105 376
North County Campus
Vista, CA(3)
Long Medical Institute................ 4/88 Healthcare Yes ACCSCT 129 190
Phoenix, AZ
Andon College......................... 11/89 Healthcare No ABHES 150 245
Stockton, CA
Andon College......................... 11/89 Healthcare Yes ABHES 123 249
Modesto, CA
Bauder College........................ 3/92 Fashion and Yes ACCSCT 440 400
Atlanta, GA Design/ SACS/COC
Business
Modern Technology School of X-Ray..... 3/93 Healthcare Yes ACCSCT 221 401
North Hollywood, CA
Dominion Business School.............. 5/93 Business/ Yes ACICS 129 170
Roanoke, VA Healthcare
Dominion Business School.............. 5/93 Business/ Yes ACICS 408 102
Harrisonburg, VA(5) Healthcare
ICM School of Business................ 7/93 Business/ Yes ACICS 376 502
Pittsburgh, PA Healthcare/
Fashion and
Design
Ohio Institute of Photography &
Technology.......................... 7/93 Image Yes ACCSCT 67 268
Dayton, OH Technology/
Healthcare
California Institute of Merchandising
Art & Design........................ 8/93 Fashion and Yes ACICS 5 97
Sacramento, CA Design
San Antonio College of Medical and
Dental Assistants................... 9/96 Healthcare No ACCSCT 234 404
San Antonio, TX
San Antonio College of Medical and
Dental Assistants................... 9/96 Healthcare No ACCSCT 186 267
McAllen Campus
McAllen, TX
Career Centers of Texas -- El Paso.... 9/96 Healthcare No ACCSCT 286 319
El Paso, TX
Hagerstown Business College........... 12/96 Business/ Yes ACICS 495 435
Hagerstown, MD Healthcare
</TABLE>
29
<PAGE> 34
<TABLE>
<CAPTION>
APPROXIMATE
STUDENT STUDENT
ASSOCIATE INSTITUTIONAL POPULATION POPULATION AT
DATE DEGREE ACCREDITING AT DATE OF DECEMBER 31,
INSTITUTION ACQUIRED CURRICULUM GRANTING(1) AGENCY(2) ACQUISITION 1997
- ----------- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lincoln School of Commerce............ 3/97 Business/ Yes ACICS 342 368
Lincoln, NE Healthcare
Nebraska College of Business.......... 3/97 Business/ Yes ACICS 345 398
Omaha, NE Healthcare
----- -----
TOTAL........................ 4,176 5,978
===== =====
</TABLE>
- ---------------
(1) In order for a school to grant associate degrees, it must be accredited by
the applicable accrediting agency and approved by the relevant state agency.
(2) Accrediting Commission of Career Schools and Colleges of Technology
("ACCSCT"), Accrediting Council for Independent Colleges and Schools
("ACICS"), Accrediting Bureau of Health Education Schools ("ABHES") and
Southern Association of Colleges and Schools/Commission on Colleges
("SACS/COC"). See "Financial Aid and Regulation -- State Authorization and
Accreditation."
(3) The Company determined that there was a substantial overlap in the Vista,
California markets and combined its Vista school with the San Marcos school
during the second quarter of fiscal 1998. The Vista and San Marcos schools
were acquired at approximately the same time. The chart represents the
combined operations of the schools at the date of the acquisition and at
December 31, 1997.
(4) Degree granting status has been approved; however, programs have not yet
been implemented.
(5) The Company determined that there was a substantial overlap in the
Harrisonburg and Staunton, Virginia markets, and combined its Staunton
school with the Harrisonburg school in fiscal 1997. The Harrisonburg and
Staunton schools were both acquired at the same time. The chart represents
the combined operations of the schools at the date of the acquisition and at
December 31, 1997.
30
<PAGE> 35
The following table includes the same information as the prior table for
each of the Company's schools acquired in the CHI Institute and Hesser
Acquisitions, except for the number of students at December 31, 1997, which date
preceded their acquisition by the Company.
<TABLE>
<CAPTION>
APPROXIMATE
STUDENT
ASSOCIATE INSTITUTIONAL POPULATION AT
DATE DEGREE ACCREDITING DATE OF
INSTITUTION ACQUIRED CURRICULUM GRANTING AGENCY ACQUISITION
- ----------- -------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CHI Institute................................ 2/98 Business/ Yes ACCSCT 560
Southampton, PA Healthcare/IT
CHI Institute................................ 2/98 Business/ Yes ACCSCT 435
Broomall, PA Healthcare/IT
Hesser College............................... 3/98 Business/ Yes(1) NEASC(2) 1,185
Manchester, NH Healthcare/IT/
Criminal
Justice
Hesser College............................... 3/98 Business/ Yes(1) NEASC(2) 303
Salem, NH Healthcare/IT/
Criminal
Justice
Hesser College............................... 3/98 Business/ Yes(1) NEASC(2) 354
Nashua, NH Healthcare/IT/
Criminal
Justice
Hesser College............................... 3/98 Business/ Yes(1) NEASC(2) 407
Portsmouth, NH Healthcare/IT/
Criminal
Justice
-----
3,244
=====
</TABLE>
- ---------------
(1) The Hesser Colleges also grant bachelor degrees.
(2) New England Association of Schools and Colleges ("NEASC")
The CHI Institute Acquisition
On February 14, 1998, the Company acquired two schools located in the
Philadelphia, Pennsylvania area (the "CHI Institute Schools") 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. Promissory notes with aggregate principal balances of $3,000,000
are payable 30 days after the date the Department of Education recertifies the
schools as eligible for Title IV funding. The remaining promissory notes in the
amount of $5,750,000 are payable as follows: (i) $1,100,000 on February 15,
1999; (ii) $250,000 on March 15, 1999; and (iii) the remaining principal
amortizing in equal quarterly payments over four years. Accrued interest at the
rate of 8% per annum is payable with each payment of principal. 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.
Both of the CHI Institute Schools offer associate degree and diploma
programs in the fields of healthcare, business and information technology. As of
the date of acquisition, approximately 398, 397 and 200 students were enrolled
in each of such respective fields, with 200 of such students in diploma programs
and 795 of such students in associate degree programs.
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<PAGE> 36
The CHI Institute Schools are accredited by ACCSCT. None of the CHI
Institute Schools had cohort default rates of 25% or greater for the 1993, 1994,
and 1995 federal fiscal years, and are therefore not presently vulnerable to
termination of the Title IV Student Loan Program eligibility based on three
consecutive years of cohort default rates of 25% or more. Approximately 55% and
68% of cash receipts are derived from Title IV Programs for the CHI Institutes'
Southampton and the Broomall schools, respectively. Management believes the CHI
Institute Schools were in compliance with the Financial Responsibility Standards
for the fiscal year ended September 30, 1997. The CHI Institute Schools have not
received any notification of non-compliance from the Department of Education
under Title IV Programs. Federal approval is required due to the change in
ownership resulting in a change of control, as defined by applicable
regulations. The Company does not expect any difficulty in receiving the
approval of the Department of Education. In the Company's past experience, such
federal approval has been obtained within four to seven months. The Acquisition
Agreement provides for the sellers to indemnify the Company for any liabilities
imposed on the Company with respect to any instances of regulatory
non-compliance on the part of the sellers prior to the acquisition of the
schools by the Company. In addition, the Company has the right to set off any
payments due to the sellers against any such liability.
The Hesser Acquisition
On March 13, 1998, the Company acquired the four Hesser Schools 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
in the aggregate amount of $11,000,000 and 202,532 shares of the Company's
Common Stock. The promissory notes are payable in full 30 days following the
date the Department of Education recertifies the schools as eligible for Title
IV Funding. These promissory notes bear interest at the rate of 2% per annum.
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. All of the Hesser Schools offer associate
degrees in the fields of healthcare, business, criminal justice, information
technology, early childhood education, and others. As of the date of the Hesser
Acquisition, 807, 254, 218, 164, 146 and 601 students, respectively, were
enrolled in such associate degree programs. All of the Hesser schools also offer
bachelor degree programs in business and criminal justice, and as of the date of
acquisition, 59 students were enrolled in bachelor degree programs at two of the
schools.
The Hesser Schools are accredited by NEASC. None of the Hesser Schools had
cohort default rates of 25% or greater for the 1993, 1994, and 1995 federal
fiscal years, and are therefore not presently vulnerable to termination of the
Title IV Student Loan Program eligibility based on the three consecutive years
of cohort default rates of 25% or more. Approximately 65% of cash receipts for
the fiscal year ended December 31, 1996 are derived from Title IV Programs for
the Hesser Schools. Management believes the Hesser Schools were in compliance
with the Financial Responsibility Standards for the fiscal year ended December
31, 1997. Hesser Schools have not received any notification of non-compliance
from the Department of Education under Title IV Programs. Federal approval is
required due to the change in ownership resulting in a change of control, as
defined by applicable regulations. The Company does not expect any difficulty in
receiving the approval of the Department of Education. In the Company's past
experience, such federal approval has been obtained within four to seven months.
The Acquisition Agreement provides for the sellers to indemnify the Company for
any liabilities imposed on the Company with respect to any instances of
regulatory non-compliance on the part of the sellers prior to the acquisition of
the schools by the Company. In addition, the Company has the right to set off
any payments due to the sellers against any such liability.
PROGRAMS OF STUDY
The Company's programs are intended to provide students with the specific
knowledge and job skills required to prepare them for entry-level positions in a
chosen career field. The Company's programs, which generally provide for
internships or include business simulation instruction, are designed after
consultation
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<PAGE> 37
with employers and advisory committees, which are composed of business and
educational professionals who assist the Company in assessing and updating
curricula and other aspects of relevant programs.
At December 31, 1997, the Company offered both associate degree and diploma
programs in three areas: healthcare, business and image technology and associate
degree programs in fashion. The healthcare programs are designed to prepare
students for occupations associated with the medical and healthcare industry,
such as nursing, medical and dental assistant, home health aid, patient care
provider and medical and dental office manager. Fashion programs prepare
students for positions associated with fashion merchandising, fashion design and
interior design, such as buyers, display directors, fashion coordinators,
pattern makers, fashion designers and interior designers. The image technology
programs provide education in photography, video, desktop media and computer
graphics, and are designed to prepare students for such occupations as
professional photographer, videographer, photographic laboratory technician,
computer graphic technician and desktop publisher. The business programs provide
education in areas such as accounting, business management, information
technology, secretarial skills, paralegal skills and travel, and are designed to
prepare students for entry level positions in such areas.
At December 31, 1997, the Company provided healthcare programs at 16 of its
schools, business programs at seven of its schools, fashion and design at three
of its schools and image technology at one of its schools. Tuition and fees vary
depending on the program offered and the location of the school.
The following table provides information at December 31, 1997 with respect
to the programs offered by the Company's schools in each of the four major
fields described above:
<TABLE>
<CAPTION>
DIPLOMA ASSOCIATE DEGREE
---------------------------- ----------------------------
AVERAGE AVERAGE
STUDENT STUDENT TOTAL NO.
NO. OF NO. OF PROGRAM NO. OF NO. OF PROGRAM OF
PROGRAM SCHOOLS STUDENTS COST* SCHOOLS STUDENTS COST* STUDENTS
- ------- ------- -------- ------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Healthcare.................. 16 3,181 $6,376 8 656 $7,204 3,837
Business.................... 7 393 6,679 7 1,092 9,456 1,485
Fashion Design.............. -- -- -- 3 455 9,745 455
Image Technology............ 1 33 9,205 1 168 7,883 201
----- ----- -----
Company Total..... 3,607 2,371 5,978
</TABLE>
- ---------------
* Represents weighted average tuition and fees on an academic year basis (i.e.
nine month basis).
As of December 31, 1997, approximately 64%, 25%, 8% and 3% of students were
enrolled in programs in the fields of healthcare, business, fashion and design,
and image technology, respectively. All of the Company's programs are designed
to prepare graduates to perform effectively in a variety of entry-level
positions by providing the student with practical experience both in the
classroom and, in the case of most programs in the healthcare and fashion and
design fields, through the use of internships. The internships constitute a
graded portion of the curricula and provide hands-on experience in the work
place as well as a source of job opportunities. In addition, most of the
Company's business programs provide for a significant amount of education in a
simulated business environment with a view toward preparing the student for
participation in actual business situations.
The academic schedule of the Company's schools varies depending on the
programs offered by the individual schools. Degree programs begin four times a
year. Diploma programs begin every four to six weeks. Diploma courses are
typically offered mornings, afternoons, and evenings, and, except in the Hesser
Schools where the majority of associate degree students attend at night, degree
programs are principally offered during day-time hours. The schools generally
have classes operating year round and are generally open five days per week. The
Company believes that its diversified curricula provide it with an extensive
library of programs and experience in various fields enabling it to meet
changing demands in the areas served by each of its schools and to expand
offerings at each of the schools when justified by student and employer demand.
Programs which lead to similar occupational outcomes have the same general
content. However, modifications are made to conform each program to the
requirements of the particular market as well as to
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<PAGE> 38
state and accrediting regulations. In addition to courses directly related to a
student's program of study, degree programs may also include general education
courses such as English, Psychology or Mathematics. The programs in each field
are reviewed periodically by the regional managers and the schools' directors in
order to respond to changes in the job market and technology. Each school also
has established advisory committees, comprised of local business executives and
academics, to assist it in assessing and updating curricula and other aspects of
the relevant programs.
STUDENT RECRUITMENT
The Company endeavors to recruit motivated students with the ability to
complete the programs offered by the Company's schools and to secure entry-level
employment in the fields for which their programs are designed to prepare them.
To attract potential students, the Company engages in several activities to
inform them, and in some instances their parents, about the Company's programs.
These expenditures vary from school to school, depending on the desired
audience, and include television advertising, direct mailings, newspaper
advertising and yellow pages advertising. The Company also engages in high
school visits to attract potential students.
The Company's television advertising is coordinated and developed locally,
and budgeted on a centralized basis. It is tailored to and directed at the local
market in which each school is located and is intended to create recognition for
the name under which the applicable school operates. Responses to direct mail
campaigns are received and followed up on a local basis; however, all marketing
activities are tracked and analyzed on a centralized system and the results
forwarded to the individual schools for use in evaluating the effectiveness of
their marketing programs.
Each of the Company's schools employs a director of admissions who
generally reports to the school director. The director of admissions for each
school is responsible for, among other things, coordinating the efforts of the
school to recruit qualified students to the school. The director of admissions
also determines recruiting policies and procedures and standards for hiring and
training admissions representatives; however, such policies, procedures and
standards are reviewed at the regional or national level.
Admissions representatives contact potential students who have indicated an
interest in the schools' programs and arrange for interviews which generally
take place at the school, although occasionally such interviews take place at
the prospective student's home. The interview is designed to establish the
student's qualifications, academic background and employment goals. Prospective
students are generally given a school catalogue which describes the applicable
school's programs, a tour of the campus, an explanation of the programs offered
and the types of employment opportunities typically available to graduates of
the Company's schools. The Company employs admissions representatives who
generally perform their services in recruitment offices located at each school,
but who, in some instances, make visits and presentations at high schools or
other sources from which students may likely be recruited.
The Company's central marketing system monitors the effectiveness of each
school's marketing efforts to gauge the extent to which such efforts result in
student enrollment. The results of such monitoring are communicated to each of
the Company's schools allowing each school to more efficiently utilize its
marketing resources. Also, when a particular school develops a successful
marketing program, the Company makes such programs available to the other
schools for incorporation into their marketing programs as appropriate.
ADMISSION AND RETENTION
In order to apply for admission to any of the Company's programs, a
candidate is required to have a high school diploma or recognized equivalent, or
pass an admissions test specifically approved by the Department of Education. At
March 31, 1997, 85% of the students were high school graduates or held
recognized equivalent certification. Approximately 15% of enrolled students were
under 20 years of age, 39% were between 20 and 24 years of age, and 46% were 25
years of age or older. At March 31, 1997, 84% of the students attending the
Company's schools were women.
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<PAGE> 39
In an attempt to minimize student withdrawals prior to the completion of
their program, each of the Company's schools provides staff and other resources
to assist and advise its students regarding academic and financial matters, and
employment. Each of the schools also provides tutoring, and encourages help
sessions between individual students and instructors when students are
experiencing academic difficulties. The Company is obligated to provide refunds
to those students who withdraw from school prior to completion of the program
based on formulas required by applicable accrediting agencies or by state and
federal regulations. The refund formula in California, where the largest number
of the Company's schools are located, provides for pro rata refunds based on the
number of days a student is in attendance compared to the total number of days
in the program. In other states, the Company is generally allowed to retain a
greater percentage of tuition than that provided for by the California formula.
GRADUATE PLACEMENT
Each of the Company's schools employs placement personnel to provide
placement assistance services to students and graduates and to solicit
appropriate employment opportunities from employers. In addition, the Company's
schools utilize their internship programs to develop job opportunities and
referrals. During the course of each program, students receive instruction on
job-search and interviewing skills and have available reference materials and
assistance with the composition of resumes.
As of December 31, 1997, since their respective acquisition by the Company,
the Company's schools have graduated approximately 28,000 students, including
4,992 in fiscal 1997 and 4,650 for the nine month period ended December 31,
1997.
Based on data obtained by the Company from its students and their
employers, the Company believes that 77% of the students graduating from
programs offered by the Company's schools during the prior two calendar years,
who did not go on to further education, obtained employment in a field related
to their program of study as of June 30 or earlier of the year following
graduation.
FACULTY
Faculty members are hired locally in accordance with criteria established
by the school, applicable accreditation organizations, and applicable state
regulatory authorities. Members of a school's faculty are hired based on
academic background, prior educational experience, and prior work experience. A
significant portion of the Company's faculty were previously employed in fields
related to their area of instruction. The Company believes that such faculty
members provide a "real world" perspective to the students. At most of the
Company's schools, instructors are supervised by the school director and an
academic dean. At the remaining schools, faculty members are supervised by lead
instructors with respect to particular areas of instruction, subject to review
by the school director. As of December 31, 1997, the Company's schools employed
approximately 310 full-time faculty members (defined as those faculty members
spending at least 20 hours per week teaching classes at the Company's schools)
and 311 part-time faculty members.
ADMINISTRATION AND EMPLOYEES
Each of the Company's schools is managed by a school director.
Additionally, the staff of each school includes a director of placement, a
financial aid administrator, and a director or assistant director of admissions.
Twelve schools also employ a director of education. In the other schools, lead
instructors are appointed to oversee instruction in their areas of expertise,
subject to the overall supervision of the school director. As of December 31,
1997, the Company had approximately 1,087 full and part-time employees,
including 54 people employed at its home office in Roswell, Georgia and its
regional offices in Tampa, Florida, San Diego, California and Pittsburgh,
Pennsylvania, and 621 full and part-time faculty members. It also employed 79
students under the Federal Work-Study program. None of the Company's employees
is represented by a labor union or is subject to a collective bargaining
agreement. The Company has never experienced a work stoppage and believes that
its employee relations are satisfactory.
From its home office and regional offices, the Company provides each of its
schools with financial aid services, oversees regulatory compliance, assists in
the development and addition of programs to existing
35
<PAGE> 40
curricula, implements and supports management information systems and provides
accounting services and financial resources. The Company's regional offices each
have a regional manager and staff who manage the individual school directors and
provide expertise in the area of operations, curriculum development, and sales
and marketing. These centralized services relieve the local school management of
tasks which the Company believes can be performed most efficiently and cost
effectively by a centralized office. However, because of the Company's belief
that each of the markets served by its schools is unique, and that by offering
programs specifically targeted at each market it can maximize its long-term
ability to enroll and place students in an appropriate outcome, local school
management has the responsibility and authority to schedule the school's
programs, hire its teachers, and originate new program development or propose
the addition of programs from the existing curricula library.
COMPETITION
The postsecondary education market is highly fragmented and competitive
with no private or public institution having a significant market share. The
Company's schools compete for students with not-for-profit public and private
colleges and proprietary institutions which offer degree and/or non-degree
granting programs. Such proprietary institutions include vocational and
technical training schools, continuing education programs and commercial
training programs. Competition among educational institutions is believed to be
based on the quality of the program, perceived reputation of the institution,
the cost of the program, and the employability of graduates. Public and private
colleges may offer programs similar to those offered by the Company's schools at
lower tuition costs due in part to government subsidies, foundation grants, tax
deductible contributions, or other financial resources not available to
proprietary institutions. Certain of the Company's competitors in both the
public and private sector have greater financial and other resources than the
Company.
FACILITIES
All of the Company's facilities are leased by the Company, except for the
facilities in Dayton, Ohio, Lincoln, Nebraska, Omaha, Nebraska, and Manchester,
New Hampshire, which are owned by the Company. The table below sets forth
certain information regarding these facilities as of March 31, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
OFFICE/SCHOOL LOCATION SQUARE FOOTAGE
- ------------- -------- --------------
<S> <C> <C>
Home Office................................... Roswell, GA 8,850
Western Region Office......................... San Diego, CA 2,001
Eastern Region Office......................... Tampa, FL 1,581
WESTERN REGION SCHOOLS
Andon College................................. Modesto, CA 11,319
Andon College................................. Stockton, CA 13,241
California Academy of Merchandising, Art, and
Design...................................... Sacramento, CA 6,232
Lincoln School of Commerce.................... Lincoln, NE 58,490(1)
Long Medical Institute........................ Phoenix, AZ 11,423
Maric College of Medical Careers.............. San Diego, CA 39,092
Maric College of Medical Careers.............. Vista, CA 13,500
Modern Technology School of X-Ray............. North Hollywood, CA 15,194
Nebraska College of Business.................. Omaha, NE 19,035
</TABLE>
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<PAGE> 41
<TABLE>
<CAPTION>
APPROXIMATE
OFFICE/SCHOOL LOCATION SQUARE FOOTAGE
- ------------- -------- --------------
<S> <C> <C>
EASTERN REGION SCHOOLS
Bauder College................................ Atlanta, GA 27,187
Career Centers of Texas....................... El Paso, TX 10,453
CHI Institute................................. Southampton, PA 43,000
CHI Institute................................. Broomall, PA 50,000
Dominion Business School...................... Harrisonburg, VA 9,400
Dominion Business School...................... Roanoke, VA 11,077
Hagerstown Business College................... Hagerstown, MD 23,682
ICM School of Business........................ Pittsburgh, PA 47,833
Ohio Institute of Photography and
Technology(2)............................... Dayton, OH 24,200
San Antonio College of Medical and Dental
Assistants.................................. San Antonio, TX 23,712
San Antonio College of Medical and Dental
Assistants.................................. McAllen, TX 14,900
HESSER DIVISION
Hesser College................................ Manchester, NH 128,339(1)
Hesser College................................ Nashua, NH 17,905
Hesser College................................ Salem, NH 11,776
Hesser College................................ Portsmouth, NH 9,105
</TABLE>
- ---------------
(1) Total square footage includes dormitory facilities at these locations.
(2) The Dayton, Ohio facility was purchased in connection with the acquisition
of the school in fiscal 1994. It is owned subject to a mortgage with an
aggregate principal amount outstanding of $603,129 at December 31, 1997.
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<PAGE> 42
LITIGATION
North Hollywood Proceeding
In September 1995, the Company filed suit in the California Superior Court
in connection with its 1993 purchase of its North Hollywood, California school.
The suit alleged that the sellers made significant financial and operational
misrepresentations to the Company. The sellers denied the Company's allegations
and filed a Cross-Complaint against the Company seeking an indeterminate amount
of damages and alleging among other things, breach of contract and fraud. In
order to avoid protracted litigation and discovery, the Company decided it was
in its best interests to settle the lawsuit in April 1997. In connection with
the settlement, the Company agreed to pay immediately all amounts remaining on
the notes payable to sellers related to the financing of the acquisition and the
related payments for the covenants not to compete plus attorneys' fees. All
amounts were paid in April 1997.
San Diego Proceeding
On June 24, 1994, eight students enrolled in one of the Company's programs
at its schools in the San Diego, California area filed a class action lawsuit
against the Company in state court in San Diego, California. In substance, the
suit alleged that there were material misrepresentations made with respect to
the context of the program and the potential jobs available to the students who
graduated from it. The suit was certified as a class action in the fall of 1994.
Although the Company believes that it accurately described the course content
and the jobs to which the course could lead, in order to avoid further legal
expense and because of the uncertainty and risks inherent in any litigation, the
Company settled the lawsuit in March 1996. Pursuant to the terms of the
settlement, the Company paid $600,000 in March 1996 and $400,000 in April 1997.
Additionally, the Company agreed to make available tuition credits.
Approximately $115,000 was paid in April 1997 related to unused tuition credits.
The involved program was discontinued in the summer of 1994 for reasons
unrelated to the lawsuit.
In order to reduce the risk of any similar actions, the Company has
reviewed all of its catalogs and admission materials and, where the Company
believes appropriate, taken steps to further disclose to students in writing
that placement rates are based on multiple outcomes and the course is not
represented to lead to any one particular outcome, including the course title.
Southampton, PA Proceeding
Prior to the CHI Institute Acquisition by the Company, a jury verdict in
the amount of $102,000 was entered against the acquired company in an action
filed in the United States District Court for the Eastern District of
Pennsylvania. The action was based on alleged mental distress suffered by a
former student as a result of conduct of her fellow students and employees of
CHI Institute's Southampton location. The verdict has been appealed and is under
consideration. The Plaintiff subsequently filed a separate action in the Federal
Court seeking an award of attorneys' fees and costs of approximately $120,000.
The Company intends to pursue the appeal as well as vigorously defend against
any subsequent awards to Plaintiff of attorneys' fees and costs. Should the
appeal not be successful and should Plaintiff prevail in her action for fees and
costs, the Company will be liable for payment of the total judgment amount plus
Plaintiff's accrued fees and costs pursuant to the terms of the acquisition.
Routine Proceedings
The Company is also a party to routine litigation incidental to its
business, including ordinary course employment litigation. Management does not
believe that the resolution of any or all of such routine litigation is likely
to have a material adverse effect on the Company's financial condition or
results of operations.
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LICENSING, ACCREDITATION AND FINANCIAL AID REGULATION
TITLE IV STUDENT FINANCIAL ASSISTANCE PROGRAMS
A substantial majority of the students attending the Company's schools
finance all or a part of their education through grants or loans under Title IV
Programs. 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. Revenues from Title IV funding
provide most of the Company's tuition revenues (approximately 76% of cash
receipts in fiscal 1997 and 77% for the nine months ended December 31, 1997,
respectively). The maximum amount of a student's available Title IV program
assistance is generally based on the student's financial need. The Company
determines a student's financial need based on the national standard need
analysis system established by the HEA. If there is a difference between the
amount of Title IV program funding a student is entitled to receive (combined
with other outside assistance) and the student's tuition, the student is
responsible for the difference.
Students at the Company's schools participate in the following Title IV
Programs:
Pell and FSEOG Grants
The Federal Pell Grant Program provides for grants to help financially
needy undergraduate students meet the costs of their postsecondary education.
The amount of an eligible student's Pell grant award currently ranges from $400
to $2,700 annually, depending on the student's financial need, as determined by
a formula set by the HEA and the Regulations. The HEA guarantees that all of the
eligible students at a school receive Pell grants in the amounts to which they
are entitled. In fiscal 1997 and the nine months ended December 31, 1997, Pell
grants to students represented approximately $9,500,000 or 19.3% and $9,400,000
or 22.6%, respectively, of the Company's net revenues.
The Federal Supplemental Educational Opportunity Grant ("FSEOG") program
provides for awards to exceptionally needy undergraduate students. The amount of
an FSEOG award currently ranges from $100 to $4,000, depending on the student's
financial need and the availability of funds. The availability of federal
funding for FSEOG awards is restricted. The Company, or another outside source,
is required to make a 25% matching contribution for FSEOG program funds it
disburses. FSEOG awards made to the Company's students (net of matching
contributions) amounted to approximately $618,000 and $806,000 of the Company's
net revenues and represented approximately 1.3% and 1.9% of the Company's net
revenue in fiscal 1997 and for the nine months ended December 31, 1997,
respectively.
Federal Family Education Loans and Federal Direct Student Loans
The Federal Family Education Loan ("FFEL") programs include the Federal
Stafford Loan Program ("Stafford Loan"), and the Federal PLUS Program ("PLUS")
pursuant to which private lenders make loans to enable a student or his or her
parents to pay the cost of attendance at a postsecondary school.
The FFEL Program is administered through state and private nonprofit
guarantee agencies that insure loans directly, collect defaulted loans and
provide various services to lenders. The federal government provides interest
subsidies in some cases and reinsurance payments for borrower default, death,
disability, and bankruptcy.
The Federal Direct Student Loan Program ("FDSLP") is substantially the same
as the FFEL program in providing Stafford and PLUS loans. Under the FDSLP,
however, funds are provided directly by the federal government to the students,
and the loans are administered through the school. For schools electing to
participate, the FDSLP replaces the FFEL program, although loans are made on the
same general terms and conditions. The Company was one of the initial
participants in the FDSLP.
Stafford Loan Program
Students may borrow an aggregate of $2,625 for their first undergraduate
academic year and $3,500 for their second academic year under the FFEL Stafford
Loan or FDSLP Stafford Loan program. If the student
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<PAGE> 44
qualifies for a subsidized loan, based on financial need, the federal government
pays interest on the loan while the student is attending school and during
certain grace and deferment periods. If the student does not qualify for a
subsidized Stafford Loan, the interest accruing on the loans must be paid by the
student. In addition, independent students may qualify for an additional $4,000
a year in unsubsidized Stafford loans.
By the end of fiscal 1997, all of the Company's existing schools
participated in the FDSLP program and in fiscal 1998, all of its existing
schools will participate exclusively in such programs. FDSLP and FFEL Stafford
loans amounted to approximately $27,100,000 and $20,600,000, or approximately
54.8% and 49.6% of the Company's net revenues, in fiscal 1997 and for the nine
months ended December 31, 1997, respectively.
PLUS Loan Program
Parents of dependent students may receive loans under the FFEL PLUS Program
or the FDSLP PLUS Program on an academic year basis. The maximum amount of any
PLUS loan is the total cost of a student's education for each relevant academic
year less other financial aid received by the student attributable to such year.
PLUS loans carry a maximum interest rate of 9%. These loans are repayable
commencing 60 days following the last disbursement made with respect to the
relevant academic year, with flexible payment schedules over a 10 year period.
The FFEL PLUS loans are made by lending institutions and guaranteed by the
federal government. The FDSLP PLUS Program provides PLUS loans by the federal
government on the same general terms as the FFEL PLUS loans. FDSLP PLUS loans
and FFEL PLUS loans amounted to approximately $3,600,000 and $3,200,000, or
approximately 7.3% and 7.8% of the Company's net revenues, in fiscal 1997 and
for the nine months ended December 31, 1997, respectively.
Perkins Loans
Students who demonstrate financial need may borrow up to $3,000 per
academic year under the Federal Perkins Loan ("Perkins") program, subject to the
availability of Perkins funds at the institution. Repayment of loans under the
Perkins program is delayed until nine months after graduation or the termination
of studies. Funding for a school's Perkins program is made by the Department of
Education into a fund maintained by the participating school for that purpose.
The participating school is required to make a matching contribution into the
fund of 25% of the total loans made from the fund and to deposit all repayments
into the fund.
Five of the Company's schools participated in the Perkins program in fiscal
1997. In fiscal 1998, three of these schools will liquidate the Perkins programs
and no longer participate. The Company made no matching contributions in fiscal
1997 because the Company did not receive any Perkins funding from the Department
of Education and utilized only funds received from borrower repayments. A school
will not receive continued federal funding for Perkins loans if the school's
Cohort Default Rate for Perkins loans exceeds 30%. One of the Company's schools
receiving Perkins loan funding had a cohort default rate in excess of 30% in the
last fiscal year and is therefore ineligible to receive additional funds from
the government for the subsequent fiscal year. The school will, however, remain
able to make Perkins loans to students through funds repaid by previous
borrowers. Perkins loans amounted to approximately $140,000 and $99,000, or
approximately 0.3% and 0.2% of the Company's net revenues, in fiscal 1997 and
for the nine months ended December 31, 1997, respectively.
Federal Work-Study
Pursuant to the Federal Work-Study ("FWS") program, federal funds are made
available to provide part-time employment to eligible students based on
financial need. The Company's schools provide a limited number of on-campus and
off-campus jobs to eligible students participating in the FWS program. During
the 1996-97 award year, the Company's schools employed less than 300 students
pursuant to this program. The Company, or another outside source, is required to
pay 25% of the gross earnings for each participant in the FWS program.
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<PAGE> 45
TITLE IV REGULATION
To obtain and maintain eligibility to participate in the programs described
above, the Company's schools must comply with the rules and regulations set
forth in the HEA and the Regulations thereunder. An institution must obtain
certification by the Department of Education as an "eligible institution" to
participate in Title IV Programs. Certification as an "eligible institution"
requires, among other things, that the institution be authorized to offer its
educational programs by the state in which it operates. It must also be
accredited by an accrediting agency recognized by the Department of Education.
The HEA provides standards for institutional eligibility to participate in
the Title IV Programs. The standards are designed, among other things, to limit
dependence on Title IV funds, prevent schools with unacceptable student loan
default rates from participating in Title IV Programs and, in general, require
institutions to satisfy certain criteria intended to protect the integrity of
the federal programs, including criteria regarding administrative capability and
financial responsibility.
Generally, a school (a main campus and any additional locations for
purposes of the Regulations) is considered separately for compliance with the
Regulations. Including the Fiscal 1998 Acquisitions, 20 of the Company's 24
schools were main campuses.
A school that has been certified as eligible to participate in the Title IV
Programs continues to remain eligible for the period of its certification, which
is generally four years. A school must apply for a renewal of its certification
prior to its expiration, and must demonstrate compliance with the eligibility
requirements in its application.
Under certain circumstances, the Department of Education may provisionally
certify a school to participate in Title IV programs. Provisional certification
may be imposed, when a school is reapplying for certification or when a school
undergoes a change in ownership resulting in a change of control or at the
discretion of the Secretary of Education, if the school (i) does not satisfy all
the financial responsibility standards, (ii) has a Cohort Default Rate of 25% or
more in any single fiscal year of the three most recent federal fiscal years for
which data is available, and (iii) under other circumstances determined by the
Secretary of Education. Provisional certification may last no longer than three
years. Provisional certification differs from certification in that a
provisionally certified school may be terminated from eligibility to participate
in the Title IV Programs without the same opportunity for a hearing before an
independent hearing officer and an appeal to the Secretary of Education as is
afforded to a fully certified school faced with termination, suspension, or
limitation of eligibility prior to expiration of its certification.
Additionally, the Department of Education may impose additional conditions on a
provisionally certified institution's eligibility to continue participating in
the Title IV Programs.
Student Loan Defaults
Under the HEA, an institution may lose its eligibility to participate in
some or all Title IV Programs if student defaults on the repayment of federally
guaranteed student loans exceed specified Cohort Default Rates. Similar rules
regarding default rates apply to Federal Direct Loans made pursuant to the
FDSLP, commencing with those loans entering into repayment for the first time in
the 12 month period ending September 30, 1995. Under existing regulations, these
rates are based on the repayment history of current and former students for
loans provided under the Stafford Loan program and the SLS program. A Cohort
Default Rate is calculated for each school on a federal fiscal year basis by
determining the rate at which the school's students entering repayment in that
federal fiscal year default by the end of the following federal fiscal year.
Cohort Default Rates are subject to revision by the Department of Education if
new data becomes available and is subject to appeal by schools contesting the
accuracy of the data or the adequacy of the servicing of the loans by the loan
servicer.
An institution whose Cohort Default Rate exceeds 40% for any single federal
fiscal year may have its eligibility to participate in all Title IV Programs
limited, suspended or terminated. If the Department of Education elects to take
such action due to a single-year Cohort Default Rate in excess of the regulatory
level, it must afford the institution a hearing before an independent Department
of Education hearing officer and an
41
<PAGE> 46
opportunity to appeal any decision to the Secretary of Education before the
limitation, suspension, or termination may take effect. Except for its school
located in Albany, Georgia, which was closed in fiscal 1995, none of the
Company's schools has, or has had, a Cohort Default Rate in excess of 40%.
An institution whose Cohort Default Rate is 25% or more for the three most
recent federal fiscal years for which data is available is subject to immediate
loss of eligibility to participate in Title IV Student Loan Programs, subject to
an appeal (on the bases stated in the prior paragraph) of the determination,
which appeal only can be based on the Department of Education 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 fiscal year in which the determination of ineligibility is
made, plus the two succeeding fiscal years. However, an institution remains
eligible for Title IV funding while the appeal is pending.
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 current fiscal years for which data is
available. Accordingly, the Company believes that none of the schools is
currently vulnerable to termination from Title 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 more
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, is not vulnerable to termination of Title IV Student
Loan Program eligibility unless their rates for the next two federal fiscal
years are 25% or more. 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 more for consecutive three year periods beginning with
federal fiscal 1996 and thereafter in order to become vulnerable to termination
of Title IV Student Loan Program eligibility.
The 85/15 Rule
The "85/15" rule, which applies to for-profit institutions such as the
schools owned and operated by the Company, became applicable to the Company's
schools beginning with the fiscal year ending March 31, 1994. It requires that
no more than 85% of the school's applicable cash receipts may be derived from
Title IV Programs. A school whose annual certified financial statement or Title
IV compliance audit report to the Department of Education does not reflect
compliance with the 85/15 rule is subject to immediate termination of its Title
IV eligibility. The Company believes that each of its schools was in compliance
with the 85/15 rule with respect to fiscal 1994, 1995, 1996 and 1997, and has
taken steps to help ensure on-going compliance with the 85/15 Rule.
Change of Control
Upon a change in ownership resulting in a change of control of the Company,
as defined in the HEA and Regulations, each of the Company's schools would lose
its eligibility to participate in Title IV Programs for an indeterminate period
of time during which it applies to regain eligibility. A change of control also
could have significant regulatory consequences for the Company at the state
level and could affect the accreditation of the Company's schools.
The Department of Education's regulations provide that after a company
becomes publicly traded, 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. Most states and accrediting agencies have similar
requirements, but they do not provide a uniform definition of change of control.
If the Company were to lose its eligibility to participate in Title IV Programs
for a significant period of time pending an application to regain eligibility,
or if it were determined not to be eligible, its operations would be materially
adversely 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.
42
<PAGE> 47
Administrative Capability
The Regulations set certain standards of "administrative capability" which
a school must satisfy to participate in the Title IV Programs. These criteria
require, among other things, that the school comply with all applicable Title IV
Regulations, have capable and sufficient personnel to administer the Title IV
Programs, have acceptable methods of defining and measuring the satisfactory
academic progress of its students, provide financial aid counseling to its
students, timely submit all reports and financial statements required by the
Regulations, and that the school's Cohort Default Rate not equal or exceed 25%
for any single fiscal year.
Failure to satisfy any of the criteria may lead the Department of Education
to determine that the school lacks the requisite administrative capability and
may subject the school to provisional certification when it seeks to renew its
certification as an eligible institution, or may subject it to a fine or to a
proceeding for the limitation, suspension, or termination of its participation
in Title IV Programs. Proceedings to fine, limit, suspend, or terminate an
institution are conducted before an independent hearing officer of the
Department of Education and are subject to appeal to the Secretary of Education,
prior to any sanction taking effect. Thereafter, judicial review may be sought
in the federal courts pursuant to the federal Administrative Procedures Act.
Eight of the Company's schools are provisionally certified to participate
in the Title IV Programs. The conditions imposed on them as a result of such
provisional certification include reporting requirements relating to each
school. The material violation of such requirements, or any of the requirements
of the HEA or the Regulations, would subject the school to a loss of its
provisional eligibility.
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 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, the Department 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 fiscal year for which figures are available 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
approximately $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 fiscal year was
$20,220,000. Pursuant to the Regulations, the Company submits annual audited
consolidated financial statements and unaudited consolidating financial
statements to the Department of Education.
Among the principal Financial Responsibility Standards which an institution
currently must satisfy are: (i) an "acid test" ratio (defined as the ratio of
the total of cash, cash equivalents and current accounts receivable to current
liabilities) of at least 1-to-1 at the end of the most recent fiscal year, (ii)
a positive tangible net worth, as defined by the applicable Regulations, at the
end of the most recent fiscal year (the "Tangible Net Worth Standard") and (iii)
net operating results for the two most recent fiscal years, excluding
extraordinary losses or losses from discontinued operations, which do not show
an aggregate net loss in excess of 10% of tangible net worth from that 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 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 total 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
43
<PAGE> 48
1996, or otherwise request 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 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 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.
Other than the Roanoke, Virginia school, none of the Company's schools had
operating losses in fiscal 1996 or fiscal 1997 which, in the aggregate, exceeded
10% of the tangible net worth at the beginning of the period. Therefore, only
the Roanoke School, which represented 2.4% of the Company's total net revenue
for the year ended March 31, 1997, is in violation of the Financial
Responsibility Standard relating to operating losses.
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 Programs 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.
Regulatory Compliance Generally. 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;
44
<PAGE> 49
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
Title IV 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.
45
<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information regarding the executive officers
and directors of the Company. Biographical information for each of the persons
set forth in the table is presented below.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Gary D. Kerber.................... 59 Chairman, President, Chief Executive Officer and a Director
Vince Pisano...................... 44 Vice President and Chief Financial Officer
Gerald T. Kosentos................ 46 Vice President of Operations
Ellen L. Bernhardt................ 47 Director of Operations -- Eastern Region
Linwood W. Galeucia............... 53 President -- Hesser College
Craig A. Wood..................... 49 Director of Operations -- Western Region
Gerry M. Taylor................... 54 Director of New Product Development
Elaine Neely-Eacona............... 45 Director of Financial Aid
K. Terry Guthrie.................. 55 Director of Accreditation
A. William Benham, Jr............. 36 Controller
Robert J. Cresci.................. 54 Director
Carl S. Hutman.................... 64 Director
Richard E. Kroon.................. 55 Director
W. Patrick Ortale, III............ 44 Director
</TABLE>
GARY D. KERBER, age 59, has been President, Chief Executive Officer and a
Director of the Company since March 1988. From 1971 to 1983, he was employed by
American Hospital Supply Company in various sales and executive positions. From
1983 to 1986, Mr. Kerber was the chief executive officer for Kimberly Services,
Inc.
VINCE PISANO, age 44, has been Vice President of Finance and Chief
Financial Officer of the Company since March 1990. From 1978 to 1990, he was
employed by National Education Corporation, a provider of postsecondary
education, as corporate controller and subsequently as the vice president of
finance of its educational centers division.
GERALD T. KOSENTOS, age 46, has been Vice President of Operations of the
Company since June 1997. From April 1997 through June 1997 he was Director of
Operations -- Central Region of the Company. From January 1995 to June 1997 he
was Director of ICM School of Business & Medical Careers, a wholly owned
subsidiary of the Company. Prior to January 1995, Mr. Kosentos was employed for
21 years by National Education Corporation, in various positions including the
directorship of three school locations, Regional Director of Operations and, for
the last nine years of his employment, as Vice President of Operations.
ELLEN L. BERNHARDT, age 47, has been Director of Operations -- Eastern
Region of the Company since August 1993. From 1985 to 1993, she was employed by
National Education Corporation, a provider of postsecondary education, most
recently as southeast regional director of operations.
LINWOOD W. GALEUCIA, age 53, has been President of Hesser College at the
time of its acquisition by the Company on March 13, 1998. From 1983 to March
1998, Mr. Galeucia was President, Executive Vice President and co-owner of
Hesser, Inc., the parent company of Hesser College. Since 1990, Mr. Galeucia has
been a member of the New Hampshire Postsecondary Education Commission.
CRAIG WOOD, age 49, was appointed Director of Operations -- Western Region
of the Company in March 1998. Prior to joining the Company, Mr. Wood was Vice
President, Operations of Education America, Inc. from July 1997 to December
1997. Mr. Wood also served as Vice President, Marketing of the Katherine Gibbs
Schools, Inc. from February 1995 to July 1997.
GERRY M. TAYLOR, age 54, was appointed Director of New Product Development
in March 1998. From July 1991 to March 1998, Ms. Taylor served as Director of
Operations -- Western Region of the
46
<PAGE> 51
Company. From 1989 to 1991, she was employed as Executive Director of the
Company's three schools in the San Diego, California area.
ELAINE NEELY-EACONA, age 45, has been Director of Financial Aid of the
Company since 1990. From 1976 to 1990, she was employed in various financial aid
positions by Education Management Corporation, a provided of postsecondary
education.
K. TERRY GUTHRIE, age 55, has been Director of Accreditation of the Company
since July 1993. From 1971 to July 1993, he was employed as president of Ohio
Institute of Photography and Technology, which he co-founded. Ohio Institute of
Photography and Technology was acquired by the Company in July 1993.
A. WILLIAM BENHAM, age 36, has been Controller of the Company since May
1995. From 1989 to May 1995, Mr. Benham was Assistant Controller of the Company.
ROBERT J. CRESCI, age 54, has been a Director of the Company since 1991.
Since September 1990, Mr. Cresci has been a Managing Director of Pecks
Management Partners Ltd., an investment management firm. Mr. Cresci is a member
of the boards of directors of Bridgeport Machines, Inc., EIS International,
Inc., Sepracor, Inc., Arcadia Financial, Ltd., Hitox, Inc., Garnet Resources
Corporation, HarCor Energy, Inc., Meris Laboratories, Inc., Film Roman, Inc.,
Source Medical, Inc., Castle Dental Centers, Inc., Candlewood Hotel Co., Inc.,
SeraCare, Inc. and several private companies.
CARL S. HUTMAN, age 64, has been a Director of the Company since 1988.
Since 1996, he has also been managing director of Fundamental Management
Corporation, an investment management firm. Since 1981, he has been president of
Anlyn Advisers, Inc., an investment advisory company. From 1981 to 1991, he was
a general partner of Investech, L.P., a venture capital partnership which
purchased convertible preferred stock and Common Stock of the Company in 1988
and 1989 and distributed all of its holdings to its general and limited partners
in 1991. Mr. Hutman is a member of the Board of Directors of Canadian General
Investments, Limited, Canadian World Fund Limited and Third Canadian General
Investment Trust Limited, all of which are investment funds. Mr. Hutman is also
a member of the Board of Directors of Harris Trust/Bank of Montreal, Florida.
RICHARD E. KROON, age 55, has been a Director of the Company since 1994.
Since 1981, Mr. Kroon has been managing partner of the Sprout Group and
President and Chief Executive Officer of DLJ Capital Corp. Mr. Kroon is a
director of Loehmann's, Inc., a clothing retailer, AMCOMP, a workers'
compensation insurance company, and the National Venture Capital Association.
W. PATRICK ORTALE, III, age 44, has been a Director of the Company since
1988. Since 1985, Mr. Ortale has been a general partner of Lawrence Venture
Partners, the general partner of Lawrence, Tyrrell, Ortale & Smith, a private
venture capital limited partnership, which is a principal stockholder of the
Company. Since 1990, 1994 and 1996, respectively, Mr. Ortale has been a general
partner of the general partnerships which control Lawrence, Tyrrell, Ortale &
Smith II, L.P., Richland Ventures, L.P. and Richland Ventures II, L.P., private
venture capital limited partnerships.
BOARD OF DIRECTORS
Pursuant to the Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and the Bylaws (the "Bylaws") of the Company,
the Company's Board of Directors consists of five directors or such greater or
lesser number as may be fixed from time to time by a majority of the total
number of directors which the Company would have if there were no vacancies on
the Companies Board of Directors.
The Board has a standing Audit Committee and a standing Compensation
Committee. It does not have a Nominating Committee.
Messrs. Cresci (Chairman) and Hutman comprise the Audit Committee of the
Board of Directors, which is responsible for policies, procedures and other
matters relating to accounting, internal financial controls and financial
reporting, including the engagement of independent auditors and the planning,
scope, time and cost of any audit and any other services they may be asked to
perform, and also review with the
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<PAGE> 52
auditors their report on the financial statements following completion of each
such audit. In addition, the Audit Committee is responsible for policies,
procedures and other matters relating to business integrity, ethics and
conflicts of interests.
Messrs. Kroon (Chairman), Cresci and Ortale comprise the Compensation
Committee of the Board of Directors, which is responsible for policies,
procedures and other matters relating to employee benefit and compensation
plans, including compensation of the executive officers as a group and the chief
executive officer individually. The Compensation Committee is also responsible
for administering and making awards under the stock-based compensation plans,
procedures and other matters relating to management development and for
reviewing, monitoring and recommending (for approval by the Company's full Board
of Directors) plans with respect to succession of the chief executive officer.
COMPENSATION OF THE BOARD OF DIRECTORS
All directors hold office until the next annual meeting of shareholders and
the election and qualification of their successors. Directors who are not
employees and do not otherwise receive compensation from the Company are
entitled to an annual directors' fee of $6,000 and directors' fees of $1,000 for
each Board meeting attended and $500 for each Committee meeting attended in
addition to the reimbursement of reasonable expenses incurred in connection with
their activities as directors of the Company. Directors who are also employees
of the Company receive no compensation for serving on the Board of Directors.
Non-Employee Directors are also entitled to receive options to purchase the
Company's Common Stock. See "Non-Employee Directors' Stock Option Plan."
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
On June 20, 1996, the Company adopted, and its stockholders approved, a
Non-Employee Director Stock Option Plan (the "Directors' Plan") to attract and
retain the services of non-employee members of the Board of Directors and to
provide them with increased motivation and incentive to exert their best efforts
on behalf of the Company by enlarging their personal stake in the Company. The
maximum number of shares of Common Stock with respect to which options may be
granted under the Directors' Plan is 200,000 shares. As of December 31, 1997,
options covering 88,000 shares were available for future grant under the
Directors' Plan.
Each member of the Board of Directors of the Company who otherwise (i) is
not currently an employee of the Company, (ii) is not a former employee still
receiving compensation for prior services (other than benefits under a
tax-qualified pension plan), and (iii) is not currently receiving remuneration
from the Company in any capacity other than as a director shall be eligible for
the grant of stock options under the Directors' Plan. Currently, all directors
other than Mr. Kerber are eligible to participate in the Directors' Plan.
On the date the Directors' Plan was adopted, each of the four existing
non-employee directors were each granted, contingent upon completion of the IPO,
options to purchase 25,000 shares of Common Stock of the Company at the IPO
price, or $10.00 per share. These options vested immediately upon consummation
of the IPO. Upon the election of any new member to the Board of Directors, such
member will be granted an option to purchase 25,000 shares of Common Stock at
the fair market value at date of grant, vesting in five equal annual
installments beginning on the first anniversary of the date of grant. Beginning
with the next annual meeting of the stockholders of the Company and provided
that a sufficient number of shares remain available under the Directors' Plan,
each year immediately following the date of the annual meeting of the Company
there automatically will be granted to each non-employee director who is then
serving on the Board an option to purchase 3,000 shares of the Common Stock of
the Company, which options will be immediately vested. The options to be granted
under the Directors' Plan shall be nonqualified stock options (stock options
which do not constitute "incentive stock options" within the meaning of Section
422A of the Plan).
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the annual and long-term compensation paid
by the Company for services performed on the Company's behalf for the last three
completed fiscal years (i.e., the fiscal years ended March 31, 1995, March 31,
1996 and March 31, 1997), with respect to those persons who were, as of
48
<PAGE> 53
March 31, 1997 and December 31, 1997, the Company's Chief Executive Officer and
the Company's executive officers (the "Named Executive Officers") who earned
compensation greater than $100,000 in such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION(1) ---------------------------------
------------------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (NUMBER OF SHARES) COMPENSATION
- --------------------------- ------ -------- -------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gary D. Kerber.............. 1997 $188,660 $148,000 -- 134,260 $2,400(2)
Chairman, President 1996 187,124 155,606 -- 16,667 4,720(2)
and Chief Executive 1995 193,511 -- -- -- 2,400(2)
Officer
Vince Pisano................ 1997 140,247 111,200 $10,000(3) 100,740 --
Vice President of 1996 140,595 116,915 -- 13,333 --
Finance and Chief 1995 145,384 -- -- -- --
Financial Officer
Gerry M. Taylor............. 1997 116,048 -- -- 7,500 --
Director of New 1996 109,283 101,615 -- 25,000 --
Product Development 1995 108,162 15,435 -- -- --
Ellen L. Bernhardt.......... 1997 110,914 22,500 -- 7,500 --
Director of Operations 1996 107,744 66,606 -- 10,000 --
-- Eastern Region 1995 108,212 -- -- -- --
Gerald T. Kosentos.......... 1997 86,166 24,430 -- 4,000 --
Vice President of 1996 80,026 1,280 -- 6,667 --
Operations 1995 19,551 -- -- -- --
</TABLE>
- ---------------
(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) Consists solely of premiums paid by the Company for a life insurance policy
for Mr. Kerber. Upon Mr. Kerber's death, the Company will receive no
proceeds from such policy.
(3) Consists of a discount on the outstanding amount of a loan from the Company
to Mr. Pisano in return for early repayment of the loan.
49
<PAGE> 54
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all grants of options for the Company's
Common Stock to the Named Executive Officers of the Company during the fiscal
year ended March 31, 1997. In addition, the table shows the hypothetical gains
or "option spreads" that would exist for the respective options. These gains are
based on assumed rates of annual compound stock price appreciation of 5% and 10%
from the date the options were granted over the full option terms.
OPTION GRANTS FOR FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION FOR OPTION
SECURITIES GRANTED EXERCISE OR TERM(2)
UNDERLYING TO BASE PRICE EXPIRATION -----------------------------
NAME OPTIONS EMPLOYEES ($/SHARE) DATE(1) 5% 10%
- ---- ---------- ---------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary D. Kerber(3)............... 100,000 36.7%(3) $10.00 06/20/06 $ 766,495 $1,904,104
34,260 10.00 11/06/06
Vince Pisano(3)................. 75,000 27.6(3) 10.00 06/20/06 575,155 1,428,796
25,740 10.00 11/06/06
Gerry M. Taylor................. 7,500 2.1 10.00 06/20/06 47,175 119,500
Ellen L. Bernhardt.............. 7,500 2.1 10.00 06/20/06 47,175 119,500
Gerald T. Kosentos.............. 4,000 1.1 10.00 06/20/06 25,160 63,760
------- ---------- ----------
TOTAL................. 254,000 $1,461,160 $3,635,760
======= ========== ==========
</TABLE>
- ---------------
(1) Expiration dates reflect the expiration date of the last vested installment
of each grant. The Company generally schedules an option grant to vest in
five equal installments, each installment expiring on the fifth anniversary
of the vesting date.
(2) The dollar amounts under these columns represent the potential tangible
value, before income taxes, of each option assuming that the market price of
the Common Stock appreciates in value from fair market value at the date of
grant to the end of the option term at 5% and 10% annual rates and therefore
are not intended to forecast possible future appreciation, if any, of the
price of the Common Stock. All grants of options have been made with
exercise prices equal to fair value at date of grant.
(3) The percentage of total options granted and potential realizable value given
for Messrs. Kerber and Pisano's options are inclusive of the two separate
option grants listed herein.
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<PAGE> 55
No options were exercised in fiscal year ended March 31, 1997 by any of the
Named Executive Officers. The following table sets forth, as of March 31, 1997,
the number of stock options and the value of unexercised stock options held by
the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS(1)
OPTIONS AT MARCH 31, 1997 AT MARCH 31, 1997
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gary D. Kerber.................................. 45,000 147,594 $ 394,250 $269,830
Vince Pisano.................................... 27,667 111,406 241,653 207,520
Gerry M. Taylor................................. 38,333 27,500 333,247 162,375
Ellen L. Bernhardt.............................. 27,000 23,833 196,550 130,989
Gerald T. Kosentos.............................. 1,333 9,334 10,197 45,805
------- ------- ---------- --------
TOTAL................................. 139,333 319,667 $1,175,890 $816,519
</TABLE>
- ---------------
(1) The dollar value of the unexercised options has been calculated by
determining the difference between the fair market value of the securities
underlying the options and the exercise or base price of the option at
exercise or fiscal year-end, respectively.
1996 PERFORMANCE INCENTIVE PLAN
In June 1996, the Board of Directors of the Company (the "Board")
authorized, and the stockholders of the Company approved, the 1996 Stock
Incentive Plan for executive and other employees of the Company, including a
limited number of outside consultants and advisors, effective as of the
completion of the IPO (the "Stock Option Plan"). Under the Stock Option Plan,
employees, outside consultants and advisors (the "Participants") of the Company
(as defined in the Stock Option Plan) may receive awards of stock options (both
Nonqualified Options and Incentive Options, as defined in the Stock Option
Plan), stock appreciation rights or restricted stock. A maximum of 961,666
shares of Common Stock are subject to the Stock Option Plan. As of March 31,
1997, options for 260,167 shares of Common Stock were available for grant. The
purpose of the Stock Option Plan is to provide employees (including officers and
directors who are also employees) and non-employee consultants and advisors of
the Company ("employees") with an increased incentive to make significant and
extraordinary contributions to the long-term performance and growth of the
Company, to join their interests with the interests of the shareholders of the
Company, and to facilitate attracting and retaining employees of exceptional
ability.
Administration. The Stock Option plan may be administered by the Board, or
in the Board's sole discretion by the Compensation Committee of the Board (the
"Committee," and with the Board "the Administrator") or such other committee as
may be specified by the Board to perform the functions and duties of the
Committee under the Stock Option Plan. Subject to the provisions of the Stock
Option Plan, the Administrator shall determine, from those eligible to be
Participants, the persons to be granted stock options, stock appreciation rights
and restricted stock, the amount of stock or rights to be optioned or granted to
each such person, and the terms and conditions of any stock option, stock
appreciation rights and restricted stock. Subject to the provisions of the Stock
Option Plan, the Administrator is authorized to interpret the Stock Option Plan,
to make, amend and rescind rules and regulations relating to the Stock Option
Plan and to make all the determinations necessary or advisable for the Stock
Option Plan's administration.
Participants. The Participants in the Stock Option Plan are those
employees, consultants and advisors of the Company who in the judgment of the
Administrator are or will become responsible for the direction and financial
success of the Company. Employees include officers and directors who are also
employees of the Company.
51
<PAGE> 56
Shares Subject to Plan. The maximum number of shares with respect to which
stock options or stock appreciation rights may be granted or which may be
awarded as restricted stock under the Stock Option Plan is 961,666 shares of
Common Stock of which 260,167 were available for grant as of March 31, 1997.
Shares covered by expired or terminated stock options or stock appreciation
rights or forfeited restricted stock awards will again become available for
grant or award under the Stock Option Plan. The number of shares subject to each
outstanding stock option, stock appreciation right or restricted stock award,
the option price with respect to outstanding stock options, the grant value with
respect to outstanding stock appreciation rights and the aggregate number of
shares remaining available under the Stock Option Plan will be subject to such
adjustment as the Administrator, in its discretion, deems appropriate to reflect
such events as stock dividends, stock splits, recapitalizations, mergers,
consolidations or reorganizations of, or by, the Company.
Stock Options and Stock Appreciation Rights. Subject to the terms of the
Stock Option Plan, the Administrator may grant to Participants either Incentive
Options meeting the definition of an incentive stock option under Section 422 of
the Code or Nonqualified Options not meeting such definition, or any combination
thereof. The exercise price for an Incentive Option may not be less than 100% of
the fair market value of the stock on the date of grant; however, the exercise
price for an Incentive Option granted to an employee who owns more than 10% of
the voting stock of the Company or any subsidiary may not be less than 110% of
the fair market value of the stock on the date of grant.
Subject to the terms of the Stock Option Plan, the Administrator may grant
stock appreciation rights to Participants either in conjunction with, or
independently of, any stock options. Stock appreciation rights may be granted in
conjunction with stock options as an alternative right or as an additional
right. Upon exercise of a stock appreciation right, a Participant will generally
be entitled to receive an amount equal to the difference between the fair market
value of the shares at the time of grant and the fair market value of the shares
at the time of exercise. This amount may be payable in cash, shares of Common
Stock or a promissory note from the Participant, or any combination thereof, as
determined in the discretion of the Administrator.
The exercise period for stock options and stock appreciation rights will be
determined by the Administrator, but no stock option or stock appreciation right
may be exercisable prior to the expiration of six months from the date of grant
or after 10 years from the date of grant, subject to certain conditions and
limitations.
Incentive options and related stock appreciation rights are not
transferable by a Participant other than by will or by the laws of descent and
distribution, and incentive options and related stock appreciation rights are
exercisable, during the lifetime of the Participant, only by the Participant.
If the employment or consultancy of a Participant by the Company
terminates, the Administrator may, in its discretion, permit the exercise of
stock options and stock appreciation rights granted to such Participant (i) for
a period not to exceed three months following termination of employment with
respect to Incentive Options or related stock appreciation rights if termination
of employment is not due to death or permanent disability of the Participant,
(ii) for a period not to exceed one year following termination of employment
with respect to Incentive Options or related stock appreciation rights if
termination of employment is due to the death or permanent disability of the
Participant, and (iii) for a period not to extend beyond the expiration date
with respect to Nonqualified Options or related or independently granted stock
appreciation rights.
Restricted Stock Awards. Subject to the terms of the Stock Option Plan,
the Administrator may award shares of restricted stock to Participants. All
shares of restricted stock will be subject to the following terms and
conditions, among others: (i) at the time of each award of restricted shares, a
restricted period of no less than six months and no greater than five years,
will be established for the shares. The restricted period may differ among
Participants and may have different expiration dates with respect to portions of
shares covered by the same award; (ii) shares of restricted stock awarded to
Participants may not be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered during the restricted period applicable to such shares.
Except for such restrictions on transfer, a Participant will have all of the
rights of a shareholder in respect to restricted shares awarded to him or her
including the right to receive any dividends on, and the right to vote, the
shares; and (iii) if a Participant ceases to be an employee or consultant of the
Company for any reason other than death or permanent disability, all shares
theretofore awarded to the Participant which are still subject to the
restrictions imposed by provision (ii) above will upon such termination of
employment or consultancy be
52
<PAGE> 57
forfeited and transferred back to the Company. If such employment or consultancy
is terminated by action of the Company without cause or by agreement between the
Company and the Participant, the Administrator may, in its discretion, release
some or all of the shares from the restrictions; (iv) if a Participant ceases to
be an employee or consultant of the Company by reason of death or permanent
disability, the restrictions will lapse with respect to shares then subject to
such restrictions, unless otherwise determined by the Administrator.
Termination, Duration and Amendments of Plan. The Stock Option Plan may be
abandoned or terminated at any time by the Board. Unless sooner terminated, the
Stock Option Plan will terminate on the date ten years after its adoption by the
Board. The termination of the Stock Option Plan will not affect the validity of
any stock option, stock appreciation right or restricted stock outstanding on
the date of termination.
For the purpose of conforming to any changes in applicable law or
governmental regulation, or for any other lawful purpose, the Board will have
the right, with or without approval of the shareholders of the Company, to amend
or revise the terms of the Stock Option Plan at any time; however, no such
amendment or revision will, without the consent of the holder thereof, change
the stock option price (other than anti-dilution adjustments) or alter or impair
any stock option, stock appreciation right or restricted stock which has been
previously granted or awarded under the Stock Option Plan.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK INCENTIVE PLANS
The Company understands that, under current federal income tax rules,
awards under the 1996 Performance Incentive Plan and the Non-Employee Director
Plan have the consequences described below:
The rules governing the tax treatment of stock options, stock appreciation
rights, restricted stock and shares acquired upon the exercise of stock options
and stock appreciation rights are technical. Therefore, the description of
federal income tax consequences set forth below is necessarily general in nature
and does not purport to be complete. Moreover, statutory provisions are subject
to change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the tax consequences under applicable state
and local income tax laws may not be the same as under the federal income tax
laws.
Incentive Options. Incentive Options granted pursuant to the Plan are
intended to qualify as "Incentive Options" within the meaning of Section 422 of
the Code. If the Participant makes no disposition of the shares acquired
pursuant to exercise of an Incentive Option within one year after the transfer
of shares to such Participant and within two years from grant of the option,
such Participant will realize no taxable income as a result of the grant or
exercise of such option, and any gain or loss that is subsequently realized may
be treated as long-term capital gain or loss, as the case may be. Under these
circumstances, the Company will not be entitled to a deduction for federal
income tax purposes with respect to either the issuance of such Incentive
Options or the transfer of shares upon their exercise. However, the exercise of
an Incentive Option is an item of tax preference and a Participant may have
alternative minimum tax liability.
If shares acquired upon exercise of Incentive Options are disposed of prior
to the expiration of the above time periods, the Participant will recognize
ordinary income in the year in which the disqualifying disposition occurs, the
amount of which will generally be the lesser of (i) the excess of the market
value of the shares on the date of exercise over the option price, or (ii) the
gain recognized on such disposition. Such amount will ordinarily be deductible
by the Company for federal income tax purposes in the same year, provided that
the amount constitutes reasonable compensation. In addition, the excess, if any,
of the amount realized on a disqualifying disposition over the market value of
the shares on the date of exercise will be treated as capital gain.
Nonqualified Options. A Participant who acquires shares by exercise of a
Nonqualified Option generally realizes as taxable ordinary income, at the time
of exercise, the difference between the exercise price and the fair market value
of the shares on the date of exercise. Such amount will ordinarily be deductible
by the Company in the same year, provided that the amount constitutes reasonable
compensation. Subsequent appreciation or decline in the value of the shares on
the sale or other disposition of the shares will generally be treated as capital
gain or loss.
53
<PAGE> 58
Stock Appreciation Rights. A Participant generally will recognize income
upon the exercise of a stock appreciation right in an amount equal to the amount
of cash received and the fair market value of any shares received at the time of
exercise, plus the amount of any taxes withheld. Such amount will ordinarily be
deductible by the Company in the same year, provided that the amount constitutes
reasonable compensation.
Restricted Stock. A Participant granted shares of restricted stock under
the Plan is not required to include the value of such shares in ordinary income
until the first time such Participant's rights in the shares are transferable or
are not subject to substantial risk of forfeiture, whichever occurs earlier,
unless such Participant timely files an election under Section 83(b) of the Code
to be taxed on the receipt of the shares. In either case, the amount of such
income will be equal to the excess of the fair market value of the stock at the
time the income is recognized over the amount (if any) paid for the stock. The
Company will ordinarily be entitled to a deduction, in the amount of the
ordinary income recognized by the Participant, for the Company's taxable year in
which the Participant recognizes such income, provided that the amount
constitutes reasonable compensation.
Withholding Payments. If, upon exercise of a Nonqualified Option or stock
appreciation right, or upon the award of restricted stock or the expiration of
restrictions applicable to restricted stock, or upon a disqualifying disposition
of shares acquired upon exercise of an Incentive Option, the Company must pay
amounts for income tax withholding, then in the Committee's sole discretion,
either the Company will appropriately reduce the amount of stock or cash to be
delivered or paid to the Participant or the Participant must pay such amount to
the Company to reimburse the Company for such payment. The Committee may permit
a Participant to satisfy such withholding obligations by electing to reduce the
number of shares of Common Stock delivered or deliverable to the Participant
upon exercise of a stock option or stock appreciation right or award of
restricted stock or by electing to tender an appropriate number of shares of
Common Stock back to the Company subsequent to exercise of a stock option or
stock appreciation right or award of restricted stock (with such restrictions as
the Committee may adopt).
EMPLOYMENT AGREEMENTS
On December 31, 1992, the Company entered into an Employment Agreement with
Gary D. Kerber as President and Chief Executive Officer. The Employment
Agreement provides for a base salary of $160,000 per year as of March 21, 1992,
which salary is reviewed on an annual basis by the Board of Directors of the
Company prior to the end of each fiscal year. The Employment Agreement also
provides that Mr. Kerber will prepare, on an annual basis for each fiscal year,
an appropriate incentive compensation plan for himself and other executive
officers of the Company, which plan may be implemented only with the consent of
the Board of Directors of the Company. In reviewing such plans, the Compensation
Committee of the Board of Directors has considered the appropriateness of the
goals presented in light of the Company's past performance and prospects and the
reasonableness of the projected compensation in light of the Company's size and
potential income levels. The term of the Employment Agreement continues until
terminated by either Mr. Kerber or the Company, with or without cause; provided,
however, that if the Company terminates the Employment Agreement without cause,
the Company will be obligated to pay Mr. Kerber termination pay equal to the
greater of $160,000 or an amount based upon a specified fraction of Mr. Kerber's
most recent annual fiscal year base compensation (net of incentive or bonus
compensation), as determined under the Employment Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Richard E. Kroon, Robert J.
Cresci and W. Patrick Ortale, III. No member of the Compensation Committee was
at any time during fiscal 1996, or formerly, an officer or employee of the
Company or any subsidiary of the Company.
In July 1991, the Company entered into a Securities Purchase Agreement,
dated July 21, 1991, as amended (the "Securities Purchase Agreement"), among the
Company and the Pecks Managed Entities, pursuant to which the Delaware Plan, the
ICI Trust and the Zeneca Trust loaned $2,900,000, $603,000 and $497,000,
respectively, to the Company on a senior subordinated basis in exchange for 13%
Senior
54
<PAGE> 59
Subordinated Notes (the "Notes") originally due July 23, 1996 issued by the
Company in the aggregate principal face amount of $4,000,000 and warrants (the
"Warrants") to purchase an aggregate of 1,333,333 shares of Common Stock at a
purchase price equal to the lesser of (i) $3.00 per share or (ii) 70% of the
cash purchase price per share of Common Stock in an initial public offering
without regard to deductions for underwriting discounts and commissions. In May
1996, the terms of the Warrants were amended to provide for a cashless exercise
based on the initial public offering price in the event of a public offering of
the Company's Common Stock. In return, the holders agreed to exercise the
Warrants simultaneously with the commencement of the initial public offering and
to terminate certain "put" provisions originally contained in the Warrants. The
modifications were approved by all of the members of the Company's Board of
Directors, with Mr. Cresci abstaining. At completion of the IPO, the Pecks
Managed Entities beneficially owned more than five percent of the issued and
outstanding Common Stock of the Company. In addition, Robert J. Cresci, who is a
director of the Company, is a managing director of Pecks, which serves as
investment advisor for each of the Pecks Managed Entities. In fiscal 1996, Mr.
Cresci served as a member of the Compensation Committee of the Board of
Directors of the Company. In connection with the IPO, the Pecks Managed Entities
exercised, on a cashless basis, the Warrants to purchase 1,333,333 shares of
Common Stock at $3.00 per share, which resulted in the issuance of 1,000,000
shares of Common Stock in respect of such Warrants. In fiscal years 1995, 1996
and 1997, the Company incurred interest expense on the Notes to the Delaware
Plan in the amounts of $253,610, $364,941 and $149,834 respectively, to the ICI
Trust in the amounts of $52,733, $75,883 and $31,155, respectively, and to the
Zeneca Trust in the amounts of $43,464, $62,543 and $25,678, respectively. Upon
consummation of the IPO, the Company utilized $2,700,000 of the proceeds of this
Offering to repay the entire outstanding amount of principal and accrued
interest on the Notes.
In connection with the transactions contemplated by the Securities Purchase
Agreement, the Company, the Pecks Managed Entities, the Sprout Group, LTOS and
Gary D. Kerber entered into a Coinvestors Agreement (the "Coinvestors
Agreement"), dated July 23, 1991, pursuant to which the parties thereto agreed
to vote their respective shares of Common Stock of the Company for the election
to the Board of Directors of the Company of one person designated by the Pecks
Managed Entities, so long as the Pecks Managed Entities collectively held or
beneficially owned (i) $750,000 aggregate principal amount of Notes or (ii)
250,000 shares of Common Stock issued or issuable upon exercise of the Warrants.
In addition, pursuant to a Registration Rights Agreement, dated as of July
23, 1991, as amended (the "Registration Rights Agreement"), the Pecks Managed
Entities were granted certain demand registration rights with respect to shares
of Common Stock issued or issuable to them upon exercise of the Warrants.
Pursuant thereto, upon request of Pecks Managed Entities holding at least 50%
(by voting power) of the Warrants (assuming conversion of the Warrants into
shares of Common Stock), the Company shall use its best efforts to effect the
registration under the Securities Act of Common Stock at such holders' request.
The Company is only required to undertake two such registrations. In the event
of a registration initiated by the Company or by any other stockholder of the
Company holding registration rights, the Company has granted certain
"piggy-back" registration rights to the Pecks Managed Entities and must notify
the Pecks Managed Entities of such registration and permit the inclusion of any
of the Pecks Managed Entities' Common Stock in any such registration if so
requested. The number of shares of Common Stock held by the Pecks Managed
Entities that must be included in a registration will be determined by the
managing underwriter selected by the Company, and Pecks Managed Entities'
participation will be subject to a priority cut-back as provided for in the
Registration Rights Agreement. The Company has agreed to pay all expenses in
connection with such registrations. The Company has been advised that Pecks
Managed Entities have waived their registration rights with regard to the
Offering.
See "Certain Transactions."
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<PAGE> 60
CERTAIN TRANSACTIONS
For information regarding transactions among the Company, the Pecks Managed
Entities and Robert J. Cresci, who is a director of the Company, see
"Compensation Committee Interlocks and Insider Participation."
In March 1995, the Company entered into a Loan Agreement with Sirrom
Capital Corporation ("Sirrom"), pursuant to which Sirrom loaned $2,200,000 to
the Company, less expenses of the transaction and a processing fee of $44,000.
Upon completion of the IPO, Sirrom owned less than one percent of the Company's
outstanding Common Stock. The loan was evidenced by a secured promissory note
(the "Secured Note") which matured on March 31, 2000, bore interest at a rate of
14.0% per annum on the unpaid principal amount, and was secured by a blanket
security interest in the Company's assets. In fiscal 1996 and 1997, the Company
incurred interest expense on the Secured Note of approximately $309,771 and
$179,667, respectively. The Secured Note was paid in full with a portion of the
net proceeds of the IPO.
In connection with the issuance of the Secured Note, the Company issued
warrants (the "Sirrom Warrants") to Sirrom to acquire up to 141,667 shares of
Common Stock, for a purchase price of $.006 per share. The Sirrom Warrants were
exercised in connection with the IPO for shares of Common Stock. Pursuant to the
Loan Agreement, Sirrom was also made a party to the Registration Rights
Agreement, and was granted rights pari passu with the Pecks Managed Entities for
purposes of determining its registration rights under such Registration Rights
Agreement. Sirrom waived its registration rights with regard to the IPO.
In July 1993, the Company acquired the Ohio Institute of Photography and
Technology, which was previously partially-owned by K. Terry Guthrie, who is an
executive officer of the Company. The purchase price for the school was
$1,236,000, including amounts paid for covenants not to compete and real estate.
Mr. Guthrie received cash of $132,127. In addition, Mr. Guthrie and the Company
entered into a three-year consulting agreement pursuant to which Mr. Guthrie
received a consulting fee of $23,807 per year through July 1996. Mr. Guthrie
also entered into a noncompetition agreement pursuant to which Mr. Guthrie
receives $35,000 per year for a five-year term. Pursuant to the consulting
agreement and the noncompetition agreement, the Company paid Mr. Guthrie
$58,806, $58,806 and $46,903 in fiscal years 1995, 1996 and 1997, respectively.
In September 1991, the Company made a loan to Vince Pisano and Mr. Pisano's
wife, Gail Pisano, in the amount of $75,000 pursuant to an Employee Loan
Agreement, as amended. The loan did not bear interest and was to be repaid upon
the earlier of December 31, 1996 or certain other events. The loan was secured
by certain real property owned by Mr. Pisano. If the loan was paid at or prior
to its stated maturity, $10,000 of the loan would be cancelled. Mr. Pisano is a
Vice President and Chief Financial Officer of the Company. The Company and Mr.
Pisano entered into an agreement which permitted Mr. Pisano to repay the loan on
its maturity date with Common Stock of the Company owned by Mr. Pisano which
stock was valued at its fair market value on the date of repayment. Pursuant to
this agreement, during fiscal 1997, Mr. Pisano repaid his loan from the Company
in full by transfer of 5,652 shares of Common Stock to the Company.
In connection with the Company's acquisition of its three schools in
Virginia, its school in North Hollywood, California, its three schools in El
Paso and San Antonio, Texas and its school in Hagerstown, Maryland, the Company
pledged the stock of its acquiring subsidiaries to secure related indebtedness.
As of December 31, 1997, the principal amount outstanding of such indebtedness
was $1,000,000. In connection with the acquisition of the two CHI Institute
Schools, the Company also pledged the stock of the acquiring subsidiary to
secure indebtedness. As of the date of the acquisition, the principal amount of
such indebtedness was $8,750,000.
On March 31, 1997, the Company acquired the Nebraska Schools by merging a
privately held corporation, which previously operated the schools, into a
wholly-owned subsidiary of the Company in exchange for 761,263 shares (the
"Merger Shares") of the Company's common stock. The Company has filed a
registration statement (SEC File No. 333-33025) pursuant to the Securities Act
of 1933 (the "Securities Act") with respect to the Merger Shares which was
declared effective by the Commission on February 27, 1998, and as of the date of
this Prospectus believes that approximately 288,772 of the Merger Shares,
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<PAGE> 61
including 19,050 shares held in escrow, remain unsold. Provided this
registration statement continues to be effective, such registration statement
will enable the holders of the Merger Shares to sell their shares in the public
market.
On February 14, 1998, the Company acquired the CHI Institute Schools. As
part of the purchase price 151,900 shares of the Company's Common Stock were
issued to the two major shareholders. The Company filed a registration statement
on Form S-3 (SEC File No: 333-47775) on March 11, 1998 with respect to such
shares. This registration statement was declared effective by the SEC on April
3, 1998, and provided it continues to be effective, it will enable the holders
of such shares to sell their shares in the public market. See "Business" and
"Fiscal 1998 Acquisitions -- The Pennsylvania Acquisition."
On March 13, 1998, the Company acquired the four Hesser Schools and the
real estate in Manchester, New Hampshire, which is the main campus. As part of
the purchase price 202,532 shares of the Company's Common Stock were issued to
the two shareholders of Hesser. Pursuant to the terms of the Hesser Acquisition,
the Company is required to file a registration statement with respect to such
shares by May 12, 1998. If such registration statement is filed and declared
effective by the Commission, and provided it continues to be effective, it will
enable the holders of the such shares to sell their shares in the public market.
See "Business" and "Fiscal 1998 Acquisitions -- The Hesser Acquisition."
With respect to each transaction between the Company and an affiliate of
the Company, a majority of the disinterested members of the Board of Directors
determined that such transactions were on terms at least as fair as if they had
been consummated with unrelated third parties. The Board of Directors has
adopted a policy that prior to entering into any transaction with a related
party, a similar determination must be made with respect to such transaction by
a majority of the Company's disinterested directors.
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<PAGE> 62
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth, as of March 31, 1998, certain information
regarding beneficial ownership of the shares of Common Stock of the Company and
as adjusted to reflect the sale of the shares of Common Stock offered hereby by
(i) each person known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock (including the Selling Shareholders),
(ii) each director, (iii) each executive officer included in the Summary
Compensation Table, (iv) all executive officers and directors of the Company as
a group and (v) by each of the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES OWNED PRIOR NUMBER OF SHARES TO BE OWNED
TO OFFERING SHARES TO AFTER THE OFFERING
------------------- BE SOLD IN -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERING NUMBER PERCENT
- --------------------------------------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Sprout Capital V(2)(3)...................................... 920,005 11.90% -- 920,005 11.01%
Sprout Technology Fund(2)(3)................................ 19,889 * -- 19,889 *
DLJ Venture Capital Fund II, L.P.(2)(3)..................... 54,921 * -- 54,921 *
Lawrence, Tyrrell, Ortale & Smith(3)(4)..................... 995,307 12.88 995,307 -- --
Delaware State Employees' Retirement Fund(3)(5)(6).......... 637,051 8.24 637,051 -- --
Declaration of Trust for Defined Benefit Plans of ICI
America Holding Inc.(3)(5)(6)............................. 109,178 1.41 109,178 -- --
Declaration of Trust for Defined Benefit Plans of Zeneca
Holding Inc.(3)(5)(6)..................................... 132,463 1.71 132,463 -- --
Pecks Management Partners Ltd.(5)(6)........................ 878,692 11.37 878,692 -- --
J. & W. Seligman Co., Incorporated.......................... 630,000 8.15 -- 630,000 7.54
Wellington Management, Ltd. ................................ 727,900 9.42 -- 727,900 8.71
Gary D. Kerber(3)(7)........................................ 352,915 4.53 -- 352,915 4.19
Vince Pisano(8)............................................. 182,574 2.34 -- 182,574 2.17
Gerry M. Taylor(9).......................................... 46,916 * -- 46,916 *
Ellen L. Bernhardt(10)...................................... 22,167 * -- 22,167 *
Gerald T. Kosentos(11)...................................... 10,133 * -- 10,133 *
Elaine Neely-Eacona(12)..................................... 15,500 * -- 15,500 *
K. Terry Guthrie(13)........................................ 4,000 * -- 4,000 *
A. William Benham(14)....................................... 7,835 * -- 7,835 *
Robert J. Cresci(6)(15)..................................... 28,000 * -- 28,000 *
Carl S. Hutman(16).......................................... 28,340 * -- 28,340 *
Richard E. Kroon(17)........................................ 28,000 * -- 28,000 *
W. Patrick Ortale, III(18).................................. 28,000 * -- 28,000 *
All executive officers and directors as a group (12
persons).................................................. 754,380 9.34% -- 754,380 8.67%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise noted, the Company believes that all persons and entities
named in the table have sole voting and investment power over the shares of
Common Stock listed opposite his, her or its name. The number of shares of
Common Stock beneficially owned by each person is determined under the
rules of the Securities and Exchange Commission, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares for which the
individual has sole or shared voting power or investment power and also any
shares of Common Stock which the individual has the right to acquire within
60 days after April 6, 1998 through the exercise of any stock option or
other right. The inclusion herein of any shares of Common Stock deemed
beneficially owned does not constitute an admission of beneficial ownership
of those shares.
(2) The address of such entity is 277 Park Avenue, 21st Floor, New York, New
York 10172.
(3) Pursuant to a Coinvestors Agreement, such entity has agreed to vote its
shares of Common Stock along with the other parties to such agreement for
the election of one director jointly designated by the Pecks Managed
Entities (see Note (6) for definition of "Pecks Managed Entities").
(4) The address of such entity is 3100 West End Avenue, Suite 400, Nashville,
Tennessee 37203.
(5) The address of such entity is c/o Pecks Management Partners Ltd., 1
Rockefeller Plaza, New York, New York 10020.
58
<PAGE> 63
(6) Pecks Management Partners Ltd. ("Pecks") is an investment advisor to
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined
Benefit Plans of ICI American Holdings Inc. and Declaration of Trust for
Defined Benefit Plans of Zeneca Holding Inc. (collectively, the "Pecks
Managed Entities"). As such, Pecks has sole investment and voting power
with respect to the shares beneficially owned by such entities. Mr. Cresci,
a director of the Company, is a managing partner of Pecks. Pecks disclaims
beneficial ownership of such shares.
(7) Includes 69,463 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(8) Includes 58,202 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(9) Includes 44,833 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(10) Includes 22,167 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(11) Includes 10,133 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(12) Includes 15,500 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(13) Includes 3,000 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(14) Includes 7,835 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(15) Includes 28,000 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(16) Includes 28,000 shares of Common Stock which may be purchased upon the
exercise of options which are exercisable within 60 days of the date of
this table.
(17) Mr. Kroon is the general partner of the general partner of Sprout Capital
V, Sprout Technology Fund, and DLJ Venture Capital Fund II, L.P. Excludes
994,815 shares of Common Stock owned, in the aggregate, by such entities.
Mr. Kroon disclaims any beneficial ownership. Includes 28,000 shares of
Common Stock which may be purchased upon the exercise of options which are
exercisable within 60 days of the date of this table.
(18) Mr. Ortale is a general partner of Lawrence Venture Partners, the general
partner of Lawrence, Tyrrell, Ortale & Smith ("LTOS"). Excludes 637,500
shares of Common Stock owned by LTOS and for which Mr. Ortale disclaims any
beneficial ownership. Includes 28,000 shares of Common Stock which may be
purchased upon the exercise of options which are exercisable within 60 days
of the date of this table.
59
<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 15 million shares
of Common Stock, par value $.01 per share, and five million shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). As of the date of this
Prospectus, there are approximately 96 holders of record of the Common Stock, no
holders of record of the Preferred Stock and two holders of warrants to purchase
Common Stock.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to the
Company's Certificate of Incorporation and By-laws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share of
record on all matters to be voted upon by stockholders. At a meeting of
stockholders at which a quorum is present, a majority of the votes cast decides
all questions, unless the matter is one upon which a different vote is required
by express provision of law or the Company's Certificate of Incorporation or
Bylaws. There is no cumulative voting with respect to the election of directors
(or any other matter).
The holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities. Subject to the rights of
holders of Preferred Stock, if any, in the event of a liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to
participate equally, share for share, in all assets remaining after payment of
liabilities.
The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors may declare out of funds legally available therefor,
when and if so declared. The payment by the Company of dividends, if any, rests
within the discretion of its Board of Directors and will depend upon the
Company's results of operations, financial condition and capital expenditure
plans, as well as other factors considered relevant by the Board of Directors.
PREFERRED STOCK
At the time of this Offering, no shares of Preferred Stock are outstanding.
The Company's Certificate of Incorporation authorizes the Board of Directors to
issue up to 5,000,000 shares of Preferred Stock in one or more series and to
establish such relative voting, dividend, redemption, liquidation, conversion
and other powers, preferences, rights, qualifications, limitations and
restrictions as the Board of Directors may determine without further approval of
the stockholders of the Company. The issuance of Preferred Stock by the Board of
Directors could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a person or group to gain control of the Company.
The issuance of any series of Preferred Stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of Preferred Stock. At the date of this Prospectus, there are no plans,
agreements or understandings relative to the issuance of any share of Preferred
Stock.
WARRANTS TO PURCHASE COMMON STOCK
In July 1991, the Company issued a warrant (the "Equitable Warrant") to
purchase 26,667 shares of Common Stock to Equitable Securities Corporation
("Equitable"). The Equitable Warrant has an exercise price of $3.60 per share
and expires on July 31, 1999. The Company issued the warrant to Equitable in
connection with assistance provided by Equitable to the Company in issuing
certain convertible preferred stock by the Company.
60
<PAGE> 65
In November 1988, the Company granted an option to Robert L. Heidrick to
purchase 16,667 shares of Common Stock at a purchase price equal to the offering
price of the Company's Common Stock in an initial public offering. The option
became exercisable upon the effective date of an initial public offering
(October 28, 1996) of the Company's Common Stock and expires on the tenth
anniversary of such date. This option was granted to Mr. Heidrick as partial
compensation for certain executive search services provided by Mr. Heidrick to
the Company.
REGISTRATION RIGHTS
As of the date of this preliminary prospectus, 3,771,365 shares of Common
Stock were "restricted" securities within the meaning of the Securities Act of
1933, as amended, and may not be sold in the absence of registration under the
Securities Act, or an exemption therefrom, including the exemptions combined in
Rule 144 under the Securities Act. Pursuant to the Registration Rights
Agreements, the Company has granted the Sprout Group, LTOS and the Pecks Managed
Entities demand registration rights covering up to 2,868,814 shares of Common
Stock and covering up to a maximum of four demand registrations. In addition,
such parties have been granted "piggy-back" registration rights, pursuant to
which the Company must notify such parties of any registration of Common Stock
under the Securities Act, and must include shares of Common Stock held by such
parties in such registration. In addition, upon qualification for registration
under the Securities Act on Form S-2 and/or S-3, such parties have demand
registration rights; provided, that the amount of Common Stock proposed to be
registered pursuant to a demand registration must have an aggregate offering
price of at least $500,000. The Company has agreed to pay all expenses in
connection with the demand and "piggy-back" registrations described above. See
"Certain Transactions," and "Risk Factors -- Shares Eligible for Future Sale."
In connection with the CHI Institute Acquisition, the Company agreed to
file a Registration Statement with regard to the 151,900 shares issued to the
CHI stockholders as part of the purchase price. The Company agreed to pay
registration expenses; however, the CHI stockholders are required to pay
underwriting fees and commissions incurred as a result of the sale of such
shares. In fulfillment of this provision, the Company filed a Registration
Statement on Form S-3 (SEC File No: 333-47775) which became effective April 3,
1998.
In connection with the Hesser Acquisition, the Company agreed to file a
Registration Statement with regard to the 202,532 shares issued to the Hesser
shareholders as part of the purchase price. The Company agreed to pay
registration expenses; however, the Hesser shareholders are required to pay any
underwriting fees and commissions incurred as a result of the sale of such
shares. The Company intends file a Registration Statement with regard to such
shares prior to May 12, 1998.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the General Corporation Law of the State of Delaware
and of the Company's Certificate of Incorporation and By-laws, summarized in the
following paragraphs, may be considered to have an anti-takeover effect and may
delay, deter or prevent a tender offer, proxy contest or other takeover attempt
that a stockholder might consider to be in such stockholder's best interest,
including such an attempt as might result in payment of a premium over the
market price for shares held by stockholders.
DELAWARE ANTI-TAKEOVER LAW
The Company, a Delaware corporation, is subject to the provisions of the
General Corporation Law of the State of Delaware, including Section 203 thereof.
In general, Section 203 prohibits a public Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which such person became an
interested stockholder unless (i) prior to such date, the Board of Directors
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, or (ii) upon becoming an
interested stockholder the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by at least 66 2/3%
of the corporation's outstanding voting stock, excluding shares owned by the
interested
61
<PAGE> 66
stockholder. For these purposes, the term "business combination" includes
mergers, asset sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own) 15%
or more of the corporation's voting stock. Although Section 203 permits a
corporation to elect not to be governed by its provisions, the Company to date
has not made this election.
SPECIAL MEETINGS OF STOCKHOLDERS; NO ACTION WITHOUT MEETING
The Company's Bylaws provide that special meetings of stockholders may be
called only by the Chairman or by the Secretary or any Assistant Secretary at
the request in writing of a majority of the Board of Directors of the Company.
The Company's Certificate of Incorporation and Bylaws also provide that no
action required to be taken or that may be taken at any annual or special
meeting of stockholders may be taken without a meeting; the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied. These provisions may make it more difficult for
stockholders to take action opposed by the Board of Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDERS PROPOSALS AND DIRECTOR NOMINATIONS
The Company's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or a special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive office of the
Company, (i) in the case of an annual meeting that is called for a date that is
within 30 days before or after the anniversary date of the immediately preceding
annual meeting of stockholders, not less than 60 days nor more than 90 days
prior to such anniversary date, and (ii) in the case of an annual meeting that
is called for a date that is not within 30 days before or after the anniversary
date of the immediately preceding annual meeting, or in the case of a special
meeting of stockholders called for the purpose of electing directors, not later
than the close of business on the tenth day following the day on which notice of
the date of the meeting was mailed or public disclosure of the date of the
meeting was made, whichever occurs first. The Bylaws also specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from making nominations for directors
at an annual or special meeting or from bringing other matters before the
stockholders at a meeting.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina, N.A.
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<PAGE> 67
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1998, the Company has 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. 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, 1,873,999 are
Restricted Shares. The Company will file a registration statement with respect
to 202,532 shares in April 1998 and, if and when such registration statement is
declared effective by the Commissioner, such restricted shares will be freely
tradable.
In general, Rule 144 currently provides that a person (or persons whose
shares are aggregated) who satisfies a one-year holding period with respect to
"restricted securities" will be entitled to sell, in brokers' transactions and
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the
average weekly trading volume in Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to manner of sale and
notice requirements and the availability of current public information about the
Company. After "restricted securities" that are held by persons who are no
longer "affiliates" of the Company have satisfied a two-year holding period,
such shares may be sold without regard to such volume limitation, current public
information, manner of sale or notice requirements. However, under Rule 144,
"restricted securities" held by "affiliates" must continue, after the two-year
holding period, to be sold in brokers' transactions or to market makers subject
to the volume limitations described above. The requirements described above
(except the holding period requirements) also apply to non-restricted securities
of the Company held by affiliates of the Company. Such shares are required,
under Rule 144, to be sold in brokers' transactions subject to the volume
limitations described above. Shares properly sold in reliance upon Rule 144 to
persons who are not "affiliates" are thereafter freely tradable without
restrictions or registration requirements under the Securities Act. The
foregoing discussion is only a summary of Rule 144 and is not intended to be a
complete description of the rule.
The Company, its Officers and Directors, and certain other stockholders and
warrantholders, holding in the aggregate 30% of the Company's currently
outstanding equity securities, agreed not to sell, assign or transfer any of
their shares of Common Stock for a period of 90 days after the effective date of
the registration statement of which this Preliminary Prospectus is a part,
without the prior consent of Smith Barney Inc. At the expiration of this 90 day
period, all of such shares of Common Stock immediately become eligible for sale
under Rule 144, subject to the volume and manner of sale restrictions imposed by
that Rule or under effective registration statements. The Company is unable to
predict the effect that sales of Common Stock may have on the then prevailing
market price of the shares of the Common Stock, but such sales may have a
substantial depressing effect on such market price.
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<PAGE> 68
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreements each Underwriter named below has severally agreed to purchase, and
the Company and the Selling Stockholders have agreed to sell to such
Underwriter, shares of Common Stock which equal the number of shares set forth
opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Smith Barney Inc............................................
Legg Mason Wood Walker Incorporated.........................
---------
TOTAL............................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Company has been advised by the Underwriters that the Underwriters
propose to offer part of the shares of Common Stock directly to the public at
the public offering price set forth on the cover page hereof and part to certain
dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to other
Underwriters or to certain other dealers. After the public offering, the public
offering price and such concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company, the Selling Shareholders and the Company's executive officers
and directors have agreed that, for a period of 90 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock of the Company or any securities convertible into, or exercisable
or exchangeable for, Common Stock of the Company.
In connection with the Offering and in compliance with applicable law, the
Underwriters may over-allot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appear above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail in
the open market. Such transactions may include placing bids for the Common Stock
or effecting purchases of Common Stock for the purpose of pegging, fixing or
maintaining the price of Common Stock for the purpose of reducing a short
position created in connection with the Offering. A short position may be
covered by exercise of the option described below in lieu of or in addition to
open market purchases. In addition, the contractual arrangements between the
Underwriters include a provision whereby, if the Underwriters purchase Common
Stock in the open market for the account of the Underwriters and the securities
purchased can be traced to a particular Underwriter or member of the selling
group, the Underwriters may require the Underwriter or selling group member in
question to purchase the Common Stock in question at the cost price to the
Underwriters or may recover from (or decline to pay to) the Underwriter or
selling group member in question the selling concession applicable to the
securities in question. The Underwriters are not required to engage in any of
these activities, and any such activities, if commenced, may be discontinued at
any time.
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<PAGE> 69
The Underwriters and certain selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock in accordance with Rule 103 of Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Rule 103 permits, upon
the satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also market makers in the security
being distributed to engage in limited market-making transactions during the
period when Rule 101 of Regulation M would otherwise prohibit such activity. In
general, under Rule 103, any Underwriter or selling group member engaged in
passive market making in the Common Stock (i) may not bid for or purchase Common
Stock at a price that exceeds the highest bid for the Common Stock displayed by
a market maker that is not participating in the distribution of the Common
Stock, (ii) may not have net daily purchases of the Common Stock that exceed the
greater of 200 shares or 30% of its average daily trading volume in such stock
for a specified two-month period preceding the filing date of the registration
statement of which this Prospectus forms a part and (iii) must identify its bids
as bids made by a passive market maker.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., West
Palm Beach, Florida and for the Underwriters by Dewey Ballantine, LLP, New York,
New York.
EXPERTS
The consolidated financial statements and schedule of Educational Medical,
Inc. at March 31, 1996 and 1997 and for each of the three years in the period
ended March 31, 1997 appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon also appearing and incorporated by reference elsewhere
herein which are based in part on the reports of Winther Stave & Co., LLP. The
financial statements referred to above are included 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 this
Prospectus and Registration Statement have been audited by Tsakopulos Brown
Schott & Anchors, independent auditors, as set forth in their report thereon
also appearing elsewhere herein and in the registration Statement and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The divisional financial statements of Hagerstown Business College (a
division of O/E Learning, Inc.) as of October 31, 1996 and 1995 and for the
years then ended appearing in this Prospectus and Registration Statement have
been audited by Plante & Moran, LLP, independent auditors, as set forth in their
report thereon also appearing elsewhere herein and in the Registration Statement
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company furnishes its stockholders annual reports containing audited
consolidated financial statements and quarterly reports containing unaudited
consolidated financial statements.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 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.
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<PAGE> 70
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 reference 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 maintain 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 National Market, Inc., 1735 K Street, NW, Washington, D.C.
20006-1506.
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<PAGE> 71
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997
and December 31, 1997 (unaudited)......................... F-3
Consolidated Statements of Operations for the year ended
March 31, 1995, 1996 and 1997 and the nine months ended
December 31, 1996 and 1997 (unaudited).................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1995, 1996 and 1997 and the six
months ended December 31, 1997 (unaudited)................ F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1996 and 1997 and the nine months ended
December 31, 1996 and 1997 (unaudited).................... F-6
Notes to Consolidated Financial Statements.................. F-7
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
Tsakopulos Brown Schott & Anchors, Independent Auditors'
Report.................................................... F-25
Combined Financial Statements:
Combined Balance Sheets as of December 31, 1994 and 1995 and
June 30, 1996 (unaudited)................................. F-26
Combined Statement of Operations for the year ended December
31, 1995.................................................. F-27
Combined Statements of Operations for the year ended
December 31, 1994 and the six month periods ended June 30,
1995 (unaudited) and June 30, 1996 (unaudited)............ F-28
Combined Statement of Retained Earnings for the years ended
December 31, 1994 and 1995 and for the six month period
ended June 30, 1996 (unaudited)........................... F-29
Combined Statement of Cash Flows for the years ended
December 31, 1994 and 1995................................ F-30
Combined Statements of Cash Flows for the six month period
ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited)............................................... F-31
Notes to the Combined Financial Statements.................. F-32
HAGERSTOWN BUSINESS COLLEGE (A DIVISION OF O/E LEARNING,
INC.)
Plante & Moran, LLP, Independent Auditor's Report........... F-37
Financial Statements:
Divisional Balance Sheet as of October 31, 1996 and 1995.... F-38
Statement of Divisional Income for the year ended October
31, 1996 and 1995......................................... F-39
Statement of Changes in Divisional Equity for the year ended
October 31, 1996 and 1995................................. F-40
Statement of Divisional Cash Flows for the year ended
October 31, 1996 and 1995................................. F-41
Notes to Divisional Financial Statements.................... F-42
Unaudited Pro Forma as Adjusted Financial Data.............. F-44
Condensed Consolidated Statement of Operations for the year
ended March 31, 1997 (unaudited).......................... F-45
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Educational Medical, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Educational
Medical, Inc. and subsidiaries as of March 31, 1996 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(b).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. We did not audit the financial
statements of Nebraska Acquisition Corporation, a wholly-owned subsidiary, or
its predecessors (Educational Management, Inc. and Wikert and Rhude, a general
partnership) acquired by Educational Medical, Inc. on March 31, 1997 in a
business combination accounted for as a pooling of interests as described in
Note 4 to the consolidated financial statements, which statements reflect total
assets of approximately $2,625,000 and $5,681,000 as of March 31, 1996 and 1997,
respectively, and total net revenues of approximately $5,015,000, $4,695,000,
and $6,012,000 for the years ended March 31, 1995, 1996 and 1997, respectively.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to data included for Nebraska
Acquisition Corporation, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Educational Medical, Inc. and
subsidiaries at March 31, 1996 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, based on our audits and the report of other auditors, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
Atlanta, Georgia
June 30, 1997
except as to the
second paragraph of
Note 3 as to which the
date is August 27, 1997
and except as to the
last heading of Note 2
as to which the
date is February 26, 1998
F-2
<PAGE> 73
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,209,045 $14,047,889 $ 9,303,194
Restricted cash........................................... 610,000 -- --
Trade accounts receivable, less allowance for doubtful
accounts of $974,357, $922,704 and $1,021,824,
respectively............................................ 3,522,715 5,238,742 7,816,598
Prepaid expenses and other current assets................. 1,033,098 1,149,146 1,521,270
Income taxes receivable................................... -- 155,542 --
Deferred income tax assets................................ -- 1,208,669 1,208,669
----------- ----------- -----------
Total current assets........................................ 8,374,858 21,799,988 19,849,731
Property and equipment, net................................. 6,270,619 7,617,958 8,364,457
Deferred debt issuance costs, net of accumulated
amortization of $286,402, $0 and $84,107, respectively.... 96,109 297,492 252,324
Covenants not to compete, net of accumulated amortization of
$902,780, $1,194,238 and $1,426,328, respectively......... 974,445 1,082,987 900,063
Goodwill and other intangible assets, net of accumulated
amortization of $6,488,863, $7,063,793 and $7,685,829,
respectively.............................................. 5,040,410 10,152,625 9,529,737
Deferred income tax assets.................................. -- 944,629 944,629
Other assets................................................ 229,210 176,855 176,855
----------- ----------- -----------
Total assets................................................ $20,985,651 $42,072,534 $40,017,796
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 723,834 $ 820,784 $ 271,235
Accrued compensation...................................... 1,175,423 858,049 1,115,497
Accrued income taxes...................................... 232,252 -- 214,038
Other accrued expenses.................................... 1,051,497 2,486,532 458,880
Deferred tuition income................................... 2,821,257 3,184,225 4,454,616
Current portion of long-term debt......................... 1,080,085 3,964,851 599,990
----------- ----------- -----------
Total current liabilities.......................... 7,084,348 11,314,441 7,114,256
Long-term debt, less current portion........................ 6,674,909 2,163,880 1,951,089
Other liabilities........................................... 957,166 394,145 549,264
----------- ----------- -----------
Total liabilities.................................. 14,716,423 13,872,466 9,614,609
Commitments and contingencies
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares, none issued
and outstanding......................................... -- -- --
Convertible preferred stock, $.01 par value -- authorized
1,100,000 shares; 1,023,049 shares issued and
outstanding (liquidation preference of $6.66 per share)
at March 31, 1996; none authorized, issued or
outstanding at March 31 or December 31, 1997............ 10,230 -- --
Additional paid-in capital on convertible preferred
stock................................................... 6,732,160 -- --
Common stock, $.01 par value -- authorized 5,833,333 and
15,000,000 shares in 1996 and 1997, respectively;
2,438,100, 7,418,100 and 7,369,100 shares issued and
outstanding at March 31, 1996 and 1997 and December 31,
1997, respectively...................................... 24,381 74,181 73,691
Additional paid-in capital on common stock................ 42,424 30,222,776 30,221,127
Common stock purchase warrants............................ 2,838,148 -- --
Accumulated earnings (deficit)............................ (3,343,115) (1,996,889) 108,369
Less treasury stock, at cost, 29,165, 34,817 and 0 common
shares at March 31, 1996 and 1997 and December 31, 1997,
respectively............................................ (35,000) (100,000) --
----------- ----------- -----------
Total stockholders' equity......................... 6,269,228 28,200,068 30,403,187
----------- ----------- -----------
Total liabilities and stockholders' equity......... $20,985,651 $42,072,534 $40,017,796
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 74
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................................... $37,080,045 $43,346,533 $49,449,680 $35,763,629 $41,468,515
School operating costs:
Cost of education and facilities.............. 17,487,917 19,650,937 23,150,599 17,016,466 19,348,384
Selling and promotional....................... 6,215,697 6,533,229 7,530,741 5,415,871 6,272,299
Provision for losses on accounts receivable... 1,280,654 1,270,565 1,239,151 1,012,430 803,414
General and administrative expenses........... 9,545,715 11,098,422 12,802,441 8,834,323 10,853,294
Amortization of goodwill and intangibles...... 1,255,288 882,953 886,268 631,913 938,233
Other expenses:
Legal defense and settlement costs............ 600,000 1,115,000 -- -- --
Loss on closure or relocation of schools...... -- 50,000 143,585 -- --
Impairment of goodwill and intangibles........ 176,042 764,000 -- -- --
Merger expenses............................... -- -- 391,453 -- --
----------- ----------- ----------- ----------- -----------
Income from operations.......................... 518,732 1,981,427 3,305,442 2,852,626 3,252,891
Interest (income) expense, net (net of interest
income of $60,327, $171,870, $476,194 and
$245,386 for 1995, 1996, 1997, and the nine
months ended December 31, 1996; net of
interest expense of $157,463 for the nine
months ended December 31, 1997)............... 934,529 822,434 284,162 372,661 (256,082)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item............................ (415,797) 1,158,993 3,021,280 2,479,965 3,508,973
Provision (benefit) for income taxes............ 27,982 632,185 (845,363) 568,965 1,403,715
----------- ----------- ----------- ----------- -----------
Net income (loss) before extraordinary item..... (443,779) 526,808 3,866,643 1,911,000 2,105,258
Extraordinary item -- loss on early
extinguishment of debt, net of income taxes... -- -- 308,683 308,683 --
----------- ----------- ----------- ----------- -----------
Net income (loss)....................... $ (443,779) $ 526,808 $ 3,557,960 $ 1,602,317 $ 2,105,258
=========== =========== =========== =========== ===========
Pro forma income tax data:
Income (loss) before income taxes and
extraordinary item.......................... $ (415,797) $ 1,158,993 $ 3,021,280 $ 2,479,965
Provision for income taxes.................... 97,633 486,505 408,951 611,005
----------- ----------- ----------- -----------
Income (loss) before extraordinary item....... (513,430) 672,488 2,612,329 1,868,960
Extraordinary item, net of income taxes....... -- -- 308,683 308,683
----------- ----------- ----------- -----------
Pro forma net income (loss)..................... $ (513,430) $ 672,488 $ 2,303,646 $ 1,560,277
----------- ----------- ----------- -----------
Net income (loss) per share:
Basic:
Income (loss) before extraordinary item..... $ (0.22) $ 0.28 $ 0.58 $ 0.53 $ 0.29
Extraordinary item.......................... -- -- (0.07) (0.09) --
----------- ----------- ----------- ----------- -----------
Net income (loss)....................... $ (0.22) $ 0.28 $ 0.51 $ 0.44 $ 0.29
=========== =========== =========== =========== ===========
Weighted average number of shares........... 2,371,041 2,371,041 4,484,492 3,548,225 7,349,612
=========== =========== =========== =========== ===========
Diluted:
Income (loss) before extraordinary item..... $ (0.22) $ 0.13 $ 0.41 $ 0.31 $ 0.28
Extraordinary item.......................... -- -- (0.05) (0.05) --
----------- ----------- ----------- ----------- -----------
Net income (loss)....................... $ (0.22) $ 0.13 $ 0.36 $ 0.26 $ 0.28
=========== =========== =========== =========== ===========
Weighted average number of shares........... 2,371,041 5,181,867 6,447,265 6,041,316 7,582,962
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 75
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ADDITIONAL
CAPITAL ON PAID-IN COMMON
CONVERTIBLE CONVERTIBLE CAPITAL ON STOCK
PREFERRED PREFERRED COMMON COMMON PURCHASE ACCUMULATED TREASURY
STOCK STOCK STOCK STOCK WARRANTS DEFICIT STOCK
----------- ------------ ------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994, as
restated............................. $ 10,230 $ 6,732,160 $24,381 $ 42,424 $ 1,724,400 $ (702,527) $ (35,000)
Accretion of value of common stock
purchase warrants.................. -- -- -- -- 339,252 (339,252) --
Issuance of common stock purchase
warrants........................... -- -- -- -- 368,150 -- --
Distributions to former Nebraska
Shareholders....................... -- -- -- -- -- (1,333,075) --
Adjustment for change in Nebraska
year end........................... -- -- -- -- -- 208,229 --
Net loss............................. -- -- -- -- -- (443,779) --
-------- ----------- ------- ----------- ----------- ----------- ---------
Balance at March 31, 1995.............. 10,230 6,732,160 24,381 42,424 2,431,802 (2,610,404) (35,000)
Accretion of value of common stock
purchase warrants.................. -- -- -- -- 406,346 (406,346) --
Distributions to former Nebraska
Shareholders....................... -- -- -- -- -- (853,173) --
Net income........................... -- -- -- -- -- 526,808 --
-------- ----------- ------- ----------- ----------- ----------- ---------
Balance at March 31, 1996.............. 10,230 6,732,160 24,381 42,424 2,838,148 (3,343,115) (35,000)
Accretion of value of common stock
purchase warrants.................. -- -- -- -- 281,398 (281,398) --
Issuance of common stock in
connection with initial public
offering........................... -- -- 22,000 19,238,000 -- -- --
Conversion of note receivable to
treasury stock..................... -- -- -- -- -- -- (65,000)
Exercise of common stock purchase
warrants........................... -- -- 1,417 367,583 (368,150) -- --
Cashless exercise of common stock
purchase warrants.................. -- -- 9,333 2,742,063 (2,751,396) -- --
Conversion of convertible preferred
stock to common stock.............. (10,230) (6,732,160) 17,050 6,725,340 -- -- --
Distributions to former Nebraska
Shareholders....................... -- -- -- -- -- (1,236,970) --
Reclassification of undistributed
Nebraska S Corporation earnings to
additional paid-in-capital......... -- -- -- 693,366 -- (693,366) --
Recognition of deferred income tax
assets related to termination of
Nebraska Subchapter S Corporation
status upon consummation of pooling
of interests....................... -- -- -- 414,000 -- -- --
Net income........................... -- -- -- -- -- 3,557,960 --
-------- ----------- ------- ----------- ----------- ----------- ---------
Balance at March 31, 1997.............. -- -- 74,181 30,222,776 -- (1,996,889) (100,000)
Exercise of common stock options
(unaudited).......................... -- -- 290 97,571 -- -- --
Treasury shares retired (unaudited).... -- -- (348) (99,652) -- -- 100,000
Nebraska shares returned from escrow
and retired (unaudited).............. -- -- (432) 432 -- -- --
Net income (unaudited)................. -- -- -- -- -- 2,105,258 --
-------- ----------- ------- ----------- ----------- ----------- ---------
Balance at December 31, 1997
(unaudited).......................... $ -- $ -- $73,691 $30,221,127 $ -- $ 108,369 $ --
======== =========== ======= =========== =========== =========== =========
<CAPTION>
TOTAL
-----------
<S> <C>
Balance at March 31, 1994, as
restated............................. $ 7,796,068
Accretion of value of common stock
purchase warrants.................. --
Issuance of common stock purchase
warrants........................... 368,150
Distributions to former Nebraska
Shareholders....................... (1,333,075)
Adjustment for change in Nebraska
year end........................... 208,229
Net loss............................. (443,779)
-----------
Balance at March 31, 1995.............. 6,595,593
Accretion of value of common stock
purchase warrants.................. --
Distributions to former Nebraska
Shareholders....................... (853,173)
Net income........................... 526,808
-----------
Balance at March 31, 1996.............. 6,269,228
Accretion of value of common stock
purchase warrants.................. --
Issuance of common stock in
connection with initial public
offering........................... 19,260,000
Conversion of note receivable to
treasury stock..................... (65,000)
Exercise of common stock purchase
warrants........................... 850
Cashless exercise of common stock
purchase warrants.................. --
Conversion of convertible preferred
stock to common stock.............. --
Distributions to former Nebraska
Shareholders....................... (1,236,970)
Reclassification of undistributed
Nebraska S Corporation earnings to
additional paid-in-capital......... --
Recognition of deferred income tax
assets related to termination of
Nebraska Subchapter S Corporation
status upon consummation of pooling
of interests....................... 414,000
Net income........................... 3,557,960
-----------
Balance at March 31, 1997.............. 28,200,068
Exercise of common stock options
(unaudited).......................... 97,861
Treasury shares retired (unaudited).... --
Nebraska shares returned from escrow
and retired (unaudited).............. --
Net income (unaudited)................. 2,105,258
-----------
Balance at December 31, 1997
(unaudited).......................... $30,403,187
===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 76
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------------------- -------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................... $ (443,779) $ 526,808 $ 3,557,960 $ 1,602,317 $ 2,105,258
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation............................. 930,715 1,104,039 1,330,180 1,003,483 1,162,006
Amortization of other assets............. 1,284,043 931,076 886,555 631,913 938,233
Extraordinary item -- loss on early
extinguishment of debt, net of income
taxes.................................. -- -- 308,683 308,683 --
Loss on closure or relocation of
schools................................ -- 50,000 25,000 (97,225) --
Impairment of goodwill and intangibles... 176,042 764,000 -- -- --
Provision for losses on accounts
receivable............................. 1,280,654 1,270,565 1,239,151 1,012,430 803,414
Deferred income taxes.................... -- -- (1,563,995) -- --
Amortization of discount on long-term
debt................................... 212,445 123,567 72,044 72,044 --
Changes in operating assets and
liabilities, net of assets acquired and
liabilities assumed:
Restricted cash........................ (525,000) (235,000) 610,000 -- --
Accounts receivable.................... (1,986,958) (673,666) (1,885,940) (3,466,950) (3,429,584)
Income taxes receivable................ -- -- (155,542) -- 155,542
Prepaid expenses....................... 91,400 (60,224) (68,651) (145,939) (256,033)
Other assets........................... (183,766) (40,292) 62,297 (47,239) (116,091)
Accounts payable and accrued
expenses............................. 1,052,681 (282,548) 734,795 1,359,307 (2,319,753)
Deferred tuition income................ (519,615) 202,430 (1,826,398) 2,250,655 1,270,391
Income taxes payable................... -- 220,807 (26,461) (216,626) 214,038
Other liabilities...................... 134,352 305,713 (563,021) 3,649,380 155,115
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities............................... 1,503,214 4,207,275 2,736,657 7,916,233 682,536
INVESTING ACTIVITIES
Net additions to goodwill and
intangibles.............................. -- -- -- (5,781,336) --
Purchase of businesses, net of cash
acquired................................. -- -- (1,400,000) -- --
Purchases of property and equipment........ (2,200,758) (1,342,638) (2,079,501) (2,640,869) (1,562,729)
----------- ----------- ----------- ----------- -----------
Net cash (used in) investing activities.... (2,200,758) (1,342,638) (3,479,501) (8,422,205) (1,562,729)
FINANCING ACTIVITIES
Issuance of common stock................... -- -- 19,260,000 19,260,000 97,861
Issuance of common stock purchase
warrants................................. 368,150 -- -- -- --
Proceeds from notes payable and long-term
debt..................................... 2,529,950 391,837 532,295 532,295
Principal payments on acquisition notes
payable.................................. (1,156,187) (1,404,160) (1,890,493) (409,832) (3,923,424)
Exercise of common stock purchase
warrants................................. -- -- 850 -- --
Principal payments on senior subordinated
debt..................................... (300,000) (500,000) (5,000,000) (5,000,000) --
Increase in deferred financing costs....... (66,100) (86,222) (297,492) (286,931) (38,939)
Distributions to former Nebraska
Shareholders............................. (1,057,273) (790,193) (1,023,472) (108,000) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................... 318,540 (2,388,738) 11,581,688 13,987,532 (3,864,502)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents.............................. (379,004) 475,899 10,838,844 14,091,560 (4,744,695)
Cash and cash equivalents at beginning of
period................................... 3,112,150 2,733,146 3,209,045 3,209,045 14,047,889
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................... $ 2,733,146 $ 3,209,045 $14,047,889 $17,300,605 $ 9,303,194
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 77
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. ORGANIZATION AND NATURE OF BUSINESS
Educational Medical, Inc. (the "Company") operates diversified
career-oriented postsecondary education schools. The Company offers diploma and,
in certain locations, degree programs through its 19 schools located in nine
states. The Company's 19 schools offer programs designed to provide enrolled
students with the knowledge and skills necessary for entry level employment in
the fields of healthcare, business, fashion and design, and photography.
The consolidated financial statements have been restated for the March 31,
1997 acquisition of Educational Management, Inc. ("Nebraska Acquisition"), which
has been accounted for as a pooling of interests. The financial statements and
notes reflect amounts related to the consolidated results of the Company and the
Nebraska Acquisition. See Note 4 for further details.
On October 28, 1996, the Company completed its initial public offering
("IPO") of common stock by selling 2,200,000 shares of newly issued shares, in
addition to 410,000 shares sold by certain selling stockholders in October and
November 1996. See Note 7 for further details.
Approximately 46% and 12% of the Company's fiscal 1997 net revenues were
derived from its schools in California and Nebraska, respectively. No other
state represented over 10% of net revenues. Approximately 76% of the Company's
fiscal 1997 cash receipts were derived from Title IV programs as provided for by
the Higher Education Act of 1965, as amended. Cash receipts approximated 98% of
the Company's net revenues in fiscal 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS/RESTRICTED CASH
Cash equivalents includes overnight investments in a bank. These
investments are recorded at cost, which approximates market. The Company
considers investments with maturities of three months or less at the date of
purchase to be cash equivalents for purposes of the statements of cash flows.
Restricted cash represents 25% of certain of the Company's Title IV program
refunds made in the preceding fiscal year, as previously required by such
programs or posting of irrevocable letters of credit. In 1997, the Company
determined that segregation of such funds was no longer required except in
instances of failure to demonstrate financial responsibility, as defined, or to
pay refunds on a timely basis.
At March 31, 1996 and 1997, the Company held $3,717,558 and $13,515,475,
respectively, in cash balances at certain financial institutions which amounts
were in excess of the $100,000 federally insured amounts. The Company monitors
the financial condition of these institutions since it is exposed to credit risk
for such excess amounts, however, at this time the Company does not believe any
of these institutions present such a risk.
F-7
<PAGE> 78
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-LIVED ASSETS
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), the Company records impairment losses on
long-lived assets, including intangibles, used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation, including that
related to assets under capital leases, is computed using the straight-line
method over the estimated useful lives of the related assets or the remaining
lease term for leasehold improvements, if shorter.
COVENANTS NOT TO COMPETE
Non-compete agreements obtained from the sellers of certain acquired
schools are being amortized on the straight-line basis over the life of the
agreement, generally from two to 15 years.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is amortized over a fifteen year period.
Other intangible assets, which are similar in character to goodwill
(acquired student contracts, program curriculum, favorable leases assumed,
accreditation and acquired tradenames) are being amortized using the
straight-line method over periods ranging generally from two to ten years.
During the fiscal year ended March 31, 1995, the Company wrote-off
approximately $176,000 of unamortized intangible assets due to changes in
federal regulations regarding student referrals. During the fiscal year ended
March 31, 1996, the Company wrote-off approximately $764,000 of unamortized
goodwill related to one of its schools due to estimated impairment in value (see
Note 11).
LONG-TERM DEBT
Outstanding principal amounts are carried net of unamortized debt discount,
when applicable. The debt discount is being amortized over the period until
maturity of the underlying debt, using the straight-line method. Such
amortization is included in interest expense.
Deferred debt issuance costs represent fees and other costs associated with
obtaining long-term debt financing. Such amounts are amortized over the lives of
the related loans.
REVENUE RECOGNITION
Tuition revenue is recognized monthly on a straight-line basis over the
term of the course of study. Certain nonrefundable fees and charges are fully
recognized as revenue at the time a student begins classes.
The Company is generally required to refund a portion of a student's
unearned tuition who withdraws from a Company school. The amount of tuition, if
any, that may be retained by the Company after payment of any potential refund
is immediately recognized in the Company's statement of operations.
Deferred tuition income represents the portion of student tuitions received
in advance of the course of study's completion.
F-8
<PAGE> 79
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
differences between the financial reporting and the tax bases of assets and
liabilities measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
PRO FORMA INCOME TAX DATA
Prior to March 31, 1997, the Nebraska Acquisition consisted of a Subchapter
S Corporation and a partnership and, accordingly, was not subject to federal or
state income taxes. For informational purposes, the statements of operations
include a pro forma presentation that includes a provision for income taxes as
if the Nebraska Acquisition had been a taxable corporation for these periods and
had filed a consolidated income tax return with the Company. Such pro forma
calculations were based on the income tax laws and rates in effect during those
periods and Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes.
STATEMENTS OF CASH FLOWS
The following non-cash transactions have been excluded from the
consolidated statements of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Capital leases........................................ $623,000 $347,000 $ 121,000
Issuance of notes payable in connection with
acquisitions and related non-compete agreements..... -- -- 4,100,000
Distribution of note receivable to former Nebraska
shareholders........................................ -- -- 213,498
Conversion of note receivable to treasury stock....... -- -- 65,000
</TABLE>
STOCK-BASED COMPENSATION
The Company uses the intrinsic value method of accounting for its
stock-based compensation awards. As such, compensation expense is measured and
recorded if the exercise price of the stock options (or other awards) is below
the fair value of the Company's stock on the date of grant. The Company
discloses the pro forma effect of all stock compensation using the fair value
method as prescribed by Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-based Compensation, ("SFAS 123"). See Note 7.
RECLASSIFICATIONS
Certain reclassifications were made to the 1995 and 1996 consolidated
financial statements to conform to the 1997 presentation.
INTERIM STATEMENTS
The interim financial data for the nine months ended December 31, 1997 and
1996 is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results of operations for the interim
periods, on a consistent basis.
F-9
<PAGE> 80
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
Earnings (loss) per share are calculated and have been restated using the
Statement of Financial Accounting Standards No. 128, Earnings per Share, ("SFAS
128") and Securities and Exchange Commission Staff Accounting Bulletin No. 98
("SAB 98"). Basic earnings (loss) per share include weighted average common
shares outstanding. Diluted earnings (loss) per share include weighted average
common shares outstanding plus the dilutive effect of outstanding preferred
stock, stock options, and stock purchase warrants. Earnings per share amounts in
Notes 4, 7 and 11 have also been restated.
All earnings per share calculations include 761,263 shares issued on March
31, 1997 to effect the Nebraska Acquisition, less shares returned pursuant to
the contingency clause, as if outstanding for all periods.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1995(2) 1996(2) 1997
---------- ---------- ----------
<S> <C> <C> <C>
Numerator(1):
Income (loss) before extraordinary item.................. $ (513,430) $ 672,488 $2,612,329
Extraordinary item....................................... -- -- 308,683
---------- ---------- ----------
Net income (loss)........................................ $ (513,430) $ 672,488 $2,303,646
---------- ---------- ----------
Denominator:
Denominator for basic earnings per
share -- weighted-average shares...................... 2,371,041 2,371,041 4,484,492
Effect of dilutive securities:
Convertible preferred stock........................... -- 1,705,082 981,006
Stock Options......................................... -- 222,936 301,222
Warrants to purchase common stock..................... -- 882,808 680,545
---------- ---------- ----------
Denominator for diluted earnings per share -- adjusted
weighted-average shares............................... 2,371,041 5,181,867 6,447,265
========== ========== ==========
Income (loss) per share -- basic:
Income before extraordinary item......................... $ (0.22) $ 0.28 $ 0.58
Extraordinary item....................................... -- -- $ (0.07)
---------- ---------- ----------
Net income (loss)........................................ $ (0.22) $ 0.28 $ 0.51
========== ========== ==========
Income (loss) per share -- diluted:
Income before extraordinary item......................... $ (0.22) $ 0.13 $ 0.41
Extraordinary item....................................... -- -- $ (0.05)
---------- ---------- ----------
Net income (loss)........................................ $ (0.22) $ 0.13 $ 0.36
========== ========== ==========
</TABLE>
- ---------------
(1) The numerator amounts reflect the pro forma income tax provision recorded
due to the Nebraska Acquisition. Similarly, the basic and diluted per share
amounts are the pro forma earnings per share amounts. Historical earnings
per share is considered meaningless.
(2) Warrants to purchase 16,667 shares of common stock at March 31, 1996 were
outstanding but were not included in the computation of diluted earnings per
share because the warrant's exercise price was greater than the average
market price of the common shares and, therefore, the effect would be
antidilutive. Convertible preferred stock, options and warrants to purchase
3,410,082 shares of common stock at March 31, 1995 were outstanding but not
included due to the Company's loss, which would make the effect
antidilutive.
F-10
<PAGE> 81
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. REGULATORY MATTERS
The Company derives a substantial portion of its revenues from financial
aid received by its students under Title IV programs ("Title IV Programs")
administered by the United States Department of Education ("Department")
pursuant to the federal Higher Education Act of 1965, ("HEA"), as amended. In
order to continue to participate in Title IV Programs, the Company and its
schools must comply with complex standards set forth in the HEA and the
regulations promulgated thereunder (the "Regulations"). Among other things these
Regulations require the Company's schools to exercise due diligence in approving
and disbursing funds and servicing loans, limit the proportion of cash receipts
by the Company's schools derived from Title IV Programs to no more than 85% of
the total revenue derived from the school's students in its Title IV eligible
educational programs, and to exercise financial responsibility related to
maintaining certain financial covenants (including cash reserve for refunds, an
"acid test" ratio, a positive tangible net worth test and limitations on the
amount of operating losses in comparison to tangible net worth, as defined). All
of the Company's schools participate in Title IV Programs.
The following table sets forth, for each institution, the percentage of
revenues derived from Student Financial Assistance programs in the year ended
March 31, 1997. Percentages were calculated including funds received in periods
prior to acquisition by the Company.
<TABLE>
<CAPTION>
OPE TOTAL TITLE IV FUNDS
IDENTIFI- TITLE IV ELIGIBLE AS PERCENTAGE
CATION FUNDS FUNDS OF TOTAL FUNDS
SCHOOL NUMBER RECEIVED RECEIVED RECEIVED
- ------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Maric College of Medical Careers --............ 02091700 $7,486,083 $9,246,540 81.0%
San Diego, California
Maric College of Medical Careers --............ 02549000 4,204,441 5,012,133 83.9%
San Marcos/Vista, California
Long Medical Institute --...................... 02071200 1,212,291 1,471,521 82.4%
Phoenix, Arizona
Andon College --............................... 02565400 2,187,271 2,613,929 83.7%
Stockton, California
Andon College of Modesto --.................... 02306300 1,485,259 1,808,792 82.1%
Modesto, California
Bauder College --.............................. 01157400 2,807,549 4,327,637 64.9%
Atlanta, Georgia
Modern Technology School of X-Ray --........... 02539100 2,632,371 3,127,512 84.2%
North Hollywood, California
Dominion Business School --.................... 01290100 952,712 1,122,745 84.9%
Roanoke, Virginia
Dominion Business School --.................... 03077000 923,703 1,144,852 80.7%
Harrisonburg, Virginia
ICM School of Business --...................... 00743600 2,919,497 4,590,857 63.6%
Pittsburgh, Pennsylvania
Ohio Institute of Photography &
Technology --................................ 02052000 1,838,577 2,707,130 67.9%
Dayton, Ohio
California Academy of Merchandising, Art, and
Design --.................................... 02351900 781,616 924,969 84.5%
Sacramento, California
San Antonio College of Medical & Dental
Assistants --................................ 00946600 1,330,135 1,785,291 74.5%
San Antonio/McAllen, TX
</TABLE>
F-11
<PAGE> 82
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPE TOTAL TITLE IV FUNDS
IDENTIFI- TITLE IV ELIGIBLE AS PERCENTAGE
CATION FUNDS FUNDS OF TOTAL FUNDS
SCHOOL NUMBER RECEIVED RECEIVED RECEIVED
- ------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Career Centers of Texas --..................... 02591900 $ 711,116 $1,140,656 62.3%
El Paso, Texas
Hagerstown Business College --................. 00794600 989,180 1,916,954 51.6%
Hagerstown, Maryland
Nebraska College of Business --................ 00849100 2,645,949 3,242,624 81.6%
Omaha, Nebraska
Lincoln School of Commerce --.................. 00472100 2,635,081 3,312,854 79.5%
Lincoln, Nebraska
</TABLE>
The failure of any of the Company's schools to comply with the requirements
of the HEA or the Regulations could result in the restriction or loss by the
Company or such school of its ability to participate in Title IV Programs. If
the Department determines that any of the Company's schools is not financially
responsible, the Department may require that the Company or such school post an
irrevocable letter of credit in an amount equal to not less than one-half of
Title IV Program funds received by the relevant school during the last complete
award year or, at the Department's discretion, require some other less onerous
demonstration of financial responsibility. One-half of Title IV funds received
by the Company's individual schools in the most recent fiscal year ranged from
$0.2 million to $3.7 million and one-half of the aggregate Title IV funds
received by all of the Company's schools in the most recent fiscal year equaled
$18.4 million. At March 31, 1997, the Company posted irrevocable letters of
credit for two of its schools totaling $145,000 which are payable to the
Department of Education and expire in January 1998.
Many of the financial responsibility standards are new, difficult to
interpret, and subject to the interpretation of the Department for
implementation. Further, the process for resolving lack of compliance with such
Regulations is also subject to interpretation and, in some cases, negotiation
with the Department. The Company believes each of its schools satisfies the
financial responsibility standards for fiscal 1997 except with respect to the
operating losses incurred by the Company's school located in Roanoke, Virginia.
4. ACQUISITIONS
During the fiscal year ended March 31, 1997, the Company acquired the stock
or certain assets and assumed certain liabilities of three businesses operating
a total of six schools. The following summarizes key information relevant to
these acquisitions:
TEXAS ACQUISITION
On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
(the "Texas Acquisition"). The schools offer healthcare degree and diploma
programs and are located in San Antonio, McAllen and El Paso, Texas.
The Company financed the purchase of the Texas schools with $1,250,000 in
cash and the remaining $1,250,000 payable in the form of a promissory note
bearing interest at 8% per annum and due in five equal annual principal
payments.
MARYLAND ACQUISITION
On December 12, 1996, the Company entered into an acquisition agreement
providing for the purchase of one school located in Hagerstown, Maryland
("Maryland Acquisition") for $2.7 million in cash. The Maryland school offers
healthcare and business diploma and degree programs.
F-12
<PAGE> 83
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Texas Acquisition and the Maryland Acquisition, described above, were
each accounted for using the purchase method of accounting. The results of
operations of the acquired companies are included in the Company's fiscal 1997
consolidated statement of operations beginning with the respective acquisition
dates. The assets and liabilities of the acquired companies are included in the
Company's consolidated balance sheet based on a preliminary allocation of the
estimated fair values on the dates of acquisition. The excess of cost over
acquired net assets of the Texas and Maryland businesses acquired aggregated
approximately $5,687,000 at the dates of acquisition and is being amortized over
a 15 year period.
NEBRASKA ACQUISITION
On March 31, 1997, the Company acquired all of the outstanding stock of
Educational Management, Inc. ("Nebraska Acquisition"). The Nebraska Acquisition
consisted of two schools located in Lincoln and Omaha, Nebraska, which offer
business degree and diploma programs, and related real estate. In connection
with the acquisition, the Company issued 761,263 shares of its common stock,
agreed to pay $300,000 in non-compete agreements and paid approximately
$1,100,000 in cash which was used to pay off mortgage notes on certain real
estate owned by the Nebraska Acquisition.
This transaction was accounted for as a pooling of interests; therefore,
all financial statements presented have been restated to reflect the
acquisition. The Nebraska Acquisition prepared its financial statements using a
December 31 calendar year-end prior to the acquisition. In recording the pooling
of interests combination, the Nebraska Acquisition's financial statements for
the years ended March 31, 1997, March 31, 1996 and December 31, 1994 were
combined with the Company's financial statements for the years ended March 31,
1997, 1996 and 1995, respectively. The Nebraska Acquisition reported net
revenues and net income of $1,345,000 and $208,229, respectively for the
three-month period ended March 31, 1995. An adjustment of $208,229 was made
directly to the Company's consolidated stockholders' equity representing the
results of operations for the Nebraska Acquisition for the period from January
1, 1995 through March 31, 1995 to conform the Nebraska Acquisition's year end to
the Company's year-end. Prior to the acquisition, the Nebraska Acquisition and
its predecessor filed its income tax returns under the provisions of Subchapter
S of the Internal Revenue Code and as a partnership and hence recorded no income
tax provision. Certain adjustments were made to the Company's financial
statements to record deferred income taxes at the date of acquisition.
Net revenues and net income (loss) included in the Company's consolidated
statements of operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
Educational Medical, Inc...................... $32,065,009 $38,651,827 $43,437,416
Nebraska Acquisition.......................... 5,015,036 4,694,706 6,012,264
----------- ----------- -----------
$37,080,045 $43,346,533 $49,449,680
=========== =========== ===========
Net income (loss):
Educational Medical, Inc...................... $(1,428,376) $ 79,424 $ 2,321,432
Nebraska Acquisition.......................... 984,597 447,384 1,236,528
----------- ----------- -----------
$ (443,779) $ 526,808 $ 3,557,960
=========== =========== ===========
</TABLE>
In connection with this acquisition, 95,000 shares of the 761,263 shares
issued were placed into escrow pending the resolution of certain financial aid
compliance matters with the Department of Education. In May 1997, the Company
settled a portion of these contingencies and as a result agreed to pay
approximately
F-13
<PAGE> 84
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$397,000 to various parties and hence will receive approximately 37,810 shares
from the sellers' escrow. The other shares will continue to be held in escrow
for specified periods.
Summary unaudited pro forma results of operations for the years ended March
31, 1996 and 1997 for the acquisitions, as if the acquisitions had occurred at
April 1, 1995 and as if the Texas and Nebraska Acquisitions were filing as C
Corporations rather than as Subchapter S corporations and a partnership, and
restated for SFAS 128 and SAB 98 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net revenues................................................ $50,631,529 $53,156,034
Income before extraordinary item............................ 1,225,350 3,914,088
Net income.................................................. 1,225,350 3,605,405
Pro forma earnings per share:
Income before extraordinary item -- basic................. $ 0.52 $ 0.87
Income before extraordinary item -- diluted............... 0.24 0.61
Net income -- basic....................................... 0.52 0.80
Net income -- diluted..................................... 0.24 0.56
Weighted average common shares -- basic..................... 2,371,041 4,484,492
Weighted average common shares -- diluted................... 5,181,867 6,447,265
</TABLE>
The pro forma adjustments for acquisitions are based on the available
information and certain assumptions that management believes are reasonable.
These unaudited pro forma results of operations do not purport to represent
what the Company's actual results of operations would have been if the
acquisitions had occurred on April 1, 1995, and should not serve as a forecast
of the Company's operating results for any future periods. The pro forma
adjustments are based solely upon certain assumptions that management believes
are reasonable under the circumstances at this time. Management believes the
full impact of potential cost savings has not been reflected in the pro forma
results presented above, although there can be no assurances such cost savings
will be achieved. Subsequent adjustments may be necessary upon final
determination of the allocation of the purchase prices.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Land...................................................... $ 732,148 $ 748,598
Buildings................................................. 2,544,531 3,288,257
Equipment, furniture and fixtures......................... 5,812,629 7,451,297
Leasehold improvement..................................... 1,272,871 1,517,178
----------- -----------
10,362,179 13,005,330
Less accumulated depreciation and amortization............ (4,091,560) (5,387,372)
----------- -----------
$ 6,270,619 $ 7,617,958
=========== ===========
</TABLE>
F-14
<PAGE> 85
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Bank line of credit, $17,500,000 principal, monthly
interest-only payments, matures February 25, 2000. As of
March 31, 1997, $4,200,000 was available under the
revolving line of credit and none was available under the
term loan(a).............................................. $ -- $ --
14% senior subordinated debt, ("14% Notes"), $2,200,000
principal, quarterly interest-only payments through March
31, 2000, principal due March 31, 2000. Outstanding
principal amounts at March 31, 1996 are net of unamortized
discount of $294,520(b)................................... $1,905,480 $ --
13% senior subordinated debt, ("13% Notes") $4,000,000
principal, quarterly interest-only payments through March
31, 1993, quarterly principal payments of $100,000 plus
interest beginning June 30, 1993 through the repayment of
the 14% notes. One month after repayment in full of the
14% Notes, 15% of unpaid principal is due. The remaining
balance is then payable in three monthly installments of
20%, 25% and remaining principal balance, respectively.
Outstanding principal amounts at March 31, 1996 are net of
unamortized debt discount of $216,056(c).................. 2,583,944 --
8% note, due in monthly installments of interest and annual
installments of principal, secured by substantially all
assets including land and buildings at two schools and the
personal guarantees of three individuals(d)............... 615,051 --
8.75% mortgage payable, adjustable in 1998 up to prime plus
1.25%, to a bank, due in monthly installments of principal
and interest, secured by land and building of one
school.................................................... 653,527 625,668
8% to 11% unsecured promissory notes payable to sellers of
various schools acquired, principal and interest payable
periodically through November 2001........................ 810,000 1,790,000
Various unsecured, non-interest bearing notes payable for
noncompetition agreements, payable periodically through
July 1999................................................. 702,500 757,500
Various unsecured, non-interest bearing notes payable to
sellers of various schools acquired, payable in fiscal
1997...................................................... -- 2,500,000
8% to 12% capital leases, payable periodically through
November 2001; secured by equipment....................... 484,492 455,563
---------- ----------
7,754,994 6,128,731
Less current portion........................................ (1,080,085) (3,964,851)
---------- ----------
$6,674,909 $2,163,880
========== ==========
</TABLE>
- ---------------
(a) In February 1997, the Company entered into a loan with a major U.S. bank for
$17.5 million of which $5 million is for a three year revolving line of
credit and the remainder a three year term loan (the "Bank Line of Credit").
Subject to certain financial conditions of the Company and the use of all
the net proceeds received by the Company from the IPO, the term loan begins
at the lesser of $5 million or the
F-15
<PAGE> 86
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of eligible accounts receivable in the first year, increasing to $7.5
million in the second year and then to $12.5 million in the third year.
Interest will be charged on borrowings at different floating rates above
LIBOR depending on certain financial conditions of the Company and depending
on whether drawn under the revolving line of credit or the term loan. In
addition, the Bank Line of Credit requires fees for the borrowing
commitment. The Bank Line of Credit contains restrictions on the payment of
dividends, capital expenditures and incurrence of additional debt and
contains various financial covenants such as minimum net worth, tangible net
worth and debt coverage. The loan is secured by substantially all of the
assets of the Company.
(b) On March 31, 1995, the Company issued $2,200,000 of 14% Senior Subordinated
Debt and warrants to purchase a total of up to 308,333 shares of Common
Stock. Pursuant to this transaction, $368,150 was recorded as debt discount
and attributed to the warrants (see Note 7). Amortization of this discount
aggregated $73,630 and $42,952 in the years ended March 31, 1996 and 1997,
respectively. The 14% Notes were secured by substantially all the assets of
the Company. These Notes were repaid in full with proceeds of the IPO.
(c) In 1991, the Company issued $4,000,000 of 13% Senior Subordinated Debt Notes
and warrants to purchase a total of 1,333,333 shares of common stock.
Pursuant to this transaction, $1,050,000 was recorded as debt discount and
attributed to the warrants (see Note 7). Amortization of the discount
aggregated $50,000 and $29,092 for the year ended March 31, 1996 and 1997,
respectively. In 1995, the 13% Notes were amended to extend the maturity
date from 1996 to dates correlated to the repayment of the 14% Notes. The
13% Notes were secured by substantially all the assets of the Company. Such
security was subordinate to all senior debt, as defined, including the 14%
Notes. These Notes were repaid in full with proceeds of the IPO.
(d) This mortgage note was paid in full in conjunction with the Nebraska
Acquisition in March 1997. See Note 4.
Aggregate maturities of long-term debt at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING MARCH 31
- ---------------------------
<S> <C>
1998........................................................ $3,964,851
1999........................................................ 726,370
2000........................................................ 380,575
2001........................................................ 321,173
2002........................................................ 306,447
Thereafter.................................................. 429,315
----------
$6,128,731
==========
</TABLE>
Interest paid during the years ended March 31, 1995, 1996 and 1997 was
approximately $1,002,000, $1,328,000 and $655,000, respectively.
The fair values of the Company's long-term debt are estimated using
discounted cash flow analyses, based on the Company's estimate of current
borrowing rates for credit facilities with maturities which approximate the
weighted average maturities for its existing long-term debt. At March 31, 1996
the estimated fair value of the Company's long-term debt approximated $8,600,000
and at March 31, 1997 the estimated fair value of the Company's long-term debt
approximated its carrying value.
7. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
On October 28, 1996, the Company completed its IPO. A total of 2,400,000
shares were sold at $10 per share which included 2,200,000 shares sold by the
Company and 200,000 shares sold by certain selling
F-16
<PAGE> 87
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stockholders. The selling stockholders sold an additional 210,000 shares in
November 1996; the Company did not receive any of the proceeds from the selling
stockholders sales. The net proceeds to the Company were approximately $19.3
million and were partially used to repay $4.8 million of subordinated debt. The
balance of the IPO proceeds will be used for general corporate purposes,
including the expansion of its operations through the acquisition of additional
schools.
In connection with the early extinguishment of the $4.8 million in
subordinated debt in fiscal year 1997, the Company incurred an extraordinary
loss of $514,500 ($308,683, net of tax), as a result of the write-off of the
related unamortized deferred debt issuance costs and unamortized debt discount.
STOCK SPLIT
On June 20, 1996, the Company amended its certificate of incorporation to
increase the authorized Common Stock to 15,000,000 shares, retain the par value
of $.01 per share, and to provide a five-for-three Common Stock split. Such
amendment was effective upon the IPO. All common share and per common share
amounts have been adjusted for all periods to reflect the stock split. In
addition, the Company authorized 5,000,000 shares of Preferred Stock; terms will
be set upon issuance.
CONVERTIBLE PREFERRED STOCK
Prior to its IPO, the Company had issued and outstanding 1,023,049 shares
of Convertible Preferred Stock, $.01 par value. At the option of the holder,
shares of Convertible Preferred Stock converted into 1.67 shares of Common Stock
and prior to March 1996, were mandatorily redeemable at $6.66 per share, subject
to certain antidilution adjustments (1,705,082 shares at March 31, 1996).
Through July 22, 1991, the shares of Convertible Preferred Stock accrued
dividends at an annual rate of 8%. In 1991, pursuant to the issuance of the 13%
Notes (see Note 6), the terms of the Convertible Preferred Stock were amended to
eliminate the cumulative dividends feature and the mandatory redemption
requirement except in the event of an initial public offering of common stock
and certain other circumstances. The Company issued 410,833 shares of Common
Stock in 1991 in full payment of accrued dividends through July 22, 1991
totaling $1,232,498. In March 1996, the terms were further amended to eliminate
the mandatory redemption in all circumstances, but still permitting conversion
at the option of the holder. In May 1996, terms were again amended to require
automatic conversion of all outstanding shares of Convertible Preferred Stock in
the event of an IPO.
All outstanding shares of Convertible Preferred Stock converted into
1,705,082 shares of common stock at the IPO.
COMMON STOCK
As of March 31, 1997, the Company has reserved the following shares of
Common Stock for future issuance by the following:
<TABLE>
<S> <C>
Common Stock purchase warrants.............................. 43,334
Stock options............................................... 340,167
-------
383,501
=======
</TABLE>
COMMON STOCK PURCHASE WARRANTS
As described in Note 6, the holders of the 14% Notes were granted common
stock purchase warrants allowing for the purchase of at least 141,667 and up to
308,333 common shares, depending on the date of repayment of the 14% Notes, at
$.006 per share. The warrants were assigned a value of $368,150 and did not
F-17
<PAGE> 88
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include put or call features. As of the IPO, these warrants were exercised for
the purchase of 141,667 shares of Common Stock.
As also described in Note 6, the holders of the 13% Notes were granted
stock purchase warrants allowing for the purchase of up to 1,333,333 shares of
Common Stock at $3 per share (the "$3 Warrants"), for a total amount of
$4,000,000. The $3 exercise price of the warrants was subject to adjustment for
any future issuances of equity or equity related securities at a per share price
less than the exercise price. As of the IPO, these warrants were exercised for
the purchase of 1,333,333 shares, less shares used for the cashless exercise,
yielding 933,333 additional shares of Common Stock.
At any time after March 31, 1998, but on or before March 31, 1999, the
holders of the $3 warrants had the right to "put" to the Company warrants
representing 50% of total warrants then outstanding. At any time after March 31,
1999, the holders had the right to "put" to the Company all then outstanding $3
warrants. The Company could "call" the warrants at the later of two years from
closing (July 23, 1991) or after the Company's stock has been publicly traded
for six months. The put/call price was $3 per share. In May 1996, the terms of
the warrants were amended to provide for a cashless exercise based on the IPO
price per share, in the event of an IPO of the Company's common stock and to
eliminate the "put" feature.
The $3 warrants were assigned a value of $1,050,000 when issued. The
difference between the $1,050,000 and the exercise price of $4,000,000 was being
accreted, using a method which approximated the effective interest rate method,
through the date of earliest exercise (50% through March 31, 1998 and 50%
through March 31, 1999). Accretion of $339,252, $406,346 and $281,398 was
charged to accumulated deficit during the years ended March 31, 1995, 1996 and
1997, respectively.
In connection with the issuance of the Convertible Preferred Stock in 1991,
a third party was granted warrants to purchase 26,667 shares of Common Stock
exercisable at $3.60 per share. These warrants expire July 31, 1999 and are
outstanding as of March 31, 1997.
At the time of the IPO, the Company issued to a third party, warrants to
purchase 16,667 shares of Common Stock at $10 per share. These warrants expire
October 28, 2001 and are outstanding as of March 31, 1997.
STOCK OPTIONS
The Company has granted employees and non-employee directors options to
purchase its Common Stock. The employee options vest incrementally over periods
ranging from four to five years and expire five years after vesting. The
non-employee director options vest immediately and expire five years after
vesting.
A summary of the status of the Company's employee and director stock option
activity, and related information for the years ended March 31 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year..... 199,166 $2.67 190,833 $2.68 361,666 $3.13
Granted............................ -- -- 175,000 3.60 465,500 10.10
Exercised.......................... -- -- -- -- -- --
Canceled/forfeited................. (8,333) 2.40 (4,167) 2.40 (5,667) 8.12
------- ------- -------
Outstanding at end of year........... 190,833 2.68 361,666 3.13 821,499 7.04
======= ======= =======
Exercisable at end of year........... 130,833 2.50 156,667 2.57 313,000 5.09
======= ======= =======
Options available for future grant... 770,833 600,000 340,167
======= ======= =======
</TABLE>
F-18
<PAGE> 89
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about employee and director
stock options outstanding at March 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
MARCH 31, CONTRACTUAL EXERCISE MARCH 31, EXERCISE
EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.40............................... 153,333 5.0 years $ 2.40 153,333 $ 2.40
$4.00............................... 33,333 5.3 years 4.00 25,000 4.00
$3.60............................... 173,333 8.7 years 3.60 34,667 3.60
$10.00.............................. 100,000 4.6 years 10.00 100,000 10.00
$10.00.............................. 331,000 9.6 years 10.00 -- --
$11.50.............................. 30,500 9.8 years 11.50 -- --
------- -------
821,499 7.04 313,000 5.09
======= =======
</TABLE>
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
On June 20,1996, the Company adopted and its stockholders approved a
Non-employee Director Stock Option Plan (the "Directors' Plan") to attract and
retain the services of non-employee members of the Board of Directors and to
provide them with increased motivation and incentive to exert their best efforts
on behalf of the Company by enlarging their personal stake in the Company. The
maximum number of shares of Common Stock with respect to which options may be
granted under the Directors' Plan is 200,000 shares. As of March 31, 1997,
100,000 options were available for future grant.
Each member of the Board of Directors of the Company who otherwise (i) is
not currently an employee of the Company, (ii) is not a former employee still
receiving compensation for prior services, and (iii) is not currently receiving
remuneration from the Company in any capacity other than as a director shall be
eligible for the grant of stock options under the Directors' Plan
("Participant"). Currently, all directors other than the Chairman are eligible
to participate in the Directors' Plan.
On the date the Directors' Plan was adopted, each of the four existing
non-employee directors were each granted, contingent upon completion of the IPO,
options to purchase 25,000 shares of Common Stock of the Company at the per
share IPO price ($10). These options vested immediately upon consummation of the
IPO. Upon the election of any new member of the Board of Directors, such member
will be granted an option to purchase 25,000 shares of Common Stock at the fair
market value at date of grant, vesting in five equal annual installments
beginning on the first anniversary of the date of grant. Beginning with the next
annual meeting of the stockholders of the Company and provided that a sufficient
number of shares remain available under the Directors' Plan, each year
immediately following the date of the annual meeting of the Company there
automatically will be granted to each non-employee director who is then serving
on the Board an option to purchase 3,000 shares of the Common Stock of the
Company, which options will be immediately vested.
PRO FORMA INFORMATION
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company had accounted for its employee and director stock options granted
subsequent to April 1, 1995 under the fair value method described in SFAS 123.
The fair value of these stock options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for the years ended March 31, 1996 and 1997, respectively: (i)
dividend yield of 0%; (ii) expected volatility of 4.91; (iii) risk-free interest
rates of 6.50% and 6.18%; and (iv) expected life of 6.00 and 5.64 years.
F-19
<PAGE> 90
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee and director stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
and director stock options.
For purposes of pro forma disclosure, the estimated fair value of the
employee and director options is amortized to expense over the options' vesting
period. The Company's unaudited pro forma information using SFAS 123, and
restated per SFAS 128 and SAB 98, follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1996 1997
-------- ----------
<S> <C> <C>
Pro forma income before extraordinary item.................. $479,629 $3,456,221
Pro forma net income........................................ 479,629 3,147,538
Pro forma earnings per share:
Income before extraordinary item -- basic................. $ 0.20 $ 0.77
Income before extraordinary item -- diluted............... 0.09 0.54
Net income -- basic....................................... 0.20 0.20
Net income -- diluted..................................... 0.09 0.49
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to April
1, 1995, its pro forma effect will not be fully reflected until future years.
8. INCOME TAXES
At March 31, 1997, the Company recognized the deferred income tax assets
and liabilities related to its Nebraska Acquisition. The predecessor entities
previously filed their income tax returns under the provisions of Subchapter S
of the Internal Revenue Code and as a partnership and hence recorded no income
tax provision or deferred income tax assets or liabilities at the corporate
level.
The components of historical income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1995 1996 1997
------- -------- -----------
<S> <C> <C> <C>
Current:
Federal............................................... $ -- $484,376 $ 567,544
State................................................. 27,982 147,809 151,088
------- -------- -----------
27,982 632,185 718,632
Deferred:
Federal............................................... -- -- (1,218,248)
State................................................. -- -- (345,747)
------- -------- -----------
-- -- (1,563,995)
------- -------- -----------
$27,982 $632,185 $ (845,363)
======= ======== ===========
</TABLE>
F-20
<PAGE> 91
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax expense (benefit) computed at the statutory
federal income tax rate on income before extraordinary item to the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Federal............................................ $(141,370) $ 394,058 $ 1,027,235
State, net of federal tax benefit.................. -- 97,554 99,718
Permanent differences.............................. 49,988 55,436 53,554
Increase (decrease) in deferred tax asset valuation
allowance........................................ 465,497 308,584 (1,319,987)
Effect of Nebraska Acquisition filing as a
Subchapter S corporation......................... (344,763) (152,111) (420,420)
Effect of Nebraska Acquisition's termination of
Subchapter S corporation status.................. -- -- (285,463)
Utilization of AMT credit.......................... -- (56,000) --
Other, net......................................... (1,370) (15,336) --
--------- --------- -----------
$ 27,982 $ 632,185 $ (845,363)
========= ========= ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1997
----------- ----------
<S> <C> <C>
Prepaid expenses............................................ $ (192,974) $ (229,722)
----------- ----------
Total deferred income tax liabilities....................... (192,974) (229,722)
Deferred income tax assets:
Tradenames and other intangibles.......................... 868,393 575,393
Property and equipment.................................... 8,419 369,236
Allowance for doubtful accounts........................... 339,637 330,135
Accrued expenses and other liabilities.................... 264,166 1,108,256
Other, net................................................ 32,346 --
----------- ----------
Total deferred income tax assets............................ 1,512,961 2,383,020
Valuation allowance......................................... (1,319,987) --
----------- ----------
Net deferred income tax assets.............................. $ -- $2,153,298
=========== ==========
</TABLE>
Based on its history of recurring losses before income taxes and the
Company's evaluation of available evidence at March 31, 1995 and 1996 as
described in SFAS No. 109, Accounting for Income Taxes ("SFAS No. 109"), the
Company determined that it was more likely than not, for purposes of SFAS No.
109, that it would not realize its net deferred income tax assets at such dates.
Accordingly, the Company recorded a valuation allowance against all of its net
deferred income tax assets at March 31, 1995 and 1996. In fiscal year 1997, as a
result of its results of operations and the three acquisitions of historically
profitable businesses, all of the valuation allowance was eliminated.
The Company paid approximately $17,000, $360,000 and $1,076,000 of income
taxes in the years ended March 31, 1995, 1996 and 1997, respectively. The
Company received approximately $733,000 of income tax refunds during the year
ended March 31, 1995.
F-21
<PAGE> 92
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASES
The Company leases office, classroom and dormitory space under operating
lease agreements expiring through 2004. Rent expense totaled approximately
$3,111,000, $2,971,000 and $3,650,000 for the years ended March 31, 1995, 1996
and 1997, respectively.
Future minimum lease payments under noncancelable operating leases in
effect at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING MARCH 31
- ---------------------------
<S> <C>
1998........................................................ $ 3,307,000
1999........................................................ 2,499,000
2000........................................................ 2,001,000
2001........................................................ 777,000
2002........................................................ 1,181,000
Thereafter.................................................. 3,327,000
-----------
$13,092,000
===========
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan covering substantially all
employees; the plan is qualified under Section 401(k) of the Internal Revenue
Code. Under the provisions of the plan, eligible participating employees may
elect to contribute up to the maximum amount of tax deferred contribution
allowed by the Internal Revenue Code. The Company matches a portion of such
contributions up to a maximum percentage of the employees' compensation. The
Company's contributions to the plan and predecessor plans of the Nebraska
Acquisition were approximately $101,000, $104,000 and $133,000 for the years
ended March 31, 1995, 1996 and 1997, respectively.
11. OTHER EXPENSES
IMPAIRMENT OF LONG-LIVED ASSETS
The Company's Roanoke, Virginia school has incurred significant operating
losses since its acquisition. Accordingly, the Company evaluated the
recoverability of the school's long-lived assets including its identifiable
intangible assets and goodwill. Based on the Company's expectation of future
cash flows, the Company determined that assets with a carrying amount of
$764,000 were impaired and recorded an impairment loss in fiscal year 1996 to
record such assets at management's estimate of the net present value of such
future cash flows. This estimate was based on estimated undiscounted future cash
flows to be generated by such assets and is a subjectively determined amount
subject to change based upon actual results.
CONTINGENCIES
In September 1995, the Company filed suit in connection with its 1993
purchase of its Hollywood, California school. The suit alleged that the sellers
made significant financial and operational misrepresentations to the Company.
The Company sought damages from the sellers. The Sellers denied the Company's
allegations and filed a Cross-Complaint against the Company alleging among other
things, breach of contract and fraud. Both parties agreed to dismiss their
claims in April 1997 when the Company agreed to pay a total of $564,892
representing all amounts outstanding on the acquisition notes payable to the
sellers and the notes payable for covenants not-to-compete, in addition to the
payment of a portion of the sellers' legal fees. All amounts, including the
Company's legal defense expenses, were accrued or paid as of March 31, 1997.
F-22
<PAGE> 93
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 24, 1994, eight students enrolled in one of the Company's programs
at its schools in the San Diego, California area filed a lawsuit against the
Company in the state court in California. In substance, the suit alleged that
there were material misrepresentations made with respect to the content of the
program and the potential outcomes achieved by the students who graduated from
it. The suit was certified as a class action in the fall of 1994. Although the
Company believes that it accurately described the course content and the
multiple outcomes to which the course could lead, in order to avoid further
legal expense and because of the uncertainty and risks inherent in any
litigation, the Company determined that it was desirable to settle the lawsuit.
A final settlement was approved in March 1996. Pursuant to the terms of the
settlement, the Company paid the plaintiffs $600,000 in the fiscal year ended
March 31, 1996 and an additional $400,000 on April 1, 1997. In addition, the
Company agreed to make available tuition credits of $1,150,000 to class members,
provided that students elected to utilize such tuition credits by July 17, 1996.
Any unused tuition credits were to be redeemed in cash by the Company for 10% of
the credit and $115,000 was accrued for these credits, as of March 31, 1996. All
of this settlement expense is reflected in the 1996 consolidated statement of
operations. As of March 31, 1997, only a few students had requested tuition
credits and substantially all of the $115,000 balance was paid into the
settlement fund on April 1, 1997.
The Company incurred $600,000 and $1,115,000 in expenses in the fiscal
years ended March 31, 1995 and 1996, respectively (of which $515,000 and
$515,000 was accrued at March 31, 1996 and 1997, respectively) related to legal
costs to defend the class action lawsuit and the settlement related to such
suit.
The Company is also a party to routine litigation incidental to its
business, including ordinary course employment litigation. Management does not
believe that the resolution of any or all of such routine litigation is likely
to have a material adverse effect on the Company's financial condition or
results of operations.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the fiscal years ended March 31, 1997 and 1996 (in thousands, except per
share data) restated per SFAS 128 and SAB 98:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues............................... $10,401 $12,039 $13,324 $13,686
Income before extraordinary item........... 72 698 1,141 1,956
Net income................................. 72 698 832 1,956
Proforma income before extraordinary
item*.................................... 59 738 1,071 744
Pro forma net income*...................... 59 738 762 744
Per Share Data
Basic:
Pro forma net income before
extraordinary item.................. $ 0.03 $ 0.31 $ 0.18 $ 0.10
Pro forma net income.................. 0.03 0.31 0.13 0.10
Diluted:
Pro forma net income before
extraordinary item.................. 0.01 0.13 0.15 0.10
Pro forma net income.................. 0.01 0.13 0.11 0.10
</TABLE>
- ---------------
* Pro forma reflects the adjustments described in "Pro Forma Income Tax Data" in
Note 2 and does not reflect the adjustments described in Note 4.
Quarterly earnings per share do not total to the annual amount due to the
issuance of shares in the IPO.
F-23
<PAGE> 94
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues............................... $9,765 $10,377 $11,538 $11,667
Net income (loss).......................... (119) 321 (66) 391
Pro forma net income (loss)*............... (74) 288 92 366
Per Share Data
Basic:
Pro forma net income (loss) before
extraordinary item.................. $(0.03) $ 0.12 $ 0.04 $ 0.15
Pro forma net income (loss)........... (0.03) 0.12 0.04 0.15
Diluted:
Pro forma net income (loss) before
extraordinary item.................. (0.03) 0.06 0.02 0.07
Pro forma net income (loss)........... (0.03) 0.06 0.02 0.07
</TABLE>
- ---------------
* Pro forma reflects the adjustments described in "Pro Forma Income Tax Data" in
Note 2 and does not reflect the adjustments described in Note 4.
13. SUBSEQUENT EVENTS (UNAUDITED)
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.
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.
F-24
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
San Antonio College of Medical
and Dental Assistants, Inc.
and Career Centers of Texas -- El Paso, Inc.
We have audited the accompanying combined balance sheets of San Antonio
College of Medical and Dental Assistants, Inc. and Career Centers of Texas -- El
Paso, Inc. (S corporations) as of December 31, 1995 and 1994, and the related
combined statements of operations, retained earnings, and cash flows for the
years then ended. The combined financial statements are the responsibility of
the Institution's management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to in the first
paragraph present fairly, in all material respects, the combined financial
position of San Antonio College of Medical and Dental Assistants, Inc. and
Career Centers of Texas -- El Paso, Inc. as of December 31, 1995 and 1994 and
the results of their combined operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Tsakopulos Brown Schott &
Anchors
--------------------------------------
San Antonio, Texas
March 12, 1996, except for
Note 1, which is August 2, 1996
F-25
<PAGE> 96
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash.................................................... $1,358,394 $1,315,967 $1,336,260
Certificates of deposit................................. -- 415,227 473,438
Short-term investment................................... -- 25,761 25,761
Grant and loan program cash............................. 3,326 280 --
Due from Department of Education........................ -- -- 49,695
Accounts receivable from students....................... 898,650 1,127,003 966,877
Less: Deferred tuition income........................... -- (978,016) (884,843)
Allowance for uncollectible accounts.............. (145,460) (148,987) (82,034)
Note receivable, current portion........................ -- 4,683 2,858
Other................................................... 13,632 13,885 13,851
---------- ---------- ----------
Total Current Assets............................ 2,128,542 1,775,803 1,901,863
Property and equipment
Furniture, fixtures and equipment....................... 969,230 950,431 966,299
Leasehold improvements.................................. 82,947 88,725 88,725
---------- ---------- ----------
1,052,177 1,039,156 1,055,024
Less accumulated depreciation........................... (797,340) (833,338) (874,988)
---------- ---------- ----------
Total Property and Equipment.................... 254,837 205,818 180,036
Other assets
Goodwill, less $24,884 accumulated amortization......... 12,898 11,976 11,516
Unsecured note receivable, less current portion......... -- 9,942 9,942
---------- ---------- ----------
Total Other Assets.............................. 12,898 21,918 21,458
---------- ---------- ----------
Total assets.................................. $2,396,277 $2,003,539 $2,103,357
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable........................................ 49,001 $ 45,851 $ 108,544
7% unsecured note payable to stockholder................ 83,226 -- --
Accrued expenses........................................ 21,064 36,227 216,225
Grant and loan program payable.......................... 3,326 280 --
---------- ---------- ----------
Grant and loan program overdraft........................ 49,695
Deferred tuition income................................. 1,454,483 1,595,010 1,542,120
Less amount to offset receivable from students....... -- (978,016) (884,843)
---------- ---------- ----------
Total Current Liabilities....................... 1,611,100 699,352 1,031,741
Stockholder's equity
Capital stock........................................... 11,000 11,000 11,000
Capital in excess of par value.......................... 104,074 104,074 104,074
Retained earnings....................................... 1,155,780 1,674,790 1,442,219
---------- ---------- ----------
1,270,854 1,789,864 1,557,293
Less treasury stock, at cost.................... (485,677) (485,677) (485,677)
---------- ---------- ----------
Total stockholder's equity.................... 785,177 1,304,187 1,071,616
---------- ---------- ----------
Total liabilities and stockholder's equity.... $2,396,277 $2,003,539 $2,103,357
========== ========== ==========
</TABLE>
The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.
F-26
<PAGE> 97
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net revenues................................................ $4,743,058
School operating costs:
Cost of education and facilities.......................... 2,225,106
Selling and promotional................................... 371,511
General and administrative expenses....................... 1,515,594
Amortization of goodwill and intangibles.................... 922
----------
Income from operations...................................... 629,925
Interest income............................................. 49,085
----------
Income before pro forma provision for income taxes.......... 679,010
Pro forma provision for income taxes (unaudited)............ 272,000
----------
Pro forma net income (unaudited)............................ $ 407,010
==========
</TABLE>
The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.
F-27
<PAGE> 98
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------------------
1994 1995 1996
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues
Tuition income.......................................... $4,478,288 $2,249,178 $2,615,641
Student expenses........................................ (119,850) (38,484) (23,214)
Tuition refunds......................................... (333,435) (153,750) (141,183)
---------- ---------- ----------
Net tuition revenues............................ 4,025,003 2,056,944 2,451,244
Operating Expenses
Employee expense 1,954,660 1,033,979 1,146,486
Occupancy............................................... 424,147 207,204 221,474
Advertising and sales promotion......................... 187,262 118,102 152,936
Bad debts............................................... 147,337 116,950 106,700
Supplies................................................ 159,879 37,233 81,685
Depreciation............................................ 86,519 82,615 41,650
Books................................................... 115,943 65,670 34,796
Professional services................................... 59,509 41,141 34,607
Other................................................... 742,520 354,985 383,663
---------- ---------- ----------
Total operating expenses........................ 3,877,776 2,056,979 2,203,997
---------- ---------- ----------
Operating income (loss)................................. 147,227 (35) 247,247
Other income
Interest income......................................... 35,010 17,289 27,205
Miscellaneous........................................... 17,379 7,020 14,223
Vending................................................. 11,366 4,569 3,754
Interest Expense........................................ (10,062) (1,821) --
---------- ---------- ----------
Total other income.............................. 53,693 27,057 45,182
---------- ---------- ----------
Income before pro forma provision for income taxes........ 200,920 27,022 292,429
Pro forma provision for income taxes (unaudited).......... 80,000 11,000 117,000
---------- ---------- ----------
Pro forma net income (unaudited).......................... $ 120,920 $ 16,022 $ 175,429
========== ========== ==========
</TABLE>
The Accompanying Notes Are an Integral Part of These Combined Financial
Statements.
F-28
<PAGE> 99
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
COMBINED STATEMENT OF RETAINED EARNINGS
<TABLE>
<S> <C>
Retained earnings at December 31, 1993...................... $1,244,583
Distribution to stockholder................................. (289,723)
Net income.................................................. 200,920
----------
Retained earnings at December 31, 1994...................... 1,155,780
Distribution to stockholder................................. (160,000)
Net income.................................................. 679,010
----------
Retained earnings at December 31, 1995...................... 1,674,790
Distribution to stockholder (unaudited)..................... (525,000)
Net income (unaudited)...................................... 292,429
----------
Retained earnings at June 30, 1996 (unaudited).............. $1,442,219
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Combined Financial
Statements.
F-29
<PAGE> 100
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Inflows
Cash received from students............................ $4,097,092 $4,467,065
Interest income........................................ 35,010 52,707
---------- ----------
4,132,102 4,519,772
Outflows
Cash paid to suppliers and employees................... 3,625,764 3,837,357
Interest expense....................................... 10,062 3,622
---------- ----------
3,635,826 3,840,979
---------- ----------
Net cash provided by operating activities......... 496,276 678,793
Cash flows from investing activities
Outflows
Purchase certificates of deposit and short-term
investment............................................ -- 440,988
Purchase property and equipment........................ 100,160 22,381
Loans to employees..................................... -- 14,625
---------- ----------
Net cash (used) by investing activities........... (100,160) (477,994)
Cash flows from financing activities
Outflows
Debt payments to stockholder........................... 76,774 83,226
Distribution to stockholder............................ 289,723 160,000
---------- ----------
Net cash (used) by financing activities........... (366,497) (243,226)
---------- ----------
Net increase (decrease) in cash............................. 29,619 (42,427)
Cash, beginning of year..................................... 1,328,775 1,358,394
---------- ----------
Cash, end of year........................................... $1,358,394 $1,315,967
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of these Combined Financial
Statements.
F-30
<PAGE> 101
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 27,022 $ 292,429
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense.................. 66,130 42,110
Bad debt expense....................................... 116,950 106,700
(Increase) in current assets
Accounts receivable.................................. (3,503) 66,870
Other current assets................................. 2,267 (2,441)
Increase in current liabilities
Accounts payable..................................... 6,076 62,693
Accrued liabilities.................................. 132,929 180,192
Deferred tuition income.............................. (4,111) (126,543)
---------- ----------
Net cash provided by operating activities......... 343,760 622,010
Cash flows from investing activities
Outflows
Purchase certificate of deposit........................ -- 58,211
Purchase property and equipment........................ 6,517 15,867
Inflows -- payments on notes receivable................... -- (1,824)
---------- ----------
Net cash (used) by investing activities........... (6,517) (72,254)
Cash flows from financing activities
Outflows
Repayments on loan from stockholder.................... 43,419 --
Distribution to stockholder............................ 135,000 525,000
---------- ----------
Net cash (used) by financing activities........... (178,419) (525,000)
---------- ----------
Net decrease in cash........................................ 158,824 24,756
Cash, beginning of period................................... 1,358,392 1,311,504
---------- ----------
Cash, end of period......................................... $1,517,216 $1,336,260
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of these Combined Financial
Statements.
F-31
<PAGE> 102
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND DECEMBER 31, 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
The accompanying combined financial statements include the financial
position, results of operations and cash flows of San Antonio College of Medical
and Dental Assistants, Inc. and Career Centers of Texas -- El Paso, Inc.
(collectively, the "Institution"). The Institution's outstanding common stock is
owned by the same individual who is also an officer of both corporations. The
Institution's management believes that combined financial statements fairly
present the financial position, results of operations and cash flows of the
related entities. Intercompany transactions and balances have been eliminated in
the accompanying combined financial statements.
The Institution was organized to provide training to medical and dental
technicians in the San Antonio, McAllen and El Paso, Texas areas. A substantial
portion of the Institution's tuition income is derived from students who qualify
under government tuition assistance programs. Such programs are subject to
continued approval by the U.S. Congress. The Institution is also subject to
programmatic and financial audits by the Department of Education and other
regulatory agencies. Beginning in 1993, the Institution conducted a portion of
its training in an additional location (the "Additional Location") in El Paso,
Texas. Although the school received approvals for the Additional Location prior
to its opening from the applicable state regulatory authority and its
accrediting agency, it inadvertently failed to notify the Department of
Education of commencement of operations of the Additional Location until August
2, 1996, at which time the Department verbally approved the location.
Although the Company does not believe that its inadvertent failure to
notify the Department of its operations at the Additional Location will be
considered a significant failure to comply with relevant Department of Education
Regulations, the Department of Education could take the position that the
Additional Location was ineligible for Title IV funding pending its approval and
that all Title IV funding received by the Additional Location prior to the
August 1996 verbal approval (approximately $1,100,000 unaudited) is subject to
refund, repayment and applicable penalties. The Institution has not received
notice of any such claim from the Department, and does not believe that the
Department will take such a position.
The Institution has entered into an Asset Purchase Agreement dated
September 6, 1996 with an unrelated entity to sell substantially all of its
student receivables and property and equipment.
Use of Estimates
The Institution uses estimates and assumptions in preparing combined
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.
Fair Values of Financial Instruments
The Institution's financial instruments consist of cash, certificates of
deposit, short-term investment, accounts receivable, note receivable and
accounts payable. The carrying amounts of these items reported in the combined
balance sheet approximate fair values due to the short maturity of those
instruments.
F-32
<PAGE> 103
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
For purposes of the combined statement of cash flows, the Institution
considers all short-term debt securities purchased with a maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1995 and December 31, 1994.
Short-term Investment
The Institution's short-term investment is classified as available-for-sale
and is a highly liquid debt security. Market value approximated cost at December
31, 1995.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives principally on the straight-line method.
The cost of major additions and improvements is capitalized; expenditures
for maintenance and repairs are expensed as incurred. When assets are sold,
retired or otherwise disposed of, cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is included in current
operations.
Goodwill
Goodwill is amortized over forty years using the straight-line method.
Deferred Tuition Income
Deferred tuition income represents the amount of tuition for which course
instruction has not been provided and is calculated on a monthly pro-rata basis.
In 1995, the institution decided for financial reporting purposes, that the
related deferred tuition should be shown as an offset against student
receivables. Amounts in excess of student receivables are presented as a current
liability in the accompanying combined balance sheet. Deferred tuition income
will be amortized ratably to future operations as educational services are
rendered.
Advertising Costs
All costs related to marketing and advertising the Institution's services
are expensed in the year incurred.
Interim Statements
The interim financial data for the six months ended June 30, 1996 and 1995
is unaudited; however, in the opinion of management, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods, on a consistent basis.
F-33
<PAGE> 104
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Institution's financial
instruments at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Cash and certificates of deposit............................ $1,731,474 $1,731,474
Short-term investment....................................... 25,761 25,761
Accounts receivable......................................... 1,127,003 1,127,003
Note receivable............................................. 14,625 14,625
Accounts payable............................................ 45,851 45,851
</TABLE>
NOTE 3. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Institution to
concentrations of credit risk consist principally of cash, certificates of
deposit and accounts receivable from students. The Institution places its
depository accounts and certificates of deposit with high-quality financial
institutions and, by policy, limits the amounts of credit exposure to any one
financial institution. As of December 31, 1994 and 1995, aggregate deposits
exceeded the insuring governmental agency's limit by $271,000 and $477,000,
respectively. The concentration of credit risk with respect to student accounts
receivable is limited due to the significant large number of students comprising
the Institution's student base, their dispersion across San Antonio, McAllen and
El Paso, Texas and their qualification for governmental financial assistance
(Note 1). The Institution continually monitors student academic performance and
maintains allowances for anticipated withdrawals.
NOTE 4. GRANT PROGRAMS
The Institution participates in the Pell Grant and Supplemental Educational
Opportunity Grant programs. A separate bank account is maintained for the
administration of these grants which entails receipt of grant monies and
disbursement thereof to eligible students. The ending cash balance represents
receipts that are either payable to the students or refundable back to the grant
programs if the students do not complete the required program.
NOTE 5. SHORT-TERM INVESTMENT
The Institution adopted Statement of Financial Accounting Standards
Statement No. 115, "Accounting for Certain Debt and Equity Securities," at
December 31, 1995 and has classified its investment as available-for-sale. The
investment was purchased in 1995.
NOTE 6. CAPITAL STOCK
Capital stock at December 31, 1995 and December 31, 1994 are summarized as
follows:
<TABLE>
<S> <C>
San Antonio College of Medical and Dental Assistants, Inc.
Class A Common Stock -- $1 par value, 50,000 shares
authorized; none issued................................ $ --
Class B Common Stock -- $1 par value, 10,000 shares
authorized and issued; 3,534 shares outstanding........ 10,000
Career Centers of Texas -- El Paso, Inc.
Common Stock -- $1 par value, 500,000 shares authorized;
1,000 shares issued and outstanding.................... 1,000
-------
$11,000
=======
</TABLE>
F-34
<PAGE> 105
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Treasury stock represents 6,466 shares of Class B common stock issued by
San Antonio College of Medical and Dental Assistants, Inc.
NOTE 7. NET TUITION REVENUES
Net tuition revenues for each campus for the year ended December 31, 1994
and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
San Antonio -- Central...................................... $1,106,343 $1,356,148
San Antonio -- Medical Center............................... 893,797 775,650
McAllen..................................................... 854,710 1,116,558
El Paso..................................................... 1,170,153 1,494,702
---------- ----------
Total Net Tuition Revenues........................ $4,025,003 $4,743,058
========== ==========
</TABLE>
NOTE 8. PROFIT SHARING PLAN
The Institution has a qualified profit sharing plan for the benefit of its
eligible employees. Contributions are made at the discretion of the Board of
Directors. Profit sharing expense for the years ended December 31, 1994 and 1995
was $14,091 and $20,986, respectively.
NOTE 9. RELATED PARTY TRANSACTIONS
During 1993, the Institution's stockholder purchased the facility currently
occupied by the San Antonio -- Central campus from its owner. The Institution
has guaranteed the related debt to the bank which financed the purchase of the
property and it must also meet certain financial ratios. The stockholder also
owns the facility occupied by the McAllen campus.
During 1995, the Institution's stockholder purchased the facility currently
occupied by the main El Paso campus. Previously, the facility was owned by a
partnership partially owned by the Institution's stockholder (see Note 13). The
Institution has guaranteed the related debt to the bank which financed the
purchase of the property, and it must also meet certain financial ratios.
Operating lease payments aggregating $271,000 and $288,000 for the San
Antonio -- Central, McAllen and El Paso campuses were paid to the stockholder in
1994 and 1995, respectively.
NOTE 10. FEDERAL INCOME TAXES
Pursuant to applicable provisions of the Internal Revenue Code, the
Institution has received permission to be treated as an "S Corporation" for
income tax purposes. Under such provisions, the Institution is not responsible
for the federal income tax liability attributable to its taxable income. The
Institution's taxable income will be reported on its stockholder's individual
income tax return and the related tax liability, if any, will be the
responsibility of the stockholder.
The pro forma provision for income taxes represents a provision for income
taxes as if the Institution had operated as subchapter C Corporations.
NOTE 11. EMPLOYEE EXPENSE
The Institution "leases" its employees from an unrelated company.
Consequently, salaries, wages, payroll taxes and other related employee benefit
costs are included in the appropriate expense category.
F-35
<PAGE> 106
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC.
AND CAREER CENTERS OF TEXAS -- EL PASO, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. CASH FLOWS
A reconciliation of net income to net cash provided by operating activities
for the year ended December 31, 1994 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Net income.................................................. $ 200,920 $ 679,010
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense..................... 87,441 72,241
Bad debt expense.......................................... 147,337 223,797
(Increase) in current assets
Accounts receivables................................... (175,212) (428,204)
Other current assets................................... 7,039 (173)
Increase (decrease) in current liabilities
Accounts payable....................................... (17,065) (3,150)
Accrued expenses....................................... (2,207) 15,163
Deferred tuition income................................ 248,023 120,109
--------- ---------
Net cash provided by operating activities................... $ 496,276 $ 678,793
========= =========
</TABLE>
NOTE 13. COMMITMENTS
The Institution conducts its operations in facilities pursuant to lease
agreements which are classified as operating leases. The following is a schedule
by years of minimum rental payments under such operating leases which expire at
various dates through 2009:
<TABLE>
<CAPTION>
LEASED FROM
FOR THE YEARS ---------------------------
ENDING INSTITUTION'S UNRELATED
DECEMBER 31, TOTAL STOCKHOLDER 3RD PARTIES
------------- ---------- ------------- -----------
<S> <C> <C> <C>
1996................................................ $ 417,700 $ 286,000 $131,700
1997................................................ 417,700 286,000 131,700
1998................................................ 402,800 286,000 116,800
1999................................................ 402,300 286,000 116,300
2000................................................ 381,100 286,000 95,100
Remaining rentals................................... 2,088,000 2,088,000 --
---------- ---------- --------
$4,109,600 $3,518,000 $591,600
========== ========== ========
</TABLE>
Total rent expense for the years ended December 31, 1994 and 1995 was
$389,003 and $427,054, respectively, of which $271,000 and $288,000 was paid to
the Institution's stockholder, respectively.
As indicated in Note 9 to the combined financial statements, the
Institution has guaranteed the related debt which financed the stockholder's
purchase of the San Antonio -- Central and El Paso facilities.
The Institution is from time to time subject to routine litigation
incidental to its business. While the ultimate results of these matters cannot
be determined at this time, the Institution believes that it has meritorious
defenses with respect to such matters and does not expect them to have a
material adverse impact on the Institution's financial condition.
F-36
<PAGE> 107
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Hagerstown Business College
We have audited the accompanying divisional balance sheet of Hagerstown
Business College (a division of O/E Learning, Inc.) as of October 31, 1996 and
1995 and the related statements of divisional income, changes in divisional
equity and divisional cash flows for the years then ended. These divisional
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these divisional financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the divisional financial statements referred to above
present fairly, in all material respects, the divisional financial position of
Hagerstown Business College as of October 31, 1996 and 1995 and the results of
its divisional operations and its divisional cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Plante & Moran, LLP
--------------------------------------
Southfield, Michigan
December 30, 1996
F-37
<PAGE> 108
HAGERSTOWN BUSINESS COLLEGE
(A DIVISION OF O/E LEARNING, INC.)
DIVISIONAL BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (including restricted cash of $14,338 in 1996 and
$20,450 in 1995).......................................... $ 229,600 $ 207,000
Accounts receivable (net allowance for doubtful accounts of
$15,000 in 1996).......................................... 342,800 302,500
Inventory (Note 2).......................................... 34,500 23,800
---------- ----------
Total current assets.............................. $ 606,900 $ 533,300
PROPERTY AND EQUIPMENT
Furniture and equipment..................................... 850,000 788,400
Land and building........................................... 2,436,300 2,436,300
---------- ----------
Total property and equipment...................... 3,286,300 3,224,700
Less accumulated depreciation............................... (1,070,800) (883,700)
---------- ----------
Net property and equipment........................ 2,215,500 2,341,000
INTANGIBLE ASSETS (net of accumulated amortization of
$66,000 in 1996 and $58,000 in 1995)...................... 134,000 142,000
---------- ----------
Total assets...................................... $2,956,400 $3,016,300
========== ==========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Accounts payable -- Trade................................... $ 11,800 $ 31,900
Accrued expenses and other liabilities...................... 91,100 86,200
Deferred revenue (Note 2)................................... 402,700 385,000
---------- ----------
Total current liabilities......................... 505,600 503,100
DIVISIONAL EQUITY (NOTE 2).................................. 2,450,800 2,513,200
---------- ----------
Total liabilities and divisional equity........... $2,956,400 $3,016,300
========== ==========
</TABLE>
See Notes to Divisional Financial Statements.
F-38
<PAGE> 109
HAGERSTOWN BUSINESS COLLEGE
(A DIVISION OF O/E LEARNING, INC.)
STATEMENT OF DIVISIONAL INCOME
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
REVENUE
Training.................................................. $2,294,800 $2,329,900
Other..................................................... 46,100 36,700
---------- ----------
2,340,900 2,366,600
EXPENSES
Training.................................................. 973,700 1,012,400
Depreciation.............................................. 188,300 176,100
Amortization of intangible assets......................... 8,000 8,000
Selling, general and administrative....................... 581,500 669,000
---------- ----------
Total expenses.................................... 1,751,500 1,865,500
---------- ----------
INCOME -- Before income taxes............................... 589,400 501,100
INCOME TAX EXPENSE (Note 3)................................. 205,300 173,100
---------- ----------
NET INCOME........................................ $ 384,100 $ 328,000
========== ==========
</TABLE>
See Notes to Divisional Financial Statements.
F-39
<PAGE> 110
HAGERSTOWN BUSINESS COLLEGE
(A DIVISION OF O/E LEARNING, INC.)
STATEMENT OF CHANGES IN DIVISIONAL EQUITY
<TABLE>
<S> <C>
BALANCE -- November 1, 1994................................. $2,490,700
Net income.................................................. 328,000
Repayment of contributed capital (Note 5)................... (305,500)
----------
BALANCE -- October 31, 1995................................. 2,513,200
Net income.................................................. 384,100
Repayment of contributed capital (Note 5)................... (446,500)
----------
BALANCE -- October 31, 1996................................. $2,450,800
==========
</TABLE>
See Notes to Divisional Financial Statements.
F-40
<PAGE> 111
HAGERSTOWN BUSINESS COLLEGE
(A DIVISION OF O/E LEARNING, INC.)
STATEMENT OF DIVISIONAL CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 384,100 $ 328,000
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization.......................... 196,300 184,100
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... (40,300) 5,700
Increase in inventory................................ (10,700) (1,100)
Decrease in other current assets..................... -- --
Decrease (increase) in deferred revenue.............. 17,700 (1,300)
and other liabilities............................. (15,200) 2,300
--------- ---------
Net cash provided by operating activities......... 531,900 518,300
Cash Flows from Investing Activities -- Purchase of fixed
assets.................................................... (62,800) (207,800)
Cash Flows from Financing Activities -- Repayment of
contributed capital....................................... (446,500) (305,500)
--------- ---------
Increase in Cash............................................ 22,600 5,000
Cash -- Beginning of year................................... 207,000 202,000
--------- ---------
Cash -- End of year......................................... $ 229,600 $ 207,000
========= =========
Supplemental Disclosures of Cash Flow Information -- Cash
paid during the year for:
Interest.................................................. $ -- $ --
Income taxes -- O/E Learning, Inc......................... 205,300 173,100
</TABLE>
See Notes to Divisional Financial Statements.
F-41
<PAGE> 112
HAGERSTOWN BUSINESS COLLEGE
(A DIVISION OF O/E LEARNING, INC.)
NOTES TO DIVISIONAL FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
1. DIVISIONAL INFORMATION
Hagerstown Business College (a division of O/E Learning, Inc.) is a
majority-owned subsidiary of O/E Automation, Inc. The College's operations
consists of proprietary secondary education in Hagerstown, Maryland.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable. Accounts receivable are comprised of tuition and fee
payments due from students.
Cash. Cash includes petty cash and bank deposits. Restricted cash consists
of federal funds on hand to be paid to students.
Inventory. Inventory is stated at cost on a first-in, first-out basis and
is comprised of text books and supplies.
Property and Equipment. Furniture, equipment and buildings are recorded at
cost and depreciated on a straight-line basis over their estimated useful lives.
Intangible Assets. Intangible assets consist of goodwill from acquisitions
of businesses, which is being amortized using the straight-line method over the
estimated lives ranging from 20 to 25 years. Amortization expense amounted to
$8,000 and $8,300 for the years ended October 31, 1996 and 1995, respectively.
Deferred Revenue. Certain students are billed in advance. Deferred revenue
consists of billings pertaining to the subsequent year.
Divisional Equity. Divisional equity represents the cumulative results of
operation of the College since its purchase by O/E Learning, Inc. plus cash
contributed by O/E Learning, Inc., net of any repayments of contributed capital.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expense during
the reporting period. Actual results could differ from those estimates.
3. INCOME TAXES
The College is included in the consolidated income tax returned filed by
O/E Automation, Inc. and, as agreed, the consolidated taxes payable are
allocated to O/E Learning, Inc. based on its contribution to consolidated
taxable income. Income tax expense has been allocated to Hagerstown Business
College based on statutory tax rates applied to book income, and payment has
been made to O/E Learning, Inc. for this amount in 1996 and 1995. Accordingly,
no deferred income tax assets or liabilities have been allocated to the College.
4. EMPLOYEE BENEFIT PLANS
Eligible employees of the College participated in the O/E Automation, Inc.
defined benefit pension plan. Participation in the plan was contingent upon
attainment of one year of eligible service, provided the employee has reached
the age of 21 and was employed prior to reaching age 60 and one day. The
benefits under the plan were based on years of service and the employee's
highest compensation in a consecutive five-year period of employment. The
participating companies annually contributed to the plan an amount actuarially
determined to provide the plan with sufficient assets to meet future benefit
payment requirements. The plan was
F-42
<PAGE> 113
HAGERSTOWN BUSINESS COLLEGE
(A DIVISION OF O/E LEARNING, INC.)
NOTES TO DIVISIONAL FINANCIAL STATEMENTS -- (CONTINUED)
terminated effective October 31, 1995. As of October 31, 1996, the plan's assets
at fair value are less than the projected benefit obligation by $212,400. O/E
Learning, Inc. has accrued its share of the pension liability. O/E Learning,
Inc.'s pension expense under this plan amounted to $97,300 for 1995. This
pension expense was included in part in the allocated selling, general and
administrative costs charged to the College division. There was no pension
expense in 1996.
Pension expense and liability include the estimated curtailment loss
associated with plan termination. Any adjustments to the estimated curtailment
loss will be reflected in net income in future years.
Substantially all of the College's employees are eligible to participate in
the O/E Automation, Inc. 401(k) plan. Under this plan, eligible employees may
elect to contribute up to 15 percent of their compensation subject to limits
established under the Internal Revenue Code and O/E Learning, Inc. may make a
discretionary matching contribution.
For the plan year ended October 31, 1996, the plan was amended to also
incorporate a discretionary profit-sharing contribution. The total expense for
Hagerstown Business College for matching and profit-sharing contributions
amounted to $13,119 and $11,947 for the years ended October 31, 1996 and 1995,
respectively.
5. RELATED PARTY TRANSACTIONS
O/E Learning, Inc. provides selling, general and administrative support to
Hagerstown Business College. The College paid O/E Learning, Inc. $581,500 and
$669,000 in 1996 and 1995, respectively, for allocated costs for these services.
O/E Learning, Inc. contributes cash to Hagerstown Business College to fund
operations as needed. These capital contributions are repaid whenever excess
funds are available. Repayments of capital of $446,500 and $305,500 were made in
1996 and 1995, respectively.
6. SUBSEQUENT EVENT
On December 31, 1996, O/E Learning, Inc. sold certain assets associated
with the Hagerstown Business College division to an unrelated company. O/E
Learning, Inc. will discontinue all activity associated with operation of
Hagerstown Business College effective January 1, 1997.
F-43
<PAGE> 114
UNAUDITED PRO FORMA AS ADJUSTED FINANCIAL DATA
On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
(the "Texas Acquisition"). The schools offer healthcare degree and diploma
programs and are located in San Antonio, McAllen and El Paso, Texas.
The Company financed the purchase of the Texas schools with $1,250,000 paid
in cash and the remaining $1,250,000 payable in the form of a promissory note
bearing interest at 8% per annum and due in five equal annual principal
payments.
On December 17, 1996, the Company entered into an acquisition agreement
providing for the purchase of one school located in Hagerstown, Maryland
("Maryland Acquisition") for $2.7 million in cash. The Maryland school offers
healthcare and business diploma and degree programs.
The Texas Acquisition and the Maryland Acquisition, described above, were
each accounted for using the purchase method of accounting. The results of
operations of the acquired companies are included in the Company's fiscal 1997
consolidated statement of operations beginning with the respective acquisition
dates.
On March 31, 1997, the Company acquired all of the outstanding stock of
Educational Management, Inc. ("Nebraska Acquisition"). The Nebraska Acquisition
consisted of two schools located in Lincoln and Omaha, Nebraska, which offer
business degree and diploma programs, and related real estate. In connection
with the acquisition, the Company issued 761,263 shares of its common stock,
agreed to pay $300,000 in non-compete agreements and paid approximately
$1,100,000 in cash which was used to pay off mortgage notes on certain real
estate owned by the Nebraska Acquisition.
This transaction was accounted for as a pooling of interests; therefore,
all financial statements presented have been restated to reflect the
acquisition.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations set
forth below for the year ended March 31, 1997 has been derived from the
Company's consolidated historical statement of operations for the fiscal year
ended March 31, 1997 and from the Texas Acquisition's combined statement of
operations for the year ended December 31, 1995, and the Maryland Acquisition's
statement of operations for the year ended October 31, 1996 and gives effect to
the Texas Acquisition and the Maryland Acquisition as if they had occurred on
April 1, 1996.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations is
provided for comparative purposes only and does not purport to be indicative of
the results which actually would have been obtained if the above-mentioned
transactions had been effected on the dates indicated or of the results which
may be obtained in the future. The information provided in the Unaudited Pro
Forma Condensed Consolidated Statement of Operations is qualified in its
entirety by, and should be read in conjunction with, the Consolidated Financial
Statements of the Company and related notes thereto, the San Antonio College of
Medical and Dental Assistants, Inc. and Career Centers of Texas -- El Paso,
Inc.'s Combined Financial Statements and related notes thereto and the
Hagerstown Business College (a division of O/E Learning, Inc.) Divisional
Financial Statements and related notes thereto.
F-44
<PAGE> 115
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
EDUCATIONAL EDUCATIONAL
MEDICAL, INC. PRO MEDICAL, INC.
YEAR ENDED FORMA YEAR ENDED
MARCH 31, 1997 TEXAS MARYLAND ACQUISITION MARCH 31, 1997
ACTUAL ACQUISITION ACQUISITION ADJUSTMENTS PRO FORMA
-------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues................... $49,449,680 $2,149,154 $1,557,200 $ -- $53,156,034
Cost of education and
facilities................... 23,150,599 922,819 1,058,700 (65,000)(1) 25,185,785
(60,000)(2)
178,667(3)
Selling and promotional
expenses..................... 7,530,741 299,293 178,400 -- 8,008,434
Administrative expenses........ 14,041,592 559,392 94,640 (293,333)(4) 14,402,291
Amortization of goodwill and
intangibles.................. 886,268 -- -- 217,047(5) 1,266,624
163,309(6)
Other expenses................. 535,038 -- -- -- 535,038
----------- ---------- ---------- --------- -----------
Income (loss) from
operations................... 3,305,442 367,650 225,460 (140,690) 3,757,862
Interest expense, net.......... 284,162 -- -- 80,000(7) 364,162
----------- ---------- ---------- --------- -----------
Income (loss) before income
taxes and extraordinary
item......................... 3,021,280 367,650 225,460 (220,690) 3,393,700
Provision (benefit) for income
taxes........................ (845,363) -- -- 553,521(8) (291,842)
----------- ---------- ---------- --------- -----------
Income (loss) before
extraordinary item........... $ 3,866,643 $ 367,650 $ 225,460 $(774,211) $ 3,685,542
=========== ========== ========== ========= ===========
</TABLE>
- ---------------
(1) Represents a negotiated reduction in lease expense for property leased from
the former owners in connection with the Texas Acquisition.
(2) Represents a reduction in depreciation expense for buildings not acquired in
the Maryland Acquisition.
(3) Represents additional rent expense for lease payments on facilities which
were not acquired and will be leased from the former owners related to the
Maryland Acquisition.
(4) Represents a reduction in corporate overhead allocation which will be
eliminated in connection with the Maryland Acquisition.
(5) Represents additional amortization of goodwill recorded in connection with
the Texas Acquisition.
(6) Represents additional amortization of goodwill recorded in connection with
the Maryland Acquisition.
(7) Represents additional interest expense recorded in connection with long-term
debt issued in connection with the Texas Acquisition.
(8) Represents a provision for income taxes as the Nebraska Acquisition and the
Texas Acquisition operated as subchapter S corporations and all federal
income taxes were the responsibility of the individual shareholders plus the
income tax effect of all pro forma adjustments.
F-45
<PAGE> 116
======================================================
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 OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................
Risk Factors..........................
Use of Proceeds.......................
Price Range of Common Stock...........
Dividend Policy.......................
Capitalization........................
Selected Consolidated Financial
Data................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Licensing, Accreditation and Financial
Aid Regulation......................
Management............................
Certain Transactions..................
Principal and Selling Stockholders....
Description of Capital Stock..........
Shares Eligible for Future Sale.......
Underwriting..........................
Legal Matters.........................
Experts...............................
Additional Information................
Index to Consolidated Financial
Statements..........................
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH
RESPECT TO THEIR SOLICITATIONS TO PURCHASE THE SECURITIES OFFERED HEREBY.
======================================================
======================================================
2,500,000 SHARES
EDUCATIONAL
MEDICAL, INC.
COMMON STOCK
------------
PROSPECTUS
APRIL , 1998
------------
SALOMON SMITH BARNEY
LEGG MASON WOOD WALKER
INCORPORATED
======================================================
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance And Distribution.
The following table sets forth the expenses to be borne by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby other than underwriting discounts and commissions. All
expenses other than the SEC registration fee and the NASD filing fee are
estimated.
<TABLE>
<S> <C>
SEC registration fee.................................................. $ *
NASD filing fee....................................................... *
Nasdaq National Market filing fee..................................... *
Transfer agent's fee and expenses..................................... *
Accounting fees and expenses.......................................... *
Legal fees and expenses............................................... *
"Blue Sky" fees and expenses (including legal fees)................... *
Costs of printing and engraving....................................... *
===
Total................................................................. $ *
</TABLE>
* To be filed by amendment.
ITEM 14. Indemnification of Directors and Officers.
The Registrant's Bylaws effectively provide that the Registrant shall,
to the full extent permitted by Section 145 of the General Corporation Law of
the State of Delaware, as amended from time to time ("Section 145"), indemnify
all persons whom it may indemnify pursuant thereto. In addition, the
Registrant's Certificate of Incorporation eliminates personal liability of its
directors to the full extent permitted by Section 102(b)(7) of the General
Corporation Law of the State of Delaware, as amended from time to time ("Section
102(b)(7)").
Section 145 permits a corporation to indemnify its directors and
officers against expenses (including attorney's fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by a third party if such
directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful. In a derivative action, indemnification may be made
only for expenses actually and reasonably incurred by directors and officers in
connection with the defense or settlement of an action or suit and only with
respect to a matter as to which they shall have acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interest of
the corporation, except that no indemnification shall be made if such person
shall have been adjudged liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought shall determine
upon application that the defendant officers or directors are reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provisions shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.
The Company maintains insurance against liabilities under the
Securities Act of 1933 for the benefit of its officers and directors.
ITEM 15. Recent Sales of Unregistered Securities.
There have been no sales of unregistered securities by the Registrant
within the past three years, except as follows:
In March 1995, the Company issued warrants (the "Sirrom Warrants") to
Sirrom to acquire up to 141,667 shares of Common Stock for a purchase price of
$.006 per share. The Sirrom Warrants had an expiration date of April 30, 2000.
In connection with the IPO, the Sirrom Warrants were exercised in full.
In connection with its Initial Public Offering on October 28, 1996, the
Company issued 1,000,000 shares of Common Stock to the Pecks Managed Entities
upon the cashless exercise of warrants to purchase 1,333,333 shares of Common
Stock
II-1
<PAGE> 118
based on the initial public offering price. In connection with the IPO, these
warrants were exercised in full for a total of 933,333 shares.
In each such transaction, the securities were not registered under the
Securities Act of 1933, as amended, in reliance upon the exemption from
registration provided by Section 4(2) of the Act. The factors that assured the
availability of that exemption for each such transaction included the
sophistication of the offerees and of the purchasers, their access to material
information, the disclosures actually made to them by the Registrant and the
absence of any general solicitation or advertising.
Subsequent to the IPO, the Company issued 761,263, 151,900 and 202,532
shares of Common Stock in connection with the Nebraska transaction, the CHI
Institute Acquisition and the Hesser Acquisition, respectively. In each such
transaction, the securities were or will be registered under the Securities Act
of 1933, as amended.
ITEM 16. Exhibits and Financial Statement Schedules.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 (a) Restated Certificate of Incorporation of EMI Acquisition Corp.
3.1 (b) Certificate of Amendment of Certificate of Incorporation of
EMI Acquisition Corp.
3.1 (c) Second Amendment to Restated Certificate of Incorporation of
Educational Medical, Inc.
3.1 (d) Third Amendment to Restated Certificate of Incorporation of
Educational Medical, Inc.
3.1 (e) Fourth Amendment to Restated Certificate of Incorporation of
Educational Medical, Inc.
3.1 (f) Fifth Amendment to Restated Certificate of Incorporation of
Educational Medical, Inc.
3.1 (g) Sixth Amendment to Restated Certificate of Incorporation of
Educational Medical, Inc.
3.1 (h) Seventh Amendment to Restated Certificate of Incorporation of
Educational Medical, Inc.
3.1 (i) Eighth Amendment to Restated Certificate of Incorporation of
Educational Medical, Inc.
3.2 Restated By-Laws of the Company.
4.1 Form of Common Stock Certificate.
5.1* Opinion of Greenberg Traurig.
10.1 Securities Purchase Agreement, dated as of July 23, 1991, by
and among the Company and the Pecks Managed Entities.
10.2 Promissory Note R-002, dated as of July 16, 1991, in the
principal amount of $2,900,000 issued by the Company in favor
of NAP & Company.
10.3 Promissory Note R-003, dated as of July 23, 1991, in the
principal amount of $603,000 issued by the Company in favor of
Fuelship & Company.
10.4 Promissory Note R-004, dated as of July 23, 1991, in the
principal amount of $497,000 issued by the Company in favor of
Fuelship & Company.
10.5 Allonge to Promissory Note R-002, dated as of March 31, 1995.
10.6 Allonge to Promissory Note R-003, dated as of March 31, 1995.
10.7 Allonge to Promissory Note R-004, dated as of March 31, 1995.
10.8 Warrant No. R-001 to purchase Common Stock issued to Fuelship
& Company.
10.9 Warrant No. R-002 to purchase Common Stock issued to NAP &
Company.
10.10 Warrant No. E-007 to purchase Common Stock issued to Equitable
Securities Corporation.
10.11 First Amendment to Securities Purchase Agreement, dated as of
March 31, 1995, by and among the Company and the Pecks Managed
Entities.
10.12 Loan Agreement, dated as of March 31, 1995, by and between the
Company, each of its subsidiaries, and Sirrom.
10.13 Letter Addendum to Loan Agreement, dated as of March 31, 1995,
between the Company, each of its subsidiaries, and Sirrom.
10.14 Secured Promissory Note, dated as of March 31, 1995, in the
principal amount of $2,200,000, issued by the Company and each
of its subsidiaries in favor of Sirrom.
10.15 Security Agreement, dated as of March 31, 1995, among the
Company, each of its subsidiaries, and Sirrom.
10.16 Stock Purchase Warrant to purchase Common Stock of the Company
issued to Sirrom, dated as of March 31, 1995.
10.17 Pledge Agreement, dated as of March 31, 1995, between the
Company and Sirrom.
10.18 Agreement in Respect of Warrant, dated as of March 31, 1995,
among NAP & Company, the Company and Sirrom.
10.19 Agreement in Respect of Warrant, dated as of March 31, 1995,
among Fuelship & Company, the Company and Sirrom.
10.20 Registration Rights Agreement, dated as of July 23, 1991, by
and among the Company, the Sprout Group, LTOS, and the Pecks
Managed Entities
10.21 First Amendment to Registration Rights Agreement, dated as of
March 31, 1995, by and among the Company, the Sprout Group,
LTOS, the Pecks Managed Entities and Sirrom.
</TABLE>
II-2
<PAGE> 119
<TABLE>
<S> <C>
10.22 Coinvestors Agreement, dated as of July 23, 1991, by and among
the Company, the Sprout Group, LTOS, the Pecks Managed
Entities and Investech, L.P
10.23 Letter Agreement, dated as of July 23, 1991, by and among the
Company, the Sprout Group, LTOS and Investech, L.P.
10.24 Business Loan Agreement, dated as of July 14, 1993, between
Bank One, Dayton, N.A. and OIOPT Acquisition Corp.
10.25 Business Purpose Promissory Note, dated as of July 14, 1993,
in the principal amount of $720,000 issued by OIOPT
Acquisition Corp. in favor of Bank One, Dayton, N.A., and
guaranteed by the Company.
10.26 Mortgage, dated as of July 14, 1993, by OIOPT Acquisition
Corp., (Mortgagor), to Bank One, Dayton, N.A., (Mortgagee),
guaranteed by the Company.
10.27 Pledge Agreement, dated as of July 14, 1993, among the
Company, Ohio Institute of Photography and Technology, Inc.
and OIOPT Acquisition Corp.
10.28 Asset Purchase Agreement, dated as of June 23, 1993, among the
Company, OIOPT Acquisition Corp., Ohio Institute of
Photography and Technology, Inc., K. Terry Guthrie, Richard L.
Cretcher, Stephen T. McLain, Gerald D. Guthrie and James R.
Madden.
10.29 Amendment to Business Loan Agreement, dated as of August 28,
1995, by and between OIOPT Acquisition Corp. and Bank One,
Dayton, N.A., with the Company as guarantor.
10.30 Promissory Note Modification Agreement, dated as of August 28,
1995, by and between OIOPT Acquisition Corp. and Bank One,
Dayton, N.A., with the Company as guarantor.
10.31 Amendment to Business Loan Agreement, dated as of August 28,
1995, by and between OIOPT Acquisition Corp. and Bank One,
Dayton, N.A., and the Company as guarantor.
10.32 Employment Agreement, dated as of December 31, 1992, between
the Company and Gary D. Kerber.
10.33 Letter Agreement, dated November 21, 1988 between the Company
and Robert L. Heidrich concerning the granting of options.
10.34 1996 Stock Incentive Plan of the Company.
10.35 Non-employee Director Stock Option Plan of the Company.
10.36 Letter Agreement, dated April 6, 1995 between the Company and
Equitable Securities Corporation amending the maturity date of
Warrant No. E-007.
10.37 Asset Purchase Agreement, dated as of September 6, 1996, among
the Company, SACMD Acquisition Corp., San Antonio College of
Medical and Dental Assistants, Inc., Career Centers of Texas
-- El Paso, Inc. and Mr. Comer Alden.
10.38 Letter of Commitment, dated August 22, 1996, from Bank of
America to the Company concerning the Proposed Bank Line of
Credit.
10.39 Asset Purchase Agreement dated December 12, 1996, as amended,
between the Company, HBC Acquisition Corp. and O/E Learning,
Inc. (including all exhibits)
10.40 Executed Form of Second Payment Note in the amount of
$1,350,000 from HBC Acquisition Corp. to O/E Learning, Inc.
10.41 Executed Form of Pledge Agreement among HBC Acquisition Corp.,
the Company and O/E Learning, Inc.
10.42 Executed Form of Assumption Agreement among HBC Acquisition
Corp., the Company and O/E Learning, Inc.
10.43 Executed Form of Bill of Sale from O/E Learning, Inc. to HBC
Acquisition Corp.
10.44 Agreement and Plan of Reorganization dated as of March 29,
1997, by and among the Company, Nebraska Acquisition Corp. and
Educational Management, Inc. with attached Exhibit A - Plan of
Merger.
10.45 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.
10.46 Business Loan Agreement dated as of February 25,1997 between
Bank of America, FSB and the Company.
10.47 Stock Pledge Agreement dated as of February 25, 1997 between
Bank of America, FSB and the Company.
10.48 Security Agreement dated as of February 25, 1997 between Bank
of America, FSB and the Company.
10.49 First Amendment to Business Loan Agreement dated as of June
30, 1997 between Bank of America, FSB and the Company.
10.50 Stock Purchase Agreement dated February 14, 1998 among the
Company, Computer Hardware Service Company, Inc. and CHI
Acquisition Corp.
10.52 Second Payment Note from the Company and CHI Acquisition Corp.
to sellers of Computer Hardware Service Company, Inc.
10.53 Purchase Money Promissory Note from the Company and CHI
Acquisition Corp. to sellers of Computer Hardware Service
Company, Inc.
10.54 Pledge Agreement from the Company to sellers of Computer
Hardware Service Company, Inc.
10.55 Security Agreement among the Company, CHI Acquisition Corp.
and sellers of Computer Hardware Service Company, Inc.
10.56 Registration Rights Agreement between the Company and sellers
of Computer Hardware Service Company, Inc.
10.57 Stock Power from the sellers of Computer Hardware Service
Company, Inc. to the Company
</TABLE>
II-3
<PAGE> 120
<TABLE>
<S> <C>
10.58 Sellers' Subordination Agreement from the sellers of Computer
Hardware Service Company, Inc. to the Company and the
Company's lender.
10.59 Stock Purchase Agreement dated March 13, 1998 in connection
with the Hesser Acquisition.
10.60 Legal Description of the Hesser Acquisition property.
10.61 Second Payment Note from the Company to the sellers of Hesser,
Inc.
10.62 List of Shareholders of Hesser, Inc.
10.63 Form of Registration Rights Agreement between the Company and
the sellers of Hesser, Inc.
10.64 Form of Employment Agreement between the Company and the
sellers of Hesser, Inc.
10.65 Form of Non-Competition Agreement between the Company and the
sellers of Hesser, Inc.
10.66 Stock Power from the sellers of Hesser, Inc. to the Company.
10.67 Amendment to Bank Agreement
21 List of Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP
23.2* Consent of Greenberg Traurig (included in the opinion filed as
Exhibit 5.1 to the Registration Statement).
23.3 Consent of Winther, Stave & Co., LLP
23.4 Consent of Tsakopulos Brown Schott & Anchors, LLP
23.5 Consent of Plante & Moran LLP
24.1 Power of Attorney (contained on signature page of the
Registration Statement).
27.1 Financial Data Schedule (for SEC use only).
99.1 Report of Winther, Stave & Co., LLP
99.2 Report of Winther, Stave & Co., LLP
99.3 Report of Winther, Stave & Co., LLP
</TABLE>
- ----------------------------
*To be filed by Amendment
(B) INDEX TO FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in this
Registration Statement:
Report of Independent Auditors
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and
therefore have been omitted.
ITEM 17. Undertakings.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities assigned under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that, for the 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 section 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
Securities Exchange Act of 1934) 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-4
<PAGE> 121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EDUCATIONAL MEDICAL, INC.
(Registrant)
Date: April 15, 1998 By: /s/ Gary D. Kerber
------------------------------------
Gary D. Kerber
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Gary D. Kerber President, Chief Executive April 15, 1998
- ------------------------------------ Officer and Chairman
Gary D. Kerber of the Board (Principal
Executive Officer)
/s/ Vince Pisano Vice President and Chief April 15, 1998
- ------------------------------------ Financial Officer
Vince Pisano
/s/ Robert J. Cresci Director April 15, 1998
- ------------------------------------
Robert J. Cresci
/s/ Carl S. Hutman Director April 15, 1998
- ------------------------------------
Carl S. Hutman
/s/ Richard E. Kroon Director April 15, 1998
- ------------------------------------
Richard E. Kroon
/s/ W. Patrick Ortale, III Director April 15, 1998
- ------------------------------------
W. Patrick Ortale, III
</TABLE>
II-5
<PAGE> 1
EXHIBIT 3.1(a)
RESTATED
CERTIFICATE OF INCORPORATION
OF
EMI ACQUISITION CORP.
(Original Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on March 11, 1988)
ARTICLE FIRST
NAME
The name of the Corporation (the "Corporation") is EMI ACQUISITION
CORP.
ARTICLE SECOND
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 229 South State Street, City of Dover, County of Kent. The name of
the registered agent of the Corporation at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE THIRD
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE FOURTH
STOCK
The total number of shares of all classes of stock that the Corporation
shall have the authority to issue is 2,115,000 shares, consisting of (a) 615,000
shares of Cumulative Convertible Preferred Stock, $.01 par value (the
"Preferred Stock") and (b) 1,500,000 shares of Common Stock, $.01 par value
(the "Common Stock").
<PAGE> 2
The designations, powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof in respect of the Preferred Stock and the Common Stock are
as follows:
A. PREFERRED STOCK
1. Dividends. (a) The holders of each share of Preferred Stock shall be
entitled to receive, before any dividends shall be declared and paid upon or
set aside for the Junior Stock (as defined in Section 7 hereof) in any year,
out of funds legally available for that purpose, dividends in cash at the
annual rate per share equal to eight percent (8%) of the Liquidation Preference
(as defined in Section 7 hereof) payable when and as declared by the Board of
Directors of the Corporation (any such dividend payment date being hereinafter
referred to as a "Dividend Payment Date"). Dividends on shares of Preferred
Stock shall be cumulative (whether or not there shall be net profits or net
assets of the Corporation legally available for the payment of such dividends),
so that, if at any time Accrued Dividends (as defined in Section 7 hereof) upon
the Preferred Stock shall not have been paid or declared and a sum sufficient
for payment thereof set apart, no dividend shall be declared or paid or any
other distribution ordered or made upon any Junior Stock (other than a dividend
payable in such Junior Stock) or any sum or sums set aside for or applied to
the purchase or redemption of any shares of any Junior Stock.
(b) All dividends declared upon the Preferred Stock shall be
declared pro rata per share based on the Liquidation Preference of the
Preferred Stock, but shall be paid pro rata based on the Accrued Dividends
declared with respect thereto. The aggregate of all payments due under this
Section 1 to any holder of shares of Preferred Stock shall be made to such
holder to the nearest dollar. In the event of a split-up, subdivision, a
combination of shares of Preferred Stock or similar event the dividend rate on
the Preferred Stock shall be subject to equitable adjustment.
2. Rights on Liquidation, Dissolution or Winding Up. In the event
of any liquidation, dissolution or winding up of the Corporation, the holders
of shares of Preferred Stock then outstanding shall be entitled to be paid out
of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any payment
shall be made to the holders of any stock ranking on liquidation junior to the
Preferred Stock (with respect to rights on liquidation, dissolution or winding
up, the Preferred Stock shall rank prior to the Common Stock) an amount equal
to the Liquidation Preference of the Preferred Stock, plus an amount equal to
Accrued Dividends, if any, to the date of payment. If upon any liquidation,
dissolution or winding up of the Corporation the assets of the Corporation
available for distribution to its
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<PAGE> 3
stockholders shall be insufficient to pay the holders of shares of Preferred
Stock the full amounts to which they shall be entitled, the holders of shares
of Preferred Stock shall share ratably in any distribution of assets according
to the respective amounts which would be payable in respect of the shares held
by them upon such distribution if all amounts payable on or with respect to
said shares were paid in full. In the event of any liquidation, dissolution or
winding up of the Corporation, after payment shall have been made to the
holders of Preferred Stock of the full amount to which they shall be entitled
as aforesaid, the holders of the Common Stock shall be entitled, to the
exclusion of the holders of shares of Preferred Stock, to shares ratably in all
remaining assets of the Corporation available for distribution to its
stockholders.
3. Redemption. (a) Subject to Section 3(e) below, on each of March
31, 1994 and 1995 (each such date being hereinafter called a "Preferred
Redemption Date"), the Corporation shall (unless otherwise prevented by law)
concurrently redeem at an amount per share equal to the Liquidation Preference,
plus Accrued Dividends, if any, payable with respect thereto, that number of
shares of Preferred Stock equal to the lesser of (A) 50% of all shares of
Preferred Stock outstanding on March 31, 1994, or (B) all of the shares of
Preferred Stock then outstanding. The total sum payable per share of Preferred
Stock on any Preferred Redemption Date is hereinafter referred to as the
"Preferred Redemption Price," and any payment to be made is hereinafter referred
to as a "Preferred Redemption Payment."
(b) If less than all the shares of Preferred Stock then
outstanding are to be redeemed, the redemption shall be pro rata with respect
to such shares based upon the number of outstanding shares of Preferred Stock
then owned by each holder thereof. If upon any redemption the assets of the
Corporation available for redemption shall be insufficient to pay the holders
of Preferred Stock the full amounts to which they shall be entitled, the
holders of shares of Preferred Stock shall share ratably in any such redemption
according to the respective amounts which would be payable in respect of shares
held by them upon such redemption if all amounts payable on or with respect to
said shares were paid in full. On and after any Preferred Redemption Date
(unless default shall be made by the Corporation in the payment of the
Preferred Redemption Price as hereinafter provided, in which event such rights
shall be exercisable until such default is cured) all rights in respect of the
shares of Preferred Stock to be redeemed, except the right to receive the
Preferred Redemption Price as hereinafter provided, shall cease and terminate;
and such shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation.
(c) Notice of the Preferred Redemption Date shall be sent by
first-class certified mail, return receipt requested,
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<PAGE> 4
postage prepaid, to the holders of record of the outstanding shares of
Preferred Stock at their respective addresses as the same shall appear on the
books of the Corporation. Such notice shall be mailed not less than 60 nor more
than 90 days in advance of the commencement of the Preferred Redemption Date.
At any time on or after the Preferred Redemption Date, the holders of record of
shares of Preferred Stock shall be entitled to receive the Preferred Redemption
Price upon actual delivery to the Corporation or its agent of the certificates
representing the shares to be redeemed.
(d) The Corporation will not, and will not permit any subsidiary of the
Corporation to, purchase or acquire any shares of Preferred Stock otherwise
than pursuant to the terms of this Section 3 or pursuant to an offer made on
the equivalent terms to all holders of Preferred Stock, at the time
outstanding.
(e) Anything contained in this Section 3 to the contrary
notwithstanding, the holders of shares of Preferred Stock to be redeemed in
accordance with this Section 3 shall have the right, exercisable at any time up
to the close of business on the Preferred Redemption Date (unless default shall
be made by the Corporation in the payment or the Preferred Redemption Price as
herein provided, in which event such right shall be exercisable until such
default is cured), to convert all or any part of such shares requested by such
holder to be redeemed as herein provided into shares of Common Stock pursuant
to Section 6 hereof. If, and to the extent, any shares of Preferred Stock so
entitled to redemption are converted into shares of Common Stock by the holders
thereof prior to the close of business on the Preferred Redemption Date, the
total number of shares of Preferred Stock otherwise to be redeemed on such
Preferred Redemption Date shall be reduced by the number of shares of Preferred
Stock so converted.
(f) Once redeemed pursuant to the provisions of this Section 3, shares
of Preferred Stock shall be cancelled and not subject to reissuance.
(g) The Preferred Stock shall not be entitled to the benefit of a
sinking fund or purchase fund.
4. Special Redemption. (a) In the event of and simultaneously with
the closing of an Event of Sale (as hereinafter defined), the Corporation shall
(unless otherwise prevented by law) redeem all the shares of Preferred Stock
then outstanding for a cash amount per share of Preferred Stock redeemed
determined as set forth herein (the "Special Redemption Price", said
redemption being referred to herein as a "Special Redemption"). For all
purposes of this Section 4, the Special Redemption Price shall be equal to that
amount per share which would be received by each holder of shares of Preferred
Stock, in connection
-4-
<PAGE> 5
with an Event of Sale, all the consideration paid in exchange for the assets or
the shares of capital stock (as the case may be) of the Corporation were
actually paid to and received by the Corporation and the Corporation were
immediately thereafter liquidated pursuant to Section 2 hereof. To the extent
that one or more redemptions and/or a liquidation are occurring concurrently,
the Special Redemption shall be deemed to occur first. The date upon which the
Special Redemption shall occur is sometimes referred to herein as the "Special
Redemption Date".
(b) At any time on or after the Special Redemption Date, a
holder of shares of Preferred Stock shall be entitled to receive the Special
Redemption Price for each such share held by such holder upon actual delivery
to the Corporation or its transfer agent of the certificate representing such
shares.
(c) If on the Special Redemption Date, less than all the shares
of Preferred Stock then outstanding may be legally redeemed by the Corporation,
the Special Redemption shall be made on a pro rata basis, based upon the number
of outstanding shares of Preferred Stock then owned by each holder of Preferred
Stock. On and after any Special Redemption Date, all rights in respect of the
shares of Preferred Stock to be redeemed, except the right to receive the
applicable Special Redemption Price as herein provided, shall cease and
terminate (unless default shall be made by the Corporation in the payment of
the Special Redemption Price as herein provided, in which event such rights
shall be exercisable until such default is cured), and such shares shall no
longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Corporation.
(d) Anything contained herein to the contrary notwithstanding,
the provisions of this Section 4 may, at the option (the "Option") of the
holders of a majority in voting power of the Preferred Stock then outstanding,
exercised by delivery of written notice to the Corporation prior to the closing
of any Event of Sale, be waived, in which event the Corporation shall not
redeem any shares of Preferred Stock pursuant to this Section 4.
(e) No later than 30 days prior to an Event of Sale, the
Corporation shall give notice to the holders of shares of Preferred Stock,
substantially similar to the notice required by Section 3(c) hereof, which
notice shall include a statement by the Corporation of (i) the Special
Redemption Price which each holder of Preferred Stock shall be entitled to
receive upon the occurrence of a Special Redemption under this Section 4 and
(ii) the extent to which the Corporation will, if at all, be legally prohibited
from paying to each holder the Special Redemption Price.
(f) Anything contained in this Section 4 to the contrary
notwithstanding, the holders of shares of Preferred
-5-
<PAGE> 6
Stock to be redeemed in accordance with this Section 4 shall have the right,
exercisable at any time up to the close of business on the Special Redemption
Date (unless default shall be made by the Corporation in the payment of the
Special Redemption Price as herein provided, in which event such right shall be
exercisable until such default is cured), to convert all or any part of such
shares requested by such holder to be redeemed as herein provided into shares
of Common Stock pursuant to Section 6 hereof.
(g) For purposes of this Section 4, an "Event of Sale" shall
mean (A) the merger or consolidation of the Corporation into or with another
corporation, partnership, joint venture, trust or other entity or the merger or
consolidation of any other corporation into or with the Corporation (in which
consolidation or merger the stockholders of the Corporation receive
distributions of cash or securities as a result of such consolidation or merger
in exchange for shares of capital stock of the Corporation), or (B) the sale or
other disposition of all or substantially all the assets of the Corporation or
the purchase or other acquisition of all or substantially all the assets of any
other corporation, partnership, joint venture, trust or other entity, unless,
upon consummation of such merger, consolidation or sale of assets, the holders
of voting securities of the Corporation immediately prior to such transaction
continue to own directly or indirectly securities representing not less than a
majority of the voting power of the surviving corporation.
5. Voting. (a) In addition to the rights specified in Sections
5(b) and (c) hereof and any other rights provided in the Corporation's By-laws
or by law, each share of Preferred Stock shall entitle the holder thereof to
such number of votes per share as shall equal the number of shares of Common
Stock (including any fraction to two decimal places) into which each share of
Preferred Stock is then convertible and to vote on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such holders of Common Stock, voting together with the
holders of Common Stock as one class.
(b) In addition to the rights specified in Sections 5(a) and
(c) hereof, the holders of a majority in voting power of the Preferred Stock,
voting separately as one class, shall have the exclusive and special right at
all times to elect three directors to the Board of Directors of the
Corporation. In any election of directors pursuant to this subsection (b), each
holder of shares of Preferred Stock shall be entitled to one vote for each
share of Preferred Stock held and no holder of Preferred Stock shall be
entitled to cumulate his votes by giving one candidate more than one vote per
share. The special and exclusive voting right of the holders of the Preferred
Stock, voting separately as one class, contained in this subsection (b) may be
exercised either at a special meeting of the holders of Preferred Stock called
as provided below, or at any annual or special
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<PAGE> 7
meeting of the stockholders of the Corporation, or by written consent of such
holders in lieu of a meeting. The directors to be elected by the holders of the
Preferred Stock, voting separately as one class, pursuant to this subsection
(b), shall serve for terms extending from the date of their election and
qualification until the time of the next succeeding annual meeting of
stockholders and until their successors have been elected and qualified.
If at any time any directorship to be filled by the holders of
Preferred Stock, voting separately as one class, pursuant to this subsection
(b) has been vacant for a period of ten days, the Secretary of the Corporation
shall, upon the written request of the holders of record of shares representing
at least 25% of the voting power of the Preferred Stock then outstanding, call
a special meeting of the holders of Preferred Stock for the purpose of electing
a director or directors to fill such vacancy or vacancies. Such meeting shall
be held at the earliest practicable date at such place as is specified in the
By-laws of the Corporation. If such meeting shall not be called by the
Secretary of the Corporation within ten days after personal service of said
written request on him, then the holders of record of shares representing at
least 25% of the voting power of the Preferred Stock then outstanding may
designate in writing one of their number to call such meeting at the expense of
the Corporation, and such meeting may be called by such persons so designated
upon the notice required for annual meetings of stockholders and shall be held
at such specified place. Any holder of the Preferred Stock so designated shall
have access to the stock books of the Corporation for the purpose of calling a
meeting of the stockholders pursuant to these provisions.
At any meeting held for the purpose of electing directors at which the
holders of Preferred Stock shall have the special and exclusive right, voting
separately as one class, to elect directors as provided in this subsection (b),
the presence, in person or by proxy, of the holders of record of shares
representing a majority of the voting power of the Preferred Stock then
outstanding shall be required to constitute a quorum of the Preferred Stock for
such election. At any such meeting or adjournment thereof, the absence of such
a quorum of the Preferred Stock shall not prevent the election of directors
other than the directors to be elected by holders of the Preferred Stock,
voting separately as one class, pursuant to this subsection (b), and the
absence of a quorum for the election of such other directors shall not prevent
the election of the directors to be elected by the holders of the Preferred
Stock, voting separately as one class, pursuant to this subsection (b). In the
absence of either or both such quorums, the holders of record of shares
representing a majority of the voting power present in person or by proxy of
the class or classes of stock which lack a quorum shall have power to adjourn
the meeting for the election of directors which
-7-
<PAGE> 8
they are entitled to elect from time to time without notice other than
announcement at the meeting.
A vacancy in the directorships to be elected by the holders of the
Preferred Stock, voting separately as one class, pursuant to this subsection
(b), may be filled only by vote or written consent in lieu of a meeting of (i)
the holders of a majority in voting power of the Preferred Stock, acting
separately as one class, or (ii) the remaining directors elected by the holders
of the Preferred Stock (or by directors so elected).
(c) The Corporation shall not, without the affirmative consent
of the holders of shares representing at least a majority in voting power of
the Preferred Stock then outstanding, acting separately as one class, for so
long as the then outstanding shares of Preferred Stock are no less than 50% of
the number of shares of Preferred Stock outstanding on the Original Issuance
Date, given by written consent in lieu of a meeting or by vote at a meeting
called for such purpose for which notice shall have been given to the holders
of the outstanding Preferred Stock:
(i) directly or indirectly, sell, lease, transfer or otherwise
dispose of (whether in one transaction or in a series of transactions)
all or a substantial portion of its assets;
(ii) consolidate with or merge into any corporation or permit
any corporation to merge into it;
(iii) declare or pay any dividend on or make any other
distribution (whether by reduction of capital or otherwise) of cash or
property or both with respect to any shares of its Junior Stock, or
purchase, retire or otherwise acquire for value any shares of its
capital stock;
(iv) take any action to cause any amendment, alteration or
repeal of any provisions of the Certificate of Incorporation or By-Laws
of the Corporation if such action would alter, change or adversely
affect the preferences, rights, privileges or powers of, or
restrictions for the benefit of, the Preferred Stock;
(v) except for the issuance of shares of capital stock or other
securities constituting Excluded Securities (as defined in Section 7
hereof) or the issuance of shares of Preferred Stock pursuant to the
Purchase Agreement, authorize, create, issue or agree to issue any
shares of its capital stock or any security, right, option or warrant
convertible into, or exercisable or exchangeable for, shares of its
capital stock; or
-8-
<PAGE> 9
(vi) voluntarily dissolve, liquidate or wind up or carry out
any partial liquidation or dissolution or transaction in the nature of a
partial liquidation or dissolution.
6. Option Conversion. (a) A holder of shares of Preferred Stock
shall have the right, at such holder's option, at any time or from time to
time, to convert any of such shares into such whole number of fully paid and
nonassessable shares of Common Stock as is equal to the quotient obtained by
dividing (A) the Liquidation Preference for the Preferred Stock multiplied by
the number of shares of Preferred Stock being converted by (B) the Preferred
Conversion Price (as hereinafter defined) as last adjusted and then in effect,
for the shares of Preferred Stock being converted, by surrender of the
certificates representing the shares of Preferred Stock so to be converted
in the manner provided in Section 6(b) hereof. The conversion price per share
at which shares of Common Stock shall be issuable upon conversion of shares of
Preferred Stock shall initially be the Liquidation Preference of the Preferred
Stock (the "Preferred Conversion Price"); provided, however, that such
Preferred Conversion Price shall be subject to adjustment as set forth in
Section 6(d) hereof. The holder of any shares of Preferred Stock exercising the
aforesaid right to convert such shares of Preferred Stock exercising the
aforesaid right to convert such shares of Preferred Stock into shares of Common
Stock shall be entitled to payment of Accrued Dividends, if any, payable with
respect to such shares of Preferred Stock up to and including the Conversion
Date (as hereinafter defined).
(b) A holder of shares of Preferred Stock may exercise the
conversion right pursuant to Section 6(a) hereof as to any such shares by
delivering to the Corporation during regular business hours, at the office of
any transfer agent of the Corporation for the Preferred Stock or at such other
place as may be designated by the Corporation, the certificate or certificates
for the shares to be converted, duly endorsed or assigned in blank or to the
Corporation (if required by it), accompanied by written notice stating that the
holder elects to convert such shares and stating the name or names (with
address) in which the certificate or certificates for the shares of Common
Stock are to be issued. Conversion shall be deemed to have been effected on the
date when the aforesaid delivery is made (the "Conversion Date"). As promptly
as practicable thereafter the Corporation shall issue and deliver to or upon
the written order of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash in respect of any fractional
interest in a share of Common Stock as provided in Section 6(c) hereof and a
check or cash in payment of all Accrued Dividends, if any (to the extent
permissible under law), payable with respect to the shares of Preferred Stock
so converted up to and including the Conversion Date. The person in whose name
the certificate or certificates for Common Stock are to be issued
-9-
<PAGE> 10
shall be deemed to have become a stockholder of record on the applicable
Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event he shall be deemed to have become a stockholder of record
on the next succeeding date on which the transfer books are open, but the
Preferred Conversion Price shall be that in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Preferred Stock surrendered for conversion, the
Corporation shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Preferred Stock represented thereby to the same extent as if the portion of the
certificate theretofore covering such unconverted shares had not been
surrendered for conversion.
(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Preferred Stock. If more than one share of
Preferred Stock shall be surrendered for conversion at any one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of shares of
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to the then Current Market Price (as
defined in Section 6(d)(vii) hereof) of a share of Common Stock multiplied by
such fractional interest. Fractional interests shall not be entitled to
dividends, and the holders of fractional interests shall not be entitled to any
rights as stockholders of the Corporation in respect of such fractional
interest.
(d) The Preferred Conversion Price shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall at any time or from time to time
after the Original Issuance Date of the Preferred Stock issue any
shares of Common Stock other than Excluded Securities without
consideration or for a consideration per share less than the
Preferred Conversion Price in effect immediately prior to the
issuance of such Common Stock, the Preferred Conversion Price in
effect immediately prior to such issuance shall forthwith be lowered
to a price equal to the consideration per share, if any, received by
the Corporation upon such issuance; provided, however, that if the
Corporation issues any shares of Common Stock (other than Excluded
Stock) as contemplated by this Section 6(d)(i) without consideration,
such shares
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<PAGE> 11
shall be deemed solely for purposes of this Section 6(d)(i) to have
been issued for a consideration per share equal to $.01.
For the purposes of any adjustment of the Preferred Conversion Prices
pursuant to Section 6(d)(i), the following provisions shall be
applicable:
(A) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor
after deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors, irrespective of any
accounting treatment.
(C) In the case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock, (ii) securities by their terms
convertible into or exchangeable for Common Stock or (iii) options to
purchase or rights to subscribe for such convertible or exchangeable
securities:
(1) the shares of Common Stock deliverable upon exercise of
such options to purchase or rights to subscribe for Common Stock shall
be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined
in the manner provided in subdivisions (A) and (B) above), if any,
received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for
the Common Stock covered thereby;
(2) the shares of Common Stock deliverable upon conversion
of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent conversion
or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and
for a consideration equal to the consideration received by the
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<PAGE> 12
Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Corporation upon
the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each
case to be determined in the manner provided in subdivisions
(A) and (B) above);
(3) on any change in the number of shares or exercise
price of Common Stock deliverable upon exercise of any such
options or rights or conversions of or exchanges for such
securities, other than a change resulting from the antidilution
provisions thereof, the Preferred Conversion Price shall
forthwith be readjusted to such Preferred Conversion Price as
would have obtained had the adjustment made upon the issuance
of such options, rights or securities not converted prior to
such change or options or rights related to such securities
not converted prior to such change been made upon the basis
of such change; and
(4) on the expiration of any such options or rights,
the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such
convertible or exchangeable securities, the Preferred
Conversion Price shall forthwith be readjusted to such
Preferred Conversion Price as would have obtained had such
options, rights, securities or options or rights related to
such securities not been issued.
(ii) If, at any time after the Original Issuance Date of the
Preferred Stock, the number of shares of Common Stock outstanding is increased
by a stock dividend payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then, following the record date fixed for
the determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Preferred Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of Preferred Stock shall be increased in proportion
to such increase in outstanding shares.
(iii) If, at any time after the Original Issuance Date of the
Preferred Stock, the number of shares of Common Stock outstanding is decreased
by a combination of the outstanding shares of Common Stock, then, following the
record date for such combination, the
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<PAGE> 13
Preferred Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(iv) In case, at any time after the Original Issuance Date of
the Preferred Stock, the Corporation shall declare a cash dividend upon
its Common Stock payable otherwise than out of earnings or shall
distribute to holders of its Common Stock shares of its capital stock
(other than Common Stock), stock or other securities of other persons,
evidences of indebtedness issued by the Corporation or other persons,
other assets or options or rights (excluding options to purchase and
rights to subscribe for Common Stock or other securities of the
Corporation convertible into or exchangeable for Common Stock), then, in
each such case, immediately following the record date fixed for the
determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Preferred Conversion Price in effect
thereafter shall be adjusted to be a price determined by multiplying the
Preferred Conversion Price in effect immediately prior to such record
date by a fraction of which the numerator shall be an amount equal to
the remainder of (x) the Current Market Price of one share of Common
Stock less (y) the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the stock,
securities, evidences of indebtedness, assets, options or rights so
distributed in respect of one share of Common Stock, and of which the
denominator shall be such Current Market Price. Such adjustment shall be
made on the date such dividend or distribution is made, and shall become
effective at the opening of business on the business day next following
the record date for the determination of stockholders entitled to such
dividend or distribution.
(v) In case, at any time after the Original Issuance Date of
the Preferred Stock, of any capital reorganization, or any
reclassification of the stock of the Corporation (other than a change in
par value or from par value to no par value or from no par value to par
value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the
Corporation with or into another person (other than a consolidation or
merger in which the Corporation is the continuing corporation and which
does not result in any change in the Common Stock) or of the sale or
other disposition of all or substantially all the properties and assets
of the Corporation as an entirety to any other person, each
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<PAGE> 14
share of Preferred Stock shall after such reorganization,
reclassification, consolidation, merger, sale or other
disposition be (unless, in the case of a consolidation, merger,
sale or other disposition, payment shall have been made
to the holders of all shares of such series of Preferred Stock
of the full amount to which they shall have been entitled
pursuant to Section 4 hereof) convertible into the kind and
number of shares of stock or other securities or property of
the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise
disposed to which the holder or the number of shares of Common
Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale
or other disposition) upon conversion of such shares would have
been entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The
provisions of this Section 6 shall similarly apply to
successive reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(vi) All calculations under this paragraph (d) shall
be made to the nearest one tenth (1/10) of a cent or to the
nearest one tenth (1/10) of a share, as the case may be.
(vii) For the purpose of any computation pursuant to
this Section 6(d) or Section 6(c) hereof, the Current Market
Price at any date of one share of Common Stock shall be deemed
to be the average of the daily closing prices for the 30
consecutive business days selected by the Board of Directors
of the Corporation ending no more than 15 days before the day in
question (as adjusted for any stock dividend, split-up,
combination or reclassification that took effect during such
period). The closing price for each day shall be the last
reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported
bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common
Stock is listed or admitted to trading or as reported in the
National Market List of the National Association of Securities
Dealers Automated Quotations System ("NASDAQ") (or if the
Common Stock is not at the time listed or admitted for trading
on any such exchange or reported in such National Market List,
then such price shall be equal to the average of the last
reported bid and asked prices, as reported by NASDAQ on such
day, or if, on any day in question, the security shall not be
quoted on NASDAQ, then such price shall be equal to the average
of the
-14-
<PAGE> 15
last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc., or any similar reputable
quotation and reporting service, or any similar reputable
quotation and reporting service, if such quotation is not
reported by the National Quotation Bureau, Inc.); provided,
however, that if the Common Stock is not traded in such a
manner that the quotations referred to in this clause (vii) are
available for the period required hereunder, the Current Market
Price as of the day in question shall be determined in good
faith by the Board of Directors of the Corporation, or if such
determination cannot be made, by a nationally recognized
independent investment banking firm selected jointly by the
holders of at least a majority of the voting power of the
Preferred Stock then outstanding and the Corporation (or, if
such selection cannot be made, by a nationally recognized
independent investment banking firm selected by the American
Arbitration Association in accordance with its rules).
(viii) In any case in which the provisions of this
Section 6(d) shall require that an adjustment shall become
effective immediately after a record date for an event, the
Corporation may defer until the occurrence of such event
(A) issuing to the holder of any share of Preferred Stock
converted after such record date and before the occurrence of
such event the additional shares of capital stock issuable upon
such conversion by reason of the adjustment required by such
event over and above the shares of capital stock issuable upon
such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a
fractional share of capital stock pursuant to Section 6(c);
provided, however, that the Corporation shall deliver to such
holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares, and such
cash, upon the occurrence of the event requiring such
adjustment.
(e) Whenever the Preferred Conversion Price shall be
adjusted as provided in Section 6(d), the Corporation shall forthwith file, at
the office of the transfer agent for the Preferred Stock or at such other place
as may be designated by the Corporation, a statement, signed by its chief
financial officer, showing in detail the facts requiring such adjustment and
the Preferred Conversion Price. The Corporation shall also cause a copy of
such statement to be sent by first class certified mail, return receipt
requested, postage prepaid, to each holder of shares of Preferred Stock at his
or its address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required
to be mailed under the provisions of Section 6(f).
-15-
<PAGE> 16
(f) In the event the Corporation shall propose to take any
action of the types described in clauses (i), (iv) or (v) or Section 6(d), the
Corporation shall give notice to each holder of shares of Preferred Stock, in
the manner set forth in Section 6(e), which notice shall specify the record
date, if any, with respect to any such action and the date on which such action
is to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such action
(to the extent such effect may be known at the date of such notice) on the
Preferred Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Preferred
Stock. In the case of any action which would require the fixing of a record
date, such notice shall be given at least 25 days prior to the date so fixed,
and in case of all other action, such notice shall be given at least 35 days
prior to the taking of such proposed action. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of any such
action.
(g) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Preferred
Stock.
(h) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Common Stock solely for the
purpose of effecting the conversion of the shares of Preferred Stock sufficient
shares to provide for the conversion of all outstanding shares of Preferred
Stock.
(i) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto.
7. Definitions. As used herein, the following terms shall have the
following meanings:
(a) The term "Accrued Dividends" with respect to any share of
Preferred Stock shall mean (whether or not there shall have been net profits or
net assets of the Corporation legally available for the payment of such
dividends) that amount which shall be equal to dividends at the full rate fixed
for the Preferred Stock as provided herein for the period of time elapsed from
the date of issuance of such share to the date as of which Accrued Dividends
are to be computed, less any payments made in respect of such dividends.
(b) "Excluded Securities" shall mean:
-16-
<PAGE> 17
(i) up to 45,000 shares of Common Stock issued
to officers, employees or directors of, or consultants
to, the Corporation, pursuant to any agreement, plan or
arrangement approved by a majority of the Board of
Directors of the Corporation or options to purchase or
rights to subscribe to said Common Stock;
(ii) Common Stock issued as a stock dividend or
upon any subdivision or combination of shares of Common
Stock;
(iii) Common Stock issued upon conversion of
the Preferred Stock;
(iv) Warrants issued pursuant to the Warrant
Purchase Agreement dated March 31, 1988, among the
Corporation and certain purchasers named therein, and
Common Stock and Preferred Stock issued upon exercise of
such warrants;
(v) Options granted to employees of the
Corporation pursuant to stock option agreements dated as
of the Original Issuance Date;
(vi) Up to 50,000 shares of Common Stock
issuable under a stock option plan approved by a
majority of the Board of Directors; and
(vii) Common Stock issuable to Peter Hansen,
Ellenmae Hansen and Eileen Rex in the event of a public
offering of the Corporation's equity securities.
(c) The term "Junior Stock" shall mean the Common Stock
and any class or series of shares of capital stock of the
Corporation junior in right of payment of dividends or the
distribution of assets on liquidation to the Preferred stock.
(d) The term "Liquidation Preference" shall mean $6.66
per share.
(e) The term "Original Issuance Date" shall mean the
date as of which the first share of Preferred Stock has been
issued.
(f) The term "Purchase Agreement" shall mean the
Preferred Stock Purchase Agreement dated March 31, 1988 among
the Corporation and the persons named therein as investors.
-17-
<PAGE> 18
B. COMMON STOCK
1. Voting. Except as otherwise expressly provided by law, and
subject to the voting rights provided to the holders of Preferred Stock by this
Certificate of Incorporation, the Common Stock shall have exclusive voting
rights on all matters requiring a vote of stockholders, voting together with
the holders of Preferred Stock, as one class.
2. Other Rights. Each share of Common Stock issued and outstanding
shall be identical in all respects one with the other, and no dividends shall be
paid on any shares of Common Stock unless the same is paid on any shares of
Common Stock outstanding at the time of such payment. Except for and subject to
those rights expressly granted to the holders of the Preferred Stock, or except
as may be provided by the laws of the State of Delaware, the holders of Common
Stock shall have exclusively all other rights of stockholders.
ARTICLE FIFTH
DIRECTORS
The number of directors of the Corporation shall be such as from time
to time shall be fixed in the manner provided in the By-laws of the
Corporation. The election of directors of the Corporation need not be by
ballot unless the By-laws so require.
ARTICLE SIXTH
LIMITATION ON LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after the date of incorporation of the Corporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect
-18-
<PAGE> 19
any right or protection of a director of the Corporation existing at the time
of such repeal or modification.
ARTICLE SEVENTH
POWERS OF BOARD OF DIRECTORS
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of
the powers of the Corporation and of its directors and stockholders, it is
further provided:
(a) In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized and empowered:
(i) to make, alter, amend or repeal the By-laws in any
manner not inconsistent with the laws of the State of Delaware
or this Certificate of Incorporation:
(ii) without the assent or vote of the stockholders, to
authorize and issue securities and obligations of the
Corporation, secured or unsecured, and to include therein such
provisions as to redemption, conversion or other terms thereof
as the Board of Directors in its Sole discretion may determine,
and to authorize the mortgaging or pledging, as security
therefor, of any property of the corporation, real or personal,
including after-acquired property;
(iii) to determine whether any, and if any, what part,
of the net profits of the Corporation or of its surplus shall
be declared in dividends and paid to the stockholders, and to
direct and determine the use and disposition of any such net
profits or such surplus; and
(iv) to fix from time to time the amount of net profits
of the Corporation or of its surplus to be reserved as working
capital or for any other lawful purpose.
In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws of the
State of Delaware, of this
-19-
<PAGE> 20
Certificate of Incorporation and of the By-laws of the Corporation.
(b) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in
such manner as shall be provided in the By-laws of the Corporation.
(c) From time to time any of the provisions of this Certificate
of Incorporation may be altered, amended or repealed, and other
provisions authorized by the laws of the State of Delaware at the time
in force may be added or inserted, in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders of the Corporation by this Certificate of Incorporation are
granted subject to the provisions of this paragraph (c).
ARTICLE EIGHTH
CREDITORS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code of on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the - stockholders or class of stockholders of
the Corporation, as the case may be, agree on any compromise or arrangement
and to any reorganization of the Corporation as the consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
-20-
<PAGE> 21
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and integrates and also further amends the previously filed
Certificate of Incorporation of the Corporation, having been adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, has been signed by Gary Kerber, its
President, and attested by Morris C. Brown, its Secretary, this 30th day of
March, 1988.
EMI ACQUISITION CORP.
By Gary D. Kerber
--------------------------------
President
Attest:
By /s/ Morris C. Brown
----------------------------
Secretary
-21-
<PAGE> 1
EXHIBIT 3.1 (b)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EMI Acquisition Corp.
______________
Pursuant to Section 242 of the Delaware
General Corporation Law
______________
1. EMI Acquisition Corp. (The "Corporation"), a corporation duly
organized and existing under by virtue of the General Corporation Law of
Delaware, hereby amends its Certificate of Incorporation, as follows:
Article 1 is deleted in its entirety and the following is substituted in
its place:
"Article I: The name of the Corporation is:
Educational Medical, Inc.
2. The foregoing amendment to the Certificate of Incorporation of the
Corporation was duly adopted by the Board of Directors and the sole stockholder
of the Corporation by written consent dated the 31st day of March, in accordance
with the applicable provisions of Sections 141(f) and 228 of the General
Corporation Law of the State of Delaware.
3. The capital of the Corporation will not be reduced under or by
reason of this Certificate of Amendment.
<PAGE> 2
IN WITNESS WHEREOF, EMI Acquisition Corp. has caused its corporate seal
to be hereunto affixed and this Certificate to be signed by its President and
attested by its Secretary this 1st day of March, 1988.
EDUCATIONAL MEDICAL, INC.
f/k/a EMI Acquisition Corp.
BY: /s/ GARY D. KERBER
-------------------------
Gary D. Kerber, President
[SEAL]
ATTEST:
/s/ Morris C. Brown
- ----------------------------
Secretary
STATE OF FLORIDA )
) SS
COUNTY OF DADE )
THE FOREGOING instrument was acknowledged and sworn to before me this
31st day of March 1988 by Gary D. Kerber, President of EMI Acquisition Corp.,
on behalf of the Corporation.
/s/ WENDY LOOMIS RIGGS
---------------------------
Notary Public, State of
Florida at Large
My Commission Expires:
[SEAL]
-2-
<PAGE> 1
EXHIBIT 3.1 (c)
SECOND AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.
THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Corporation"), filed with the Secretary of State of the State of Delaware on
March 31, 1988 was duly adopted by the stockholders of the Corporation on
March 30, 1989, in accordance with the provisions Section 242 of the General
Corporation Law of the State of Delaware.
ARTICLE FOURTH of the Certificate is hereby amended to increase the
total number of shares of all classes of stock which the Corporation shall have
authority to issue to 2,215,000 shares, consisting of
a) 715,000 shares of Cumulative Convertible Preferred Stock,
par value $.01 per share, and
b) 1,500,000 shares of Common Stock, par value $.01 per share.
Section A7(b) of ARTICLE FOURTH of the Certificate is hereby
amended to add the following thereto after subparagraph A7(b)(vii):
(viii) Warrants issued pursuant to the Note and Warrant
Purchase Agreement dated March 31, 1989, among the Corporation and
certain purchasers named therein, and Units of Common Stock and
Preferred Stock issued upon exercise of such Warrants, the Common Stock
and Preferred Stock comprising Units, and the Common Stock
<PAGE> 2
issued upon conversion of the Preferred Stock included in the Units.
Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing amendment was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law, and the Corporation has
caused its corporate seal to be affixed hereto and attested to by the Secretary
of the Corporation, all as of the 30th day of March, 1989.
EDUCATIONAL MEDICAL, INC.
By: /s/ Gary D. Kerber
----------------------------------
President
Attest:
/s/ Morris C. Brown
- ------------------------------
Secretary
[Seal]
-2-
<PAGE> 3
STATE OF FLORIDA )
)
COUNTY OF DADE )
Before me personally appeared Morris C. Brown known to me to be the
individual described in and who executed the foregoing instrument as Secretary
of Educational Medical, Inc., and who acknowledged to me that he executed such
instrument in such capacity.
WITNESS my hand and official seal this 30th day of March, 1989.
/s/ WENDY LOOMIS RIGGS
------------------------------
Notary Public State of Florida
My Commission Expires: [SEAL]
-3-
<PAGE> 4
STATE OF GEORGIA )
)
COUNTY OF )
Before me personally appeared Gary D. Kerber known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc., and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the corporation was affixed
thereto by due and regular corporate authority, that said instrument is the
free act and deed of said corporation and the facts stated therein are true.
WITNESS my hand and official seal this 30th day of March, 1989.
/s/ BOBBIE WHITE
--------------------------------
Notary Public State of Geogia
My Commission Expires:
June 3, 1991
-4-
<PAGE> 1
EXHIBIT 3.1(d)
EXECUTION A
THIRD AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.
THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with the
Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of September 30, 1989, in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
1. ARTICLE FOURTH of the Certificate is hereby amended to increase the
total number of shares of all class of stock which the Corporation shall have
authority to issue to 3,100,000 shares, consisting of:
(a) 1,100,000 shares of Cumulative Convertible Preferred
Stock, par value $.01 per share; and
(b) 2,000,000 shares of Common Stock, par value $.01 per share.
2. ARTICLE FOURTH, Section 7, of the Certificate is hereby amended to:
(a) delete subsection 7(b)(v), regarding options granted to
employees, from the definition of "Excluded Securities" in
Section 7(b); and
(b) add the following to the definition of "Excluded
Securities" in Section 7(b): (ix) Up to 105,000 shares of
Common Stock
<PAGE> 2
EXECUTION A
issuable pursuant to Restricted Stock Purchase Agreements, dated
as of March 31, 1988 between the Company and Gary Kerber and
John Lavery;
(x) Up to 245,710 shares of Common Stock issuable pursuant to
Restricted Stock Purchase Agreements, dated as of November 7,
1989, between the Company and Gary Kerber, John Lavery and
Michael Davis;
(xi) Up to 18,000 shares of Common Stock issuable pursuant to
an Incentive Compensation Agreement, dated as of November 7,
1989, among the Company, Gary Kerber, John Lavery and Michael
Davis, and
(xii) Up to 10,500 shares of Common Stock issuable to officers,
employees or directors of, or consultants to, the Corporation,
pursuant to any agreement, plan or arrangement, approved by a
majority of the Board of Directors or options to purchase or
rights to subscribe to said Common Stock.
Except as specifically amended hereby, all provisions of the Certificate
shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing Amendment was duly
-2-
<PAGE> 3
EXECUTION A
adopted in accordance with Section 242 of the Delaware General Corporation Law,
and the Corporation has caused its corporate seal to be affixed hereto and
attested by the Secretary of the Corporation, all as of the 30th day of
September, 1989.
EDUCATIONAL MEDICAL, INC.
By: /s/ Gary D. Kerber
-------------------------------
President
Attest:
- -----------------------
Secretary
[Seal]
STATE OF CALIFORNIA )
)
COUNTY OF SAN DIEGO )
Before me personally appeared Gary D. Kerber, known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the corporation was affixed
thereto by due and regular corporate authority, that said instrument is the
free act and deed of said corporation and the facts stated therein are true.
-3-
<PAGE> 4
EXECUTION A
WITNESS my hand and official seal this 26th day of October, 1989.
/s/ Anna M. Iqual De Montijo
-----------------------------
Notary Public
My Commission Expires 4-5-1991 [SEAL]
STATE OF FLORIDA )
)
COUNTY OF DADE )
Before me personally appeared Morris C. Brown, known to me to be the
individual described in and who executed the foregoing instrument as Secretary
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity.
WITNESS my hand and official seal this 30th day of October, 1989.
/s/ Wendy Loomis Riggs
-----------------------------
Notary Public
My Commission Expires [SEAL]
-4-
<PAGE> 1
EXHIBIT 3.1(e)
FOURTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.
THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with the
Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of April 1, 1990, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
1. ARTICLE FOURTH, Section 7, of the Certificate is hereby amended to
add the following to the definition of "Excluded Securities" in Section 7(b):
(xiii) Up to 92,721 shares of Common Stock issuable pursuant to
Restricted Stock Purchase Agreements, dated as of April 1, 1990, and
amendments thereto, between the Corporation and Vince Pisano.
Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing Amendment was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law, and the Corporation has
caused its corporate seal to be affixed hereto and attested by the Secretary of
the Corpora-
<PAGE> 2
tion, all as of the 1st day of April, 1990.
EDUCATIONAL MEDICAL, INC.
By: /s/ Gary D. Kerber
-------------------------------
President
Attest:
/s/ Morris C. Brown
- --------------------------
Secretary
[SEAL]
STATE OF GEORGIA )
)
COUNTY OF FLOYD )
Before me personally appeared Gary D. Kerber, known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the corporation was affixed
thereto by due and regular corporate authority, that said instrument is the
free act and deed of said corporation and the facts stated therein are true.
WITNESS my hand and official seal this 17th day of May, 1991.
/s/ Bobbie White
---------------------------
Notary Public
My Commission Expires: 6/3/91
-2-
<PAGE> 3
STATE OF FLORIDA )
)
COUNTY OF DADE )
Before me personally appeared Morris C. Brown, known to me to be the
individual described in and who executed the foregoing instrument as Secretary
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity.
WITNESS my hand and official seal this 20th day of June, 1991.
/s/ Gloria V. Crout
--------------------------------
Notary Public
My Commission Expires: [SEAL]
<PAGE> 1
EXHIBIT 3.1(f)
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/25/1991
51206055 - 2154556
EXECUTION A
FIFTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.
THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with the
Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of July 23, 1991, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
1. ARTICLE FOURTH of the Certificate is hereby amended to
increase the total number of shares of all classes of stock that the
Corporation shall have the authority to issue to 4,600,000 shares, consisting
of:
(a) 1,100,000 shares of Cumulative Convertible Preferred
Stock, par value $.01 per share; and
(b) 3,500,000 shares of Common Stock, par value $.01 per
share.
2. ARTICLE FOURTH, Section A.1(a) of the Certificate is hereby
amended to read as follows:
1. Dividends. (a) During the period commencing with
the date of original issuance of each share of Preferred Stock through
and including July 22, 1991, the holder of such share of Preferred
Stock shall be entitled to receive, before any dividends shall be
declared and paid upon or set aside for the Junior Stock (as defined
in Section 7 hereof), out of funds legally available for that purpose,
dividends in cash at the annual rate per share equal to eight percent
(8%) of the Liquidation Preference (as defined in Section 7 hereof)
payable when and as declared by the Board of Directors of the
Corporation (any such dividend payment date being hereinafter referred
to as a "Dividend Payment Date"). Dividends on shares of Preferred
Stock shall be
<PAGE> 2
EXECUTION A
cumulative (whether or not there shall be net profits or net assets of
the Corporation legally available for the payment of such dividends), so
that, if at any time Accrued Dividends (as defined in Section 7 hereof)
upon the Preferred Stock shall not have been paid or declared and a sum
sufficient for payment thereof set apart, no dividend shall be declared
or paid or any other distribution ordered or made upon any Junior Stock
(other than a dividend payable in such Junior Stock) or any sum or sums
set aside for or applied to the purchase or redemption of any shares of
any Junior Stock.
3. ARTICLE FOURTH, Section A.3 of the Certificate is hereby amended
to add the following subsection 3(h):
(h) At the option of the holders of Preferred Stock, the rights
of the holders of Preferred Stock to receive payments pursuant to the
redemption provisions of this Section 3 may be made subject to the
restrictions set forth in any effective agreement to which the
Corporation and all of such holders are party, provided that such
agreement makes specific reference to this Article Fourth, and a copy of
such agreement signed by such holders and the Corporation is deposited
with the Secretary of the Corporation and shall be available for
inspection by holders of Preferred Stock. In the event and to the extent
that any such agreement, or the restrictions set forth in such
agreement, cease(s) to be effective, then ninety (90) days after the
cessation of effectiveness of such agreement or restrictions, as the
case may be, the rights of holders of Preferred Stock to receive
payments pursuant to the redemption provisions of this Section 3 shall
be restored to the extent permitted.
4. ARTICLE FOURTH, Section A.4 of the Certificate is hereby
amended to add the following subsection 4(h):
(h) At the option of the holders of Preferred Stock, the rights
of the holders of Preferred Stock to receive payments pursuant to the
special redemption provisions of this Section 4 may be made subject to
the restrictions set forth in any effective agreement to which the
Corporation and all of such holders are party, provided that such
agreement makes specific reference to this Article Fourth, and a copy of
such agreement signed by such holders and the Corporation is deposited
with the Secretary of the Corporation and shall be available for
inspection by holders of Preferred Stock. In the event
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<PAGE> 3
EXECUTION A
and to the extent that any such agreement, or the restrictions set forth
in such agreement cease(s) to be effective, then immediately upon the
cessation of effectiveness of such agreement or restrictions, as the
case may be, the rights of holders of Preferred Stock to receive
payments pursuant to the special redemption provisions of this Section 4
shall be restored to the extent permitted.
5. ARTICLE FOURTH, Section A.7, of the Certificate is hereby amended
to add the following to the definition of "Excluded Securities"in Section 7(b):
(xiv) Warrants to purchase Common Stock issued pursuant to the
Securities Purchase Agreement, dated as of July 23, 1991, among
the Corporation and certain purchasers named therein, and 800,000
shares of the Common Stock issuable upon exercise of such warrants;
(xv) Up to 250,000 shares of Common Stock issued upon exchange
of the Accrued Dividends pursuant to the Letter Agreement, dated
as of July 23, 1991, among the holders of Cumulative Convertible
Preferred Stock of the Corporation and Trust for Defined Benefit
Plan of ICI American Holdings Inc. and State Employees' Retirement
Fund of the Sate of Delaware;
(xvi) Warrants to purchase up to 10,000 shares of Common Stock
to be issued to employment consultant of the Corporation; and
(xvii) Warrants to purchase Common Stock to be issued pursuant
to the Engagement Letter dated August 27, 1990, from Equitable
Securities Corporation to the Corporation and 16,000 shares of
Common Stock issuable upon exercise of such warrants.
Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing Amendment was duly
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<PAGE> 4
EXECUTION A
adopted in accordance with Section 242 of the Delaware General Corporation Law,
and the Corporation has caused its corporate seal to be affixed hereto and
attested by the Secretary of the Corporation, all as of the 24th day of July,
1991.
EDUCATIONAL MEDICAL, INC.
By: /s/ GARY D. KERBER
---------------------
President
Attest:
/s/ MORRIS C. BROWN
- ------------------------------
Secretary
[SEAL]
STATE OF GEORGIA )
)
COUNTY OF FULTON )
Before me personally appeared Gary D. Kerber, known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the Corporation was affixed
thereto by due and regular corporate authority, that said instrument is the
free act and deed of said Corporation and the facts stated therein are true.
WITNESS my hand and official seal this 15th day of July, 1991.
/s/ MAGGIE K. WHITE
---------------------------
Notary Public
My Commission Expires: [SEAL]
-4-
<PAGE> 5
EXECUTION A
STATE OF FLORIDA )
)
COUNTY OF DADE )
Before me personally appeared Morris C. Brown, known to me to be the
individual described in and who executed the foregoing instrument as Secretary
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity.
WITNESS my hand and official seal this 24th day of July, 1991.
/s/ Wendy Loomis Riggs
--------------------------------
Notary Public
My Commission Expires: [SEAL]
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<PAGE> 1
EXHIBIT 3.1(g)
SIXTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.
THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with the
Secretary of State of the State of Delaware was duly adopted by the stockholders
of the Corporation as of March 30, 1995, in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
1. ARTICLE FOURTH, Section A.3 of the Certificate is hereby amended to
add the following subsection 3(i):
(i) The rights of the holders of Preferred Stock to receive
payments pursuant to the redemption provisions of this Section
are subject to the restrictions set forth in that certain Loan
Agreement (the "Agreement") dated as of March 31, 1995 between
the Corporation and Sirrom Capital Corporation, and any
amendments, modifications or extensions of it, a copy of such
instruments being deposited with the Secretary of the
Corporation which shall be available for inspection by holders
of Preferred Stock. In the event and to the extent that the
Agreement or the restrictions set forth (90) days after the
cessation of effectiveness of the Agreement or restrictions, as
the case may be, the rights of holders of Preferred Stock to
receive payments pursuant to the redemption provisions of this
Section 3 shall be restored to the extent permitted.
<PAGE> 2
2. ARTICLE FOURTH, Section A.7, of the Certificate is hereby
amended to add the following to the definition of "Excluded Securities" in
Section 7(b):
(xviii) Any and all Common Stock issued upon exercise of the
Stock Purchase Warrant dated as of March 31, 1995
between the Corporation and Sirrom Capital Corporation
providing for the issuance of up to 185,000 shares of
the Corporation's common stock.
Except as specifically amended hereby, all provisions of the Certificate
shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned, as President of the Corporation,
certifies that the foregoing Amendment was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law, and the Corporation has
caused its corporate seal to be affixed hereto and attested by the Secretary of
the Corporation, all as of the 30th day of March, 1995.
EDUCATIONAL MEDICAL, INC.
By: /s/ GARY D. KERBER
---------------------------
Gary D. Kerber, President
Attest:
/s/ MORRIS C. BROWN
- -----------------------------
Morris C. Brown, Secretary [CORPORATE SEAL]
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<PAGE> 3
STATE OF GEORGIA )
)SS:
COUNTY OF FULTON )
Before me personally appeared Gary D. Kerber, known to me to be the
individual described in and who executed the foregoing instrument as President
of Educational Medical, Inc. and who acknowledged to me that he executed such
instrument in such capacity, that the seal of the Corporation was affixed
thereto by due and regular corporate authority, that said instrument is the free
act and deed of said Corporation and the facts stated therein are true.
WITNESS my hand and official seal this 30th day of March, 1995.
NOTARY PUBLIC
Sign /s/ Maggie K. White
-------------------------
Print Maggie K. White
-------------------------
State of Georgia at Large
My commission expires: (SEAL)
Serial Number, if any:
STATE OF FLORIDA )
)SS:
COUNTY OF PALM BEACH )
The foregoing instrument was acknowledged before me this 29th of March,
1995, by Morris C. Brown, as Secretary of Educational Medical, Inc., a Delaware
corporation, on behalf of said Corporation. Personally known _________________.
NOTARY PUBLIC
Sign /s/ Wendy L. Riggs
-------------------------
Print Wendy L. Riggs
------------------------
My commission expires: (SEAL)
Serial Number, if any:
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<PAGE> 1
EXHIBIT 3.1 (h)
SEVENTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.
THIS AMENDMENT to the Restated Certificate of Incorporation (the
"Certificate") of Educational Medical, Inc. (the "Corporation"), filed with
the Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of March 27, 1996, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
1. ARTICLE FOURTH, Section A.7, of the Certificate is hereby amended
to add the following to the definition of "Excluded Securities" in Section
7(b):
(xix) In addition to the shares of Common Stock provided for
in Subsections (i) and (xii) of this Section, up
to 105,000 shares of Common Stock issuable to officers,
employees or directors of, or consultants to, the
Corporation, pursuant to any agreement, plan or
arrangement, approved by a majority of the Board of
Directors or options to purchase or rights to subscribe
to said Common Stock.
2. ARTICLE SIXTH of the Certificate is hereby amended in its
entirety to read as follows:
LIMITATION OF LIABILITY AND
INDEMNIFICATION OF DIRECTORS
The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by the
provisions of paragraph (7) of the subsection (b) of Section 102
of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented.
<PAGE> 2
The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered
by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those
indemnified may be entitled under any Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned, as Secretary of the Corporation,
certifies that the foregoing Amendment was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law, and the Corporation has
caused its corporate seal to be affixed hereto, all as of the 27th day of
March, 1996.
EDUCATIONAL MEDICAL, INC.
By: /s/ Morris C. Brown
--------------------------
Morris C. Brown, Secretary
(CORPORATE SEAL]
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<PAGE> 1
EXHIBIT 3.1 (i)
EIGHTH AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
OF
EDUCATIONAL MEDICAL, INC.
THIS EIGHTH AMENDMENT to the Restated Certificate of Incorporation
(the "Certificate") of Educational Medical, Inc. (the "Corporation"), filed
with the Secretary of State of the State of Delaware was duly adopted by the
stockholders of the Corporation as of June 20, 1996, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
1. ARTICLE FOURTH of the Certificate is hereby amended in its entirety to
read as follows:
ARTICLE FOURTH
STOCK
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue to 21,023,049 shares, consisting
of:
(a) 15,000,000 shares of Common Stock, par value $.01 per
share;
(b) a series of preferred stock to be known as "Series A
Preferred Stock," the number of shares constituting
Series A Preferred Stock shall be 1,023,049, par
value $.01 per share; and
(c) 5,000,000 shares of "blank check preferred stock,"
par value $.01 per share.
The designations, powers, preferences and relative participating, optional or
other special rights, and the qualifications, limitations and restrictions
thereof in respect of the Series A Preferred Stock and the Common Stock are as
follows:
A. SERIES A PREFERRED STOCK
1. Dividends.
(a) During the period commencing with the date of original
issuance of each share of Series A Preferred Stock, originally issued as
Cumulative Convertible Preferred Stock, through and including June 22, 1991,
the holder of such
<PAGE> 2
holders of the Common Stock shall be entitled, to the exclusion of the holders
of shares of Series A Preferred Stock, to share ratably in all remaining assets
of the Corporation available for distribution to its stockholders.
3. Voting.
(a) In addition to the rights specified in Sections 3(b) and (c)
hereof and any other rights provided in the Corporation's By-laws or by law,
each share of Series A Preferred Stock shall entitle the holder thereof to such
number of votes per share as shall equal the number of shares of Common Stock
(including any fraction to two decimal places) into which each share of Series
A Preferred Stock is then convertible and to vote on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such holders of Common Stock, voting together with the
holders of Common Stock as one class.
(b) In addition to the rights specified in sections 3(a) and
(c) hereof, the holders of a majority in voting power of the Series A Preferred
Stock, voting separately as one class, shall have the exclusive and special
right at all times to elect three directors to the Board of Directors of the
Corporation. In any election of directors pursuant to this subsection (b),
each holder of shares of Series A Preferred Stock shall be entitled to one vote
for each share of Series A Preferred Stock held and no holder of Series A
Preferred Stock shall be entitled to cumulate his votes by giving one candidate
more than one vote per share. The special and exclusive voting right of the
holders of the Series A Preferred Stock, voting separately as one class,
contained in this subsection (b) may be exercised either at a special meeting
of the holders of Series A Preferred Stock called as provided below, or at any
annual or special meeting of the stockholders of the Corporation, or by written
consent of such holders in lieu of a meeting. The directors to be elected by
the holders of the Series A Preferred Stock, voting separately as one class,
pursuant to this subsection (b), shall serve for terms extending from the date
of their election and qualification until the time of the next succeeding
annual meeting of stockholders and until their successors have been elected and
qualified.
If at any time any directorship to be filled by the holders of
Series A Preferred Stock, voting separately as one class, pursuant to this
subsection (b) has been vacant for a period of ten days, the Secretary of the
Corporation shall, upon the written request of the holders of record of shares
representing at least 25% of the voting power of the Series A Preferred Stock
then outstanding, call a special meeting of the holders of Series A Preferred
Stock for the purpose of electing a director or directors to fill such vacancy
or vacancies. Such meeting shall be held at the earliest practicable date at
such place as is specified in the By-laws of the Corporation. If such meeting
shall not be called by the Secretary of the Corporation within ten days after
personal
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<PAGE> 3
service of said written request on him, then the holders of record of shares
representing at least 25% of the voting power of the Series A Preferred Stock
then outstanding may designate in writing one of their number to call such
meeting at the expense of the Corporation, and such meeting may be called by
such persons so designated upon the notice required for annual meetings of
stockholders and shall be held at such specified place. Any holder of the
Series A Preferred Stock so designated shall have access to the stock books of
the Corporation for the purpose of calling a meeting of the stockholders
pursuant to these provisions.
At any meeting held for the purpose of electing directors at
which the holders of Series A Preferred Stock shall have the special and
exclusive right, voting separately as one class, to elect directors as provided
in this subsection (b), the presence, in person or by proxy, of the holders of
record of shares representing a majority of the voting power of the Series A
Preferred Stock then outstanding shall be required to constitute a quorum of
the Series A Preferred Stock for such election. At any such meeting or
adjournment thereof, the absence of such a quorum of the Series A Preferred
Stock shall not prevent the election of directors other than the directors to
be elected by holders of the Series A Preferred Stock, voting separately as one
class, pursuant to this subsection (b), and the absence of a quorum for the
election of such other directors shall not prevent the election of the
directors to be elected by the holders of the Series A Preferred Stock, voting
separately as one class, pursuant to this subsection (b). In the absence of
either or both such quorums, the holders of record of shares representing a
majority of the voting power present in person or by proxy of the class or
classes of stock which lack a quorum shall have power to adjourn the meeting
for the election of directors which they are entitled to elect from time to
time without notice other than announcement at the meeting.
A vacancy in the directorships to be elected by the holders of
the Series A Preferred Stock, voting separately as one class, pursuant to this
subsection (b), may be filled only by vote or written consent in lieu of a
meeting of (i) the holders of a majority in voting power of the Series A
Preferred Stock, acting separately as one class, or (ii) the remaining
directors elected by the holders of the Series A Preferred Stock (or by
directors so elected).
(c) The Corporation shall not, without the affirmative consent
of the holders of shares representing at least a majority in voting power of
the Series A Preferred Stock then outstanding, acting separately as one class,
for so long as the then outstanding shares of Series A Preferred Stock are no
less than 50% of the number of shares of Series A Preferred Stock outstanding
on the original Issuance Date, given by written consent in lieu of a meeting or
by vote at a meeting called for such purpose for which notice shall have been
given to the holders of the outstanding Series A Preferred Stock:
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<PAGE> 4
(i) directly or indirectly, sell, lease, transfer or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or a substantial portion of its assets;
(ii) consolidate with or merge into any corporation or
permit any corporation to merge into it;
(iii) declare or pay any dividend on or make any other
distribution (whether by reduction of capital or otherwise) of cash or
property or both with respect to any shares of its Junior Stock, or
purchase, retire or otherwise acquire for value any shares of its capital
stock;
(iv) take any action to cause any amendment, alteration or
repeal of any provisions of the Certificate of Incorporation or By-Laws
of the Corporation if such action would alter, change or adversely affect
the preferences, rights, privileges or powers of, or restrictions for the
benefit of, the Series A Preferred Stock;
(v) except for the issuance of shares of capital stock or
other securities constituting Excluded Securities (as defined in
Section 5 hereof) or the issuance of shares of Series A Preferred Stock
pursuant to the Purchase Agreement, authorize, create, issue or agree to
issue any shares of its capital stock or any security, right, option or
warrant convertible into, or exercisable or exchangeable for, shares of
its capital stock; or
(vi) voluntarily dissolve, liquidate or wind up or carry
out any partial liquidation or dissolution or transaction in the nature
of a partial liquidation or dissolution.
4. Conversion.
(a) A holder of shares of Series A Preferred Stock shall have
the right, at such holder's option, at any time or from time to time, to
convert any of such shares into such whole number of fully paid and
nonassessable shares of Common Stock as is equal to the quotient obtained by
dividing (A) the Liquidation Preference for the Series A Preferred Stock
multiplied by the number of shares of Series A Preferred Stock being converted
by (B) the Preferred Conversion Price (as hereinafter defined) as last
adjusted and then in effect, for the shares of Series A Preferred Stock being
converted, by surrender of the certificates representing the shares of Series A
Preferred Stock so to be converted in the manner provided in Section 4(b)
hereof. The conversion price per share at which shares of Common Stock shall
be issuable upon conversion of shares of Series A Preferred Stock shall
initially be the Liquidation Preference of the
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<PAGE> 5
Series A Preferred Stock (the "Preferred Conversion Price"); provided, however,
that such Preferred Conversion Price shall be subject to adjustment as set
forth in Section 4(d) hereof. The holder of any shares of Series A Preferred
Stock exercising the aforesaid right to convert such shares of Series A
Preferred Stock into shares of Common Stock shall be entitled to payment of
Accrued Dividends, if any, payable with respect to such shares of Series A
Preferred Stock up to and including the Conversion Date (as hereinafter
defined).
Immediately upon the Securities and Exchange Commission
declaring effective a registration statement under the Securities Exchange Act
of 1933, as amended, concerning the offering of shares of Common Stock in an
underwritten public offering, each share of Series A Preferred Stock shall
automatically be converted into such whole number of fully paid and
nonassessable shares of Common Stock on the same basis as if such conversion
were effected pursuant to the election of a holder of Series A Preferred Stock
to convert such Series A Preferred Stock pursuant to this Section 4(a).
(b) A holder of shares of Series A Preferred Stock may
exercise the conversion right pursuant to Section 4(a) hereof as to any such
shares by delivering to the Corporation during regular business hours, at the
office of any transfer agent of the Corporation for the Series A Preferred
Stock or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed or
assigned in blank or to the Corporation (if required by it), accompanied by
written notice stating that the holder elects to convert such shares and
stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued. Conversion shall
be deemed to have been effected on the date when the aforesaid delivery is made
(the "Conversion Date"). As promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of such
holder, to the place designated by such holder, a certificate or certificates
for the number of full shares of Common Stock to which such holder is entitled
and a check or cash in respect of any fractional interest in a share of Common
Stock as provided in Section 4(c) hereof and a check or cash in payment of all
Accrued Dividends, if any (to the extent permissible under law), payable with
respect to the shares of Series A Preferred Stock so converted up to and
including the Conversion Date. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event he shall be
deemed to have become a stockholder of record on the next succeeding date on
which the transfer books are open, but the Preferred Conversion Price shall be
that in effect on the Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares of Series A
Preferred Stock surrendered for conversion, the Corporation shall issue and
deliver to
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<PAGE> 6
or upon the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered, which new certificate shall entitle
the holder thereof to dividends on the shares of Series A Preferred Stock
represented thereby to the same extent as if the portion of the certificate
theretofore covering such unconverted shares had not been surrendered for
conversion.
(c) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series A Preferred Stock. If more than one
share of Series A Preferred Stock shall be surrendered for conversion at any
one time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Series A Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of shares of Series A Preferred Stock, the Corporation shall pay a
cash adjustment in respect of such fractional interest in an amount equal to
the then Current Market Price (as defined in Section 4(d)(vii) hereof) of a
share of Common Stock multiplied by such fractional interest. Fractional
interests shall not be entitled to dividends, and the holders of fractional
interests shall not be entitled to any rights as stockholders of the
Corporation in respect of such fractional interest.
(d) The Preferred Conversion Price shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall at any time or from time to
time after the Original Issuance Date of the Series A Preferred Stock
issue any shares of Common Stock other than Excluded Securities without
consideration or for a consideration per share less than the Preferred
Conversion Price in effect immediately prior to the issuance of such
Common Stock, the Preferred Conversion Price in effect immediately prior
to such issuance shall forthwith be lowered to a price equal to the
consideration per share, if any, received by the Corporation upon such
issuance; Provided, however, that if the Corporation issues any shares of
Common Stock (other than Excluded Stock) as contemplated by this Section
4(d)(i) without consideration, such shares shall be deemed solely for
purposes of this Section 4(d)(i) to have been issued for a consideration
per share equal to $.01.
For the purposes of any adjustment of the Preferred Conversion Prices pursuant
to Section 4(d)(i), the following provisions shall be applicable:
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<PAGE> 7
(A) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of
cash paid therefor after deducting therefrom any discounts,
commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(B) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors,
irrespective of any accounting treatment.
(C) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock, (ii)
securities by their terms convertible into or exchangeable for
Common Stock or (iii) options to purchase or rights to subscribe for
such convertible or exchangeable securities:
(1) the shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe
for Common Stock shall be deemed to have been issued
at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in subdivisions (A) and (B) above), if any,
received by the Corporation upon the issuance of such options
or rights plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby;
(2) the shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and
for a consideration equal to the consideration received by the
Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Corporation upon
the conversion or exchange of such securities or the exercise of
any related options or rights (the consideration in each case to
be
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<PAGE> 8
determined in the manner provided in subdivisions (A) and (B)
above);
(3) on any change in the number of shares or
exercise price of Common Stock deliverable upon exercise of any
such options or rights or conversions of or exchanges for such
securities, other than a change resulting from the antidilution
provisions thereof, the Preferred Conversion Price shall
forthwith be readjusted to such Preferred Conversion Price as
would have obtained had the adjustment made upon the issuance of
such options, rights or securities not converted prior to such
change or options or rights related to such securities not
converted prior to such change been made upon the basis of such
change; and
(4) on the expiration of any such options or
rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to
such convertible or exchangeable securities, the Preferred
Conversion Price shall forthwith be readjusted to such Preferred
Conversion Price as would have obtained had such options,
rights, securities or options or rights related to such
securities not been issued.
(ii) If, at any time after the Original Issuance Date of
the Series A Preferred Stock, the number of shares of Common
Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Preferred Conversion
Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be increased in proportion to such
increase in outstanding shares.
(iii) if, at any time after the Original Issuance Date of
the Series A Preferred Stock, the number of shares of Common
Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such
combination, the Preferred Conversion Price shall be appropriately
increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.
(iv) In case, at any time after the Original Issuance Date
of the Series A Preferred Stock, the Corporation shall declare a
cash dividend
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<PAGE> 9
upon its Common Stock payable otherwise than out of earnings or
shall distribute to holders of its Common Stock shares of its
capital stock (other than Common Stock), stock or other securities
of other persons, evidences of indebtedness issued by the
Corporation or other persons, other assets or options or rights
(excluding options to purchase and rights to subscribe for Common
Stock or other securities of the Corporation convertible into or
exchangeable for Common Stock), then, in each such case,
immediately following the record date fixed for the determination
of the holders of Common Stock entitled to receive such dividend
or distribution, the Preferred Conversion Price in effect
thereafter shall be adjusted to be a price determined by
multiplying the Preferred Conversion Price in effect immediately
prior to such record date by a fraction of which the numerator
shall be an amount equal to the remainder of (x) the Current
Market Price of one share of Common Stock less (y) the fair market
value (as determined by the Board of Directors, whose
determination shall be conclusive) of the stock, securities,
evidences of indebtedness, assets, options or rights so
distributed in respect of one share of Common Stock, and of which
the denominator shall be such Current Market Price. Such
adjustment shall be made on the date such dividend or distribution
is made, and shall become effective at the opening of business on
the business day next following the record date for the
determination of stockholders entitled to such dividend or
distribution.
(v) In case, at any time after the original Issuance Date
of the Series A Preferred Stock, of any capital reorganization,
or any reclassification of the stock of the Corporation (other
than a change in par value or from par value to no par value or
from no par value to par value or as a result of a stock dividend
or subdivision, split-up or combination of shares), or the
consolidation or merger of the Corporation with or into another
person (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not
result in any change in the Common Stock) or of the sale or other
disposition of all or substantially all the properties and assets
of the Corporation as an entirety to any other person, each share
of Series A Preferred Stock shall after such reorganization,
reclassification, consolidation, merger, sale or other disposition
be convertible into the kind and number of shares of stock or
other securities or property of the Corporation resulting from
such consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise disposed
to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation, merger, sale or other
disposition) upon conversion of such shares would have been
entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The provisions
of this Section 4 shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales
or other dispositions.
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<PAGE> 10
(vi) All calculations under this paragraph (d) shall be
made to the nearest one tenth (1/10) of a cent or to the
nearest one tenth (1/10) of a share, as the case may be.
(vii) For the purpose of any computation pursuant to this
Section 4(d) or Section 4(c) hereof, the Current Market Price
at any date of one share of Common Stock shall be deemed to be the
average of the daily closing prices for the 30 consecutive
business days selected by the Board of Directors of the
Corporation ending no more than 15 days before the day in question
(as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such period). The
closing price for each day shall be the last reported sales price
regular way or, in case no such reported sales took place on such
day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or as
reported in the National Market List of the National Association
of Securities Dealers Automated Quotations System ("NASDAQ") (or
if the Common Stock is not at the time listed or admitted for
trading on any such exchange or reported in such National Market
List, then such price shall be equal to the average of the last
reported bid and asked prices, as reported by NASDAQ on such day,
or if, on any day in question, the security shall not be quoted on
NASDAQ then such price shall be equal to the average of the last
reported bid and asked prices on such day as reported by the
National Quotation Bureau, Inc., or any similar reputable
quotation and reporting service, if such quotation is not reported
by the National Quotation Bureau, Inc.); provided, however, that
if the Common Stock is not traded in such a manner that the
quotations referred to in this clause (vii) are available for the
period required hereunder, the Current Market Price as of the day
in question shall be determined in good faith by the Board of
Directors of the Corporation, or if such determination cannot be
made, by a nationally recognized independent investment banking
firm selected jointly by the holders of at least a majority of the
voting power of the Series A Preferred Stock then outstanding and
the Corporation (or, if such selection cannot be made, by a
nationally recognized independent investment banking firm selected
by the American Arbitration Association in accordance with its
rules).
(viii) In any case in which the provisions of this Section
4(d) shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event (A) issuing to the holder
of any share of Series A Preferred Stock converted after such
record date and before the occurrence of such event the additional
shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of
capital stock issuable upon
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<PAGE> 11
such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional
share of capital stock pursuant to Section 4(c); provided,
however, that the Corporation shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's
right to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.
(e) Whenever the Preferred Conversion Price shall be
adjusted as provided in Section 4(d), the Corporation shall forthwith file, at
the office of the transfer agent for the Series A Preferred Stock or at such
other place as may be designated by the Corporation, a statement, signed by its
chief financial officer, showing in detail the facts requiring such adjustment
and the Preferred Conversion Price. The Corporation shall also cause a copy of
such statement to be sent by first class certified mail, return receipt
requested, postage prepaid, to each holder of shares of Series A Preferred
Stock at his or its address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of Section 4(f).
(f) In the event the Corporation shall propose to take
any action of the types described in clauses (i), (iv) or (v) of Section 4(d),
the Corporation shall give notice to each holder of shares of Series A
Preferred Stock, in the manner set forth in Section 4(e), which notice shall
specify the record date, if any, with respect to any such action and the date
on which such action is to take place. Such notice shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Preferred Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable or
purchasable upon the occurrence of such action or deliverable upon conversion
of shares of Series A Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 25
days prior to the date so fixed, and in case of all other action, such notice
shall be given at least 35 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
(g) The Corporation shall pay all documentary stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series A
Preferred Stock.
(h) The Corporation shall reserve, free from preemptive
rights, out of its authorized but unissued shares of Common Stock solely for
the purpose of effecting the conversion of the shares of Series A Preferred
Stock sufficient shares to provide for the conversion of all outstanding shares
of Series A Preferred Stock.
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<PAGE> 12
(i) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Corporation, be va!idly issued, fully paid and nonassessable and free
from all taxes, liens or charges with respect thereto.
5. Definitions. As used herein, the following terms shall
have the following meanings:
(a) The term "Accrued Dividends" with respect to any share
of Series A Preferred Stock shall mean (whether or not there shall have been
net profits or net assets of the Corporation legally available for the payment
of such dividends) that amount which shall be equal to dividends at the full
rate fixed for the Series A Preferred Stock as provided herein for the period
of time elapsed from the date of issuance of such share to the date as of which
Accrued Dividends are to be computed, less any payments made in respect of such
dividends.
(b) "Excluded Securities" shall mean:
(i) up to 45,000 shares of Common Stock issued to
officers, employees or directors of, or consultants to, the
Corporation, pursuant to any agreement, plan or arrangement
approved by a majority of the Board of Directors of the
Corporation or options to purchase or rights to subscribe to said
Common Stock;
(ii) Common Stock issued as a stock dividend or upon
any subdivision or combination of shares of Common Stock;
(iii) Common Stock issued upon conversion of the
Series A Preferred Stock;
(iv) Warrants issued pursuant to the Warrant Purchase
Agreement dated March 31, 1988, among the Corporation and
certain purchasers named therein, and Common Stock and Series A
Preferred Stock issued upon exercise of such warrants;
(v) Up to 50,000 shares of Common Stock issuable
under a stock option plan approved by a majority of the Board of
Directors;
(vi) Common Stock issuable to Peter Hansen, Ellenmae
Hansen and Eileen Rex in the event of a public offering of the
Corporation's equity securities;
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<PAGE> 13
(vii) Warrants issued pursuant to the Note and Warrant
Purchase Agreement dated March 31, 1989, among the Corporation
and certain purchasers named therein, and Units of Common Stock
and Series A Preferred Stock issued upon exercise of such
Warrants, the Common Stock and Series A Preferred Stock comprising
Units, and the Common Stock issued upon conversion of the Series A
Preferred Stock included in the Units;
(viii) Up to 105,000 shares of Common Stock issuable
pursuant to Restricted Stock Purchase Agreements, dated as of
March 31, 1988, between the Company and Gary Kerber and John
Lavery;
(ix) Up to 245,710 shares of Common Stock issuable
pursuant to Restricted Stock Purchase Agreements, dated as of
November 7, 1989, between the Company and Gary Kerber, John
Lavery and Michael Davis;
(x) Up to 18,000 shares of Common Stock issuable
pursuant to an Incentive Compensation Agreement, dated as of
November 7, 1989, among the Company, Gary Kerber, John Lavery
and Michael Davis;
(xi) Up to 10,500 shares of Common Stock issuable
to officers, employees or directors or, or consultants to, the
Corporation, pursuant to any agreement, plan or arrangement,
approved by a majority of the Board of Directors or option to
purchase or rights to subscribe to said Common Stock;
(xii) Up to 92,721 shares of Common Stock issuable
pursuant to Restricted Stock Purchase Agreements, dated as of
April 1, 1990, and amendments thereto, between the Corporation and
Vince Pisano;
(xiii) Warrants to purchase Common Stock issued
pursuant to the Securities Purchase Agreement, dated as of July
23, 1991, among the Corporation and certain purchasers named
therein, and 800,000 shares of the Common Stock issuable upon
exercise of such warrants;
(xiv) Up to 250,000 shares of Common Stock issued
upon exchange of the Accrued Dividends pursuant to the Letter
Agreement, dated as of July 23, 1991, among the holders of Series
A Preferred Stock of the Corporation and Trust for Defined Benefit
Plan of ICI American Holdings Inc. and State Employees' Retirement
Fund of the State of Delaware;
(xv) Warrants to purchase up to 10,000 shares of
Common Stock to be issued to employment consultant of the
Corporation;
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<PAGE> 14
(xvi) Warrants to purchase Common Stock to be issued
pursuant to the Engagement Letter dated August 27, 1990, from
Equitable Securities Corporation to the Corporation and 16,000
shares of Common Stock issuable upon exercise of such warrants;
and
(xvii) Any and all Common Stock issued upon exercise
of the Stock Purchase Warrant dated as of March 31, 1995
between the Corporation and Sirrom Capital Corporation providing
for the issuance of up to 185,000 shares of the Corporation's
Common Stock.
(xviii) In addition to the shares of Common Stock
provided for in Subsections (i) and (xi) of this Section, up to
105,000 shares of Common Stock issuable to officers, employees or
directors of, or consultants to, the Corporation, pursuant to any
agreement, plan or arrangement, approved by a majority of the
Board of Directors or options to purchase or rights to subscribe
to said Common Stock.
(c) The term "Junior Stock" shall mean the Common Stock
and any class or series of shares of capital stock of the Corporation junior in
right of payment of dividends or the distribution of assets on liquidation to
the Series A Preferred Stock.
(d) The term "Liquidation Preference" shall mean $6.66 per
share.
(e) The term "Original Issuance Date" shall mean the date
as of which the first share of Series A Preferred Stock has been issued.
(f) The term "Purchase Agreement" shall mean the Preferred
Stock Purchase Agreement dated March 31, 1988 among the Corporation and the
persons named therein as investors.
B. COMMON STOCK
1. Voting. Except as otherwise expressly provided by law, and
subject to the voting rights provided to the holders of Series A Preferred
Stock by this Certificate of Incorporation, the Common Stock shall have
exclusive voting rights on all matters requiring a vote of stockholders, voting
together with the holders of Series A Preferred Stock, as one class.
2. Other Rights. Each share of Common Stock issued and
outstanding shall be identical in all respects one with the other, and no
dividends shall be paid on any shares of Common Stock unless the same is paid
on any shares of Common Stock outstanding at the time of such payment. Except
for and subject to those rights
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<PAGE> 15
expressly granted to the holders of the Series A Preferred Stock, or except as
may be provided by the laws of the State of Delaware, the holders of Common
Stock shall have exclusively all other rights of stockholders.
C. BLANK CHECK PREFERRED STOCK
1. Issuance. The blank check preferred stock may be issued
from time to time in one or more series. Subject to the limitations set
forth herein and any limitations prescribed by law, the Board of Directors is
expressly authorized, prior to issuance of any series of blank check preferred
stock, to fix by resolution or resolutions providing for the issue of any
series the number of shares included in such series and the designations,
relative powers, preferences and rights, and the qualifications, limitations or
restrictions of such series. Pursuant to the foregoing general authority
vested in the Board of Directors, but not in limitation of the powers conferred
on the Board of Directors thereby and by the General Corporation Law of the
State of Delaware, the Board of Directors is expressly authorized to determine
with respect to each series of blank check preferred stock:
(a) the designation or designations of such series and the
number of shares (which number from time to time may be decreased by the Board
of Directors, but not below the number of such shares then outstanding, or may
be increased by the Board of Directors unless otherwise provided in creating
such series) constituting such series;
(b) the rate or amount and times at which, and the
preferences and conditions under which, dividends shall be payable on shares of
such series, the status of such dividends as cumulative or noncumulative, the
date or dates from which dividends, if cumulative, shall accumulate, and the
status of such shares as participating or nonparticipating after the payment of
dividends as to which such shares are entitled to any preference;
(c) the rights and preferences, if any, of the holders of
shares of such series upon the liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the corporation, which
amount may vary depending upon whether such liquidation, dissolution or winding
up is voluntary or involuntary and, if voluntary, may vary at different dates,
and the status of the shares of such series as participating or
nonparticipating after the satisfaction of any such rights and preferences;
(d) the full or limited voting rights, if any, to be
provided for shares of such series, in addition to the voting rights provided
by law;
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<PAGE> 16
(e) the times, terms and conditions, if any, upon which
shares of such series shall be subject to redemption, including the amount the
holders of shares of such series shall be entitled to receive upon redemption
(which amount may vary under different conditions or at different redemption
dates) and the amount, terms, conditions and manner of operation of any
purchase, retirement or sinking fund to be provided for the shares of such
series;
(f) the rights, if any, of holders of shares of such series
to convert such shares into, or to exchange such shares for, shares of any
other class or classes or of any other series of the same class, the prices or
rates of conversion or exchange, and adjustments thereto, and any other terms
and conditions applicable to such conversion or exchange;
(g) the limitations, if any, applicable while such series is
outstanding on the payment of dividends or making of distributions on, or the
acquisition or redemption of, Common Stock or any other class of shares ranking
junior, either as to dividends or upon liquidation, to the shares of such
series;
(h) the conditions or restrictions, if any, upon the issue
of any additional shares (including additional shares of such series or any
other series or of any other class) ranking on a parity with or prior to the
shares of such series either as to dividends or upon liquidation; and
(i) any other relative powers, preferences and
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of shares of such series;
in each case, so far as not inconsistent with the provisions of this
Certificate of Incorporation or the General Corporation Law of the State of
Delaware as then in effect.
2. Stock Split. Upon the filing in the Office of the
Secretary of State of Delaware of the Eighth Amendment to the Certificate
whereby Article Fourth is amended to read as set forth herein, each issued and
outstanding three shares of Common Stock shall thereby and thereupon be split
into five shares of validly issued, fully paid nonassessable shares of Common
Stock. Each party at that time holding of record any issued and outstanding
shares of Common Stock shall receive upon surrender thereof to the
Corporation's authorized agent a stock certificate or certificates to evidence
and represent the number of shares of Common Stock to which said shareholder is
entitled after the split.
Except as specifically amended hereby, all provisions of the
Certificate shall remain in full force and effect.
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IN WITNESS WHEREOF, the undersigned, as Secretary of the Corporation,
certifies that the foregoing Amendment was duly adopted in accordance with
Section 242 of the Delaware General Corporation Law, and the Corporation has
caused its corporate seal to be affixed hereto, all as of the 29th day of July,
1996.
EDUCATIONAL MEDICAL, INC.
By: /s/ Morris C. Brown
---------------------------
Morris C. Brown, Secretary
[CORPORATE SEAL]
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<PAGE> 1
EXHIBIT 3.2
EDUCATIONAL MEDICAL, INC.
RESTATED BYLAWS
ARTICLE I
OFFICES
1.1 Registered Office. The registered office of the Corporation
shall be located at such place in Delaware as the Board of Directors from time
to time determines.
1.2 Other Offices. The Corporation may also have offices or
branches at such other places as the Board of Directors from time to time
determines or the business of the Corporation requires.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Time and Place. All meetings of the stockholders shall be
held at such place and time as the Board of Directors determines.
2.2 Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
2.3 Special Meetings. Special meetings of the stockholders, for
any purpose, may be called by the Corporation's Chairman of the Board and shall
be called by the Secretary or any Assistant Secretary upon written request
(stating the purpose for which the meeting is to be called) of a majority of
the Board of Directors.
2.4 Notice of Meetings. Except as provided in Section 2.5 below,
written notice of each stockholders' meeting, stating the place, date and time
of the meeting and, in the case of a special meeting, the purposes for which
the meeting is called, shall be given (in the manner described in Section 5.1
below) not less than 10 nor more than 60 days before the date of the meeting to
each stockholder of record entitles to vote at the meeting. Notice of
adjourned meetings is governed by Section 2.7 below.
2.5 Advance Notice Requirements for Stockholder Proposals and
Director Nominations. At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors in accordance with Section 2.4 above,
(b) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, or for a stockholder to nominate candidates
<PAGE> 2
for election as directors at an annual or special meeting of the stockholders,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered, mailed and received at the principal executive offices of the
Corporation, (a) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, not less than 60 days nor more than
90 days prior to such anniversary date, and (b) in the case of an annual
meeting that is not called for a date that is not within 30 days before or
after the anniversary date of the immediately preceding annual meeting, or in
the case of a special meeting of the stockholders called for the purpose of
electing directors, not later than the close of business on the tenth day on
which notice of the date of the meeting was mailed or public disclosure of the
date of the meeting was made, whichever occurs first. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at any annual meeting or special meeting called for the purpose of
electing directors except in accordance with the procedures set forth in this
Section 2.5. The Chairman of the annual meeting shall, if the fact warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 2.5,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
2.6 List of Stockholders. The officer or agent who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting or any adjournment of the meeting. The list
shall be arranged alphabetically within each class and series and shall show
the address of, and the number of shares registered in the name of, each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
2.7 Quorum; Adjournment. Except as otherwise provided by law, at
all stockholders' meetings, the stockholders present in person or represented
by proxy who, as of the record date for the meeting, were holders of shares
entitled to cast a majority of the votes at the meeting, shall constitute a
quorum. Once a quorum is present at a meeting, all stockholders present in
person or represented by proxy at the meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. Regardless of whether a quorum is present, a stockholders'
meeting may be adjourned to another time and place by a vote of the shares
present in person or by proxy without notice other than announcement at the
meeting; provided, that (a) only such business may be transacted at the
adjourned meeting as might have been transacted at the original meeting and (b)
if the adjournment is for more than thirty days or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting must be given to each stockholder of record entitled to vote at the
meeting.
2.8 Voting. Except as otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share having voting power
held by such stockholder and on each matter submitted to a vote. Voting at
meetings of stockholders need not be by written ballot. When an action, other
than the election of directors, is to be taken by vote of the stockholders, it
shall be authorized by a majority of the votes cast by the holders of shares
entitled to vote on
2
<PAGE> 3
such action, unless a greater vote is required by the Certificate of
Incorporation, these Bylaws or by law. Except as otherwise provided by the
Certificate of Incorporation, directors shall be elected by a plurality of the
votes cast at any election.
2.9 Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering a proxy in accordance with applicable law bearing a
later date to the Secretary of the corporation.
2.10 Questions Concerning Elections. The Board of Directors may,
in advance of the meeting, or the presiding officer may, at the meeting,
appoint one or more inspectors to act at a stockholders' meeting or any
adjournment. If appointed, the inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine challenges and
questions arising in connection with the right to vote, count and tabulate
votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders.
2.11 Action by Written Consent. No action required or permitted to
be taken at any annual or special meeting of the stockholders may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
ARTICLE III
DIRECTORS
3.1 Number and Residence. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors consisting of five directors or such greater or lesser number as may
be fixed from time to time by a majority of the total number of directors which
the Company will have if there were no vacancies on the Company's Board of
Directors; provided, however, that the number of directors shall not be reduced
so as to shorten the term of any director at the time in office. Directors
need not be stockholders. The Directors shall be elected at the annual meeting
of stockholders (or if so determined by the Board of Directors pursuant to
Section 2.3 hereof, at a special meeting of stockholders), by such stockholders
as have the right to vote at such election.
3.2 Election and Term. The term of office of each Director shall
end on the date of the annual stockholders' meeting following the annual
meeting at which such Director was elected. Each Director elected shall hold
office for the term for which he or she is elected and until his or her
successor is elected and qualified or until his or her resignation or removal.
3.3 Resignation. A Director may resign by written notice to the
Corporation. A Director's resignation is effective upon its receipt by the
Corporation or a later time set forth in the notice of resignation.
3.4 Removal. One or more Directors may be removed with cause by
vote of the holders of a majority of the shares entitled to vote at an election
of Directors cast at a meeting of the stockholders called for that purpose.
3
<PAGE> 4
3.5 Vacancies. During the intervals between annual meetings of
stockholders, any vacancy occurring in the Board of Directors caused by
resignation, death or other incapacity and any newly created directorships
resulting from an increase in the number of Directors may be filled by a
majority vote of the Directors then in office, whether or not a quorum. Each
Director chosen to fill a vacancy shall hold office for the unexpired term in
respect of which such vacancy occurred. Each Director chosen to fill a newly
created directorship shall hold office until the next election of directors and
until his or her successor is elected and qualified.
3.6 Place of Meetings. The Board of Directors may hold meetings
at any location. The location of annual and regular Board of Directors'
meetings shall be determined by the Board and the location of special meetings
shall be determined by the person calling the meeting.
3.7 Annual Meetings. Each newly elected Board of Directors may
meet promptly after the annual stockholders' meeting for the purposes of
electing officers and transacting such other business as may properly come
before the meeting. No notice of the annual Directors' meeting shall be
necessary to the newly elected Directors in order to legally constitute the
meeting, provided a quorum is present.
3.8 Regular Meetings. Regular meetings of the Board of Directors
or Board committees may be held without notice at such places and times as the
Board or committee determines at least 30 days before the date of the meeting.
3.9 Special Meetings. Special meetings of the Board of Directors
may be called by the Chief Executive Officer, and shall be called by the
President or Secretary upon the written request of two Directors, on two days
notice to each Director or committee member by mail or 24 hours notice by any
other means provided in Section 5.1. The notice must specify the place, date
and time of the special meeting, but need not specify the business to be
transacted at, nor the purpose of, the meeting. Special meetings of Board
committees may be called by the Chairperson of the committee or a majority of
committee members pursuant to this Section 3.9.
3.10 Quorum. At all meetings of the Board or a Board committee, a
majority of the Directors then in office, or of members of such committee,
constitutes a quorum for transaction of business, unless a higher number is
otherwise required. If a quorum is not present at any Board or Board committee
meeting, a majority of the Directors present at the meeting may adjourn the
meeting to another time and place without notice other than announcement at the
meeting. Any business may be transacted at the adjourned meeting which might
have been transacted at the original meeting, provided a quorum is present.
3.11 Voting. The vote of a majority of the members present at any
Board or Board committee meeting at which a quorum is present constitutes the
action of the Board of Directors or of the Board committee, unless a higher
vote is otherwise required.
3.12 Telephonic Participation. Members of the Board of Directors
or any Board committee may participate in a Board or Board committee meeting by
means of conference telephone or similar communications equipment through which
all persons participating in the meeting can communicate with each other.
Participation in a meeting pursuant to this Section 3.12 constitutes presence
in person at such meeting.
3.13 Action by Written Consent. Any action required or permitted
to be taken under authorization voted at a Board or Board committee meeting may
be taken without a meeting if, before or after the action, all members of the
Board then in office or of the Board committee consent to the action in
writing. Such consents
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<PAGE> 5
shall be filed with the minutes of the proceedings of the Board or committee
and shall have the same effect as a vote of the Board or committee for all
purposes.
3.14 Committees. The Board of Directors may, by resolution passed
by a majority of the entire Board, designate one or more committees, each
consisting of one or more Directors. The Board may designate one or more
Directors as alternate members of a committee, who may replace an absent or
disqualified member at a committee meeting. In the absence or disqualification
of a member of a committee, the committee members present and not disqualified
from voting, regardless of whether they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of such absent or disqualified member. Any committee, to the extent provided
in the resolution of the Board, may exercise all powers and authority of the
Board of Directors in management of the business and affairs of the
Corporation, except a committee does not have power or authority to:
(a) Amend the Certificate of Incorporation.
(b) Adopt an agreement of merger or consolidation.
(c) Recommend to stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets.
(d) Recommend to stockholders a dissolution of the
Corporation or a revocation of a dissolution.
(e) Amend the Bylaws of the Corporation.
(f) Fill vacancies in the Board.
(g) Unless the resolution designating the committee or a
later Board of Director's resolution expressly so provides, declare a
distribution or dividend or authorize the issuance of stock.
Each committee and its members shall serve at the pleasure of the Board, which
may at any time change the members and powers of, or discharge, the committee.
Each committee shall keep regular minutes of its meetings and report them to
the Board of Directors when required.
3.15 Compensation. The Board, by affirmative vote of a majority of
Directors in office and irrespective of any personal interest of any of them,
may establish reasonable compensation of Directors for services to the
Corporation as directors, officers or members of a Board committee. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation for such service.
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<PAGE> 6
ARTICLE IV
OFFICERS
4.1 Officers and Agents. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall elect a President, a
Secretary and a Treasurer and/or Chief Financial Officer, and may also elect
and designate as officers a Chairman of the Board, a Vice Chairman of the Board
and one or more Executive Vice Presidents, Vice Presidents, Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers. The Board of
Directors may also from time to time appoint, or delegate authority to the
Corporation's Chief Executive Officer to appoint, such other officers and
agents as it deems advisable. Any number of offices may be held by the same
person, but an officer shall not execute, acknowledge or verify an instrument
in more than one capacity if the instrument is required by law to be executed,
acknowledged or verified by two or more officers. An officer has such
authority and shall perform such duties in the management of the Corporation as
provided in these Bylaws, or as may be determined by resolution of the Board of
Directors not inconsistent with these Bylaws, and as generally pertain to their
offices, subject to the control of the Board of Directors.
4.2 Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors except to the extent
delegated by the Board of Directors to the President of the Company. In the
absence of a specific resolution to the contrary, authority regarding
compensation for all officers other than the Chairman of the Board, Vice
Chairman of the Board, President and Chief Financial Officer shall be deemed
delegated to the President.
4.3 Term. Each officer of the Corporation shall hold office for
the term for which he or she is elected or appointed and until his or her
successor is elected or appointed and qualified, or until his or her
resignation or removal. The election or appointment of an officer does not, by
itself, create contract rights.
4.4 Removal. An officer elected or appointed by the Board of
Directors or the President, as the case may be, may be removed by the Board of
Directors or the President with or without cause. The removal of an officer
shall be without prejudice to his or her contract rights, if any.
4.5 Resignation. An officer may resign by written notice to the
Corporation. The resignation is effective upon its receipt by the Corporation
or at a subsequent time specified in the notice of resignation.
4.6 Vacancies. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
4.7 Chairman of the Board. The Chairman of the Board, if such
office is filled, shall be a Director and shall preside at all stockholders'
and Board of Directors' meetings.
4.8 Chief Executive Officer. The Chairman of the Board, if any,
or the President, as designated by the Board, shall be the Chief Executive
Officer of the Corporation and shall have the general powers of supervision and
management of the business and affairs of the Corporation usually vested in the
Chief Executive Officer of a corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. If no
designation of Chief Executive Officer is made, or if there is no Chairman of
the Board, the President shall be the Chief Executive Officer. The Chief
Executive Officer may delegate to the other officers such of his or her
authority and duties at such time and in such manner as he or she deems
advisable.
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<PAGE> 7
4.9 President. If the office of Chairman of the Board is not
filled, the President shall perform the duties and execute the authority of the
Chairman of the Board. If the Chairman of the Board is designated by the Board
as the Corporation's Chief Executive Officer, the President shall be the chief
operating officer of the Corporation, shall assist the Chairman of the Board in
the supervision and management of the business and affairs of the Corporation
and, in the absence of the Chairman of the Board, shall preside at all
stockholders' and Board of Directors' meetings. The President may delegate to
the officers other than the Chairman of the Board, if any, such of his or her
authority and duties at such times and in such manner as he or she deems
appropriate.
4.10 Executive Vice Presidents and Vice Presidents. The Executive
Vice Presidents and Vice Presidents shall assist and act under the direction of
the Chairman of the Board and President. The Board of Directors or the
President, as the case may be, may designate one or more Executive Vice
Presidents and may grant other Vice Presidents titles which describe their
functions or specify their order of seniority. In the absence or disability of
the President, the authority of the President shall descend to the Executive
Vice Presidents or, if there are none, to the Vice Presidents in the order of
seniority indicated by their titles or otherwise specified by the Board. If
not specified by their titles or the Board, the authority of the President
shall descend to the Executive Vice Presidents or, if there are none, to the
Vice Presidents, in the order of their seniority in such office.
4.11 Secretary. The Secretary shall act under the direction of the
Corporation's Chief Executive Officer and President. The Secretary shall
attend all stockholders' and Board of Directors' meetings, record minutes of
the proceedings and maintain the minutes and all documents evidencing corporate
action taken by written consent of the stockholders and Board of Directors in
the Corporation's minute book. The Secretary shall perform these duties for
Board committees when required. The Secretary shall see to it that all notices
of stockholders' meetings and special Board of Directors' meetings are duly
given in accordance with applicable law, the Certificate of Incorporation and
these Bylaws. The Secretary shall have custody of the Corporation's seal and,
when authorized by the Corporation's Chief Executive Officer, President or the
Board of Directors, shall affix the seal to any instrument requiring it and
attest such instrument.
4.12 Treasurer and/or Chief Financial Officer. The Treasurer
and/or Chief Financial Officer shall act under the direction of the
Corporation's Chief Executive Officer and President. The Treasurer and/or
Chief Financial Officer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts of the Corporation's
assets, liabilities, receipts and disbursements in books belonging to the
Corporation. The Treasurer and/or Chief Financial Officer shall deposit all
moneys and other valuables in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The
Treasurer and/or Chief Financial Officer shall disburse the funds of the
Corporation as may be ordered by the Corporation's Chief Executive Officer, the
President or the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Corporation's Chief Executive Officer,
the President and the Board of Directors (at its regular meetings or whenever
they request it) an account of all his or her transactions as Treasurer and/or
Chief Financial Officer and of the financial condition of the Corporation. If
required by the Board of Directors, the Treasurer and/or Chief Financial
Officer shall give the Corporation a bond for the faithful discharge of his or
her duties in such amount and with such surety as the Board prescribes.
4.13 Assistant Vice Presidents, Secretaries and Treasurers. The
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, if
any, shall act under the direction of the Corporation's Chief Executive
Officer, the President and the officer they assist. In the order of their
seniority, the Assistant Secretaries shall, in the absence or disability of the
Secretary, perform the duties and exercise the authority of the Secretary. The
Assistant Treasurer, in the order of their seniority, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the authority of
the Treasurer.
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<PAGE> 8
4.14 Execution of Contracts and Instruments. The Board of
Directors may designate an officer or agent with authority to execute any
contract or other instrument on the Corporation's behalf; the Board may also
ratify or confirm any such execution. If the Board authorizes, ratifies or
confirms the execution of a contract or instrument without specifying the
authorized executing officer or agent, the Corporation's Chief Executive
Officer, the President, any Executive Vice President, the Treasurer and/or
Chief Financial Officer or Secretary may execute the contract or instrument in
the name and on behalf of the Corporation and may affix the corporate seal to
such document or instrument.
4.15 Voting of Shares and Securities of Other Corporations and
Entities. Unless the Board of Directors otherwise directs, the Corporation's
Chief Executive Officer shall be entitled to vote or designate a proxy to vote
all shares and other securities which the Corporation owns in any other
corporation or entity.
ARTICLE V
NOTICES AND WAIVERS OF NOTICE
5.1 Delivery of Notices. All written notices to stockholders,
Directors and Board committee members shall be given personally or by mail
(registered, certified or other first class mail, with postage pre-paid),
addressed to such person at the address designated by him or her for that
purpose or, if none is designated, at his or her last known address. Written
notices to Directors or Board committee members may also be delivered at his or
her office on the Corporation's premises, if any, or by overnight carrier,
telegram, telex, telecopy, radiogram, cablegram, facsimile, computer
transmission or similar form of communication, addressed to the address
referred to in the preceding sentence. Notices given pursuant to this Section
5.1 shall be deemed to be given when dispatched, or, if mailed, when deposited
in a post office or official depository under the exclusive care and custody of
the United States postal service. Notice given by overnight carrier shall be
deemed "dispatched" at 9:00 a.m. on the day the overnight carrier is reasonably
requested to deliver the notice. The Corporation shall have no duty to change
the written address of any Director, Board committee member or stockholder
unless the Secretary receives written notice of such address change.
5.2 Waiver of Notice. Whenever notice is required to be given
under the Certificate of Incorporation, these Bylaws or applicable law, a
written waiver, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except where the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
ARTICLE VI
SHARE CERTIFICATES AND STOCKHOLDERS OF RECORD
6.1 Certificates. The shares of the Corporation shall be
represented by certificates signed by the Chairman of the Board, Vice Chairman
of the Board, or the President or a Vice President and by the Treasurer or an
Assistant Treasurer, or by the Secretary or an Assistant Secretary representing
the number of shares registered in certificate form. Any of or all the
signatures on the certificate may be by facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
6.2 Lost or Destroyed Certificates. The Corporation may issue a
new certificate of stock in the place of any certificates theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the
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<PAGE> 9
Corporation may require the owner of the lost, stolen or destroyed certificate,
or his legal representative, to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
6.3 Transfer of Shares. Shares of the Corporation are
transferable only on the Corporation's stock ledger upon surrender to the
Corporation or its transfer agent of a certificate for the shares, duly
endorsed for transfer, and the presentation of such evidence of ownership and
validity of the transfer as the Corporation requires.
6.4 Record Date. The Board of Directors may fix, in advance, a
date as the record date for determining stockholders for any purpose, including
determining stockholders entitled to (a) notice of, and to vote at, any
stockholders' meeting or any adjournment of such meeting; or (b) receive
payment of a share dividend or distribution or allotment of a right. The
record date shall not be more than 60 nor less than 10 days before the date of
the meeting, nor more than 60 days before any other action.
If a record date is not fixed:
(a) the record date for determining the stockholders
entitled to notice of, or to vote at, a stockholders' meeting shall be
the close of business on the day next preceding the day on which
notice of the meeting is given, or, if no notice is given, the close
of business on the day next preceding the date on which the meeting is
held; and
(b) the record date for determining stockholders for any
other purpose shall be the close of business on the day on which the
resolution of the Board of Directors relating to the action is
adopted.
A determination of stockholders of record entitled to notice of, or to vote at,
a stockholders' meeting shall apply to any adjournment of the meeting, unless
the Board of Directors fixes a new record date for the adjourned meeting.
Only stockholders of record on the record date shall be entitled to
notice of, or to participate in, the action relating to the record date,
notwithstanding any transfer of shares on the Corporation's books after the
record date. This Section 6.4 shall not affect the rights of a stockholder and
the stockholder's transferor or transferee as between themselves.
6.5 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of a share for all purposes, including notices, voting, consents, dividends and
distributions, and shall not be bound to recognize any other person's equitable
or other claim to interest in such share, regardless of whether it has actual
or constructive notice of such claim or interest.
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<PAGE> 10
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification. The Corporation shall, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be amended,
(a) indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a Director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, partnership, joint
venture, trust or other enterprise (collectively, "Covered Matters') against
all liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such persons; and (b) pay or reimburse such expenses
incurred by such person in connection with any Covered Matter in advance of
final disposition of such Covered Matter. The Corporation may provide such
other indemnification of Directors, officers, employees and agents by
insurance, contract or otherwise as is permitted by law and authorized by the
Board of Directors.
7.2 Claims. If a claim for indemnification or payment of expenses
under this Article VII is not paid in full within sixty days after a written
claim therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
7.3 Non-Exclusivity of Rights. The rights conferred on any person
by this Article VII shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Checks and Funds. All checks, drafts or demands for money and
notes of the Corporation must be signed by such officer or officers or such
other person or persons as the Board of Directors from time to time designates.
All funds of the Corporation not otherwise employed shall be deposited or used
as the Board of Directors from time to time designates.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on
such date as the Board of Directors from time to time determines.
8.3 Corporate Seal. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
8.4 Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time.
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<PAGE> 11
8.5 Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its Directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its Directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the Director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if: (a) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transactions by
the affirmative votes of a majority of the disinterested Directors, even though
the disinterested Directors be less than a quorum; or (b) the material facts as
to his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (c) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, of the stockholders. Common or interested
Directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IX
AMENDMENTS
These Bylaws may be amended or repealed, or new Bylaws may be adopted,
by the Board of Directors at any meeting the notice of which shall have stated
the amendment of the Bylaws as one of the purposes of the meeting, but the
stockholders may make additional Bylaws and may amend and repeal any Bylaws
whether adopted by them or otherwise.
ARTICLE X
SCOPE OF BYLAWS
These Bylaws govern the regulation and management of the affairs of
the Corporation to the extent that they are consistent with applicable law and
the Certificate of Incorporation; to the extent they are not consistent,
applicable law and the Certificate of Incorporation shall govern.
11
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK [LOGO] COMMON STOCK
EDUCATIONAL MEDICAL, INC.
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 281490 10 2
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $0.01 PER SHARE, OF
EDUCATIONAL MEDICAL, INC.
transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the
Articles of Incorporation and Bylaws of the Corporation, and all amendments thereto, to all of which the holder, by acceptance
hereof assents.
This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signature of its duly authorized officers. Dated
(SEAL) MORRIS C. BROWN Vince Pisano Gary D. Kerber
Secretary VICE PRESIDENT FINANCE TREASURER, AND CHAIRMAN, PRESIDENT AND
CHIEF FINANICAL OFFICER CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
FIRST UNION NTIONAL BANK OF NORTH CAROLINA
(CHARLOTTE, N.C.)
TRANSFER AGENT
AND REGISTRAR
By
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
EDUCATIONAL MEDICAL, INC.
THE AUTHORIZED CAPITAL STOCK OF EDUCATIONAL MEDICAL, INC. INCLUDES
PREFERRED STOCK. UPON REQUEST THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER,
WITHOUT CHARGE, INFORMATION AS TO THE NUMBER OF SUCH SHARES AUTHORIZED AND
OUTSTANDING AND A COPY OF THE PORTION OF THE ARTICLES OF INCORPORATION OR
RESOLUTIONS CONTAINING THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE
RIGHTS OF ALL SHARES AND ANY CLASS OR SERIES THEREOF. ANY SUCH REQUEST SHOULD
BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ____________________ Custodian ____________________
(Cust) (Minor)
under Uniform Gift to Minors Act
___________________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[______________________________________]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the Common Stock evidenced by this Certificate, and do hereby irrevocably
consitute and appoint
_______________________________________________________________________ Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution.
Dated __________________________________
______________________________________________
N0TICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: ______________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17AG-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
EXHIBIT 10.1
================================================================================
EDUCATIONAL MEDICAL, INC.
$4,000,000
13% SENIOR SUBORDINATED NOTES DUE JULY 23, 1996
AND
WARRANTS TO PURCHASE COMMON STOCK
-------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
-------------------------------------------------------------------------
DATED AS OF JULY 23, 1991
================================================================================
<PAGE> 2
EDUCATIONAL MEDICAL, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of
July 23, 1991
To each of the Investors listed
on the Purchaser Schedules hereto
Ladies and Gentlemen:
The undersigned EDUCATIONAL MEDICAL, INC., a Delaware corporation (the
"Company"), and each of the investors named on the Purchaser Schedules attached
hereto (collectively, the "Investors"), hereby agree as follows;
1. Preliminary Statement.
1A. Authorization of Units. As of the date hereof. the Company
will have authorized the issuance and sale to the Investors of 4,000 Units (the
"Units"), each Unit comprising (i) $1,000 principal amount of 13% Senior
Subordinated Promissory Notes of the Company substantially in the form attached
hereto as Exhibit A (the "Notes") in the aggregate principal amounts set forth
on the respective Purchaser Schedules attached hereto; and (ii) warrants to
purchase 200 shares of Common Stock substantially in the form attached hereto
as Exhibit B (the "Warrants"), in accordance with and subject to the terms and
provisions of this Agreement.
1B. References. Certain capitalized terms used in this Agreement
are defined in paragraph 14. References to a paragraph are, unless otherwise
specified, to one of the paragraphs of this Agreement and references to an
"Exhibit" or "Schedule" are, unless otherwise specified, to one of the exhibits
or schedules attached to this Agreement.
2. Purchase and Sale of Units; Closing.
2A. Purchase and Sale of Units. The Company, subject to the terms
and conditions set forth herein, hereby agrees to issue, sell and deliver to
the Investors and, subject to the terms and conditions set forth herein, the
Investors severally agree to purchase from the Company the number of Units set
forth opposite the name of each of the Investors in the Purchaser Schedule
attached hereto. The purchase price of each Unit purchased and sold hereunder
shall be $1,000.
2B. Closing. The purchase and delivery of the Units to be
purchased by the Investors shall take place at a closing (the "Closing") at the
offices of Willkie Farr & Gallagher, at 9:00 a.m., New York time, on July 23,
1991 (the "Closing Date"). On the Closing Date, the Company
<PAGE> 3
will deliver to the Investors the Securities comprising the Units, against
receipt of the purchase price therefor by wire transfer of immediately
available funds, by certified check payable to the order of the Company or by
such other payment method as the Investors and the Company shall agree. The
Notes shall be made payable to and shall be registered in the names of, and the
warrants shall be issued and registered in the names of, the Investors or the
Investors' nominees or other designees (each thereof a "Designee"). The Notes
shall be issued to each Investor in the aggregate principal amount and the
Warrants shall enable such Investor to purchase the total number of shares set
forth opposite the name of such Investor on the signature pages hereof.
3. Conditions of Closing. The Investors' obligation to purchase
and pay for the Securities to be purchased by them hereunder is subject to the
satisfaction, on or before the Closing Date, of the following conditions and if
by the Closing Date the following conditions shall not have been satisfied or
waived by the Investors, the Investors shall, at their election, be relieved of
all further obligations under this Agreement, without thereby waiving any other
rights they may have by reason of such failure or such nonfulfillment provided,
that if the Closing occurs notwithstanding such failure or nonfulfillment, such
failure or nonfulfillment shall not constitute a ground for relief hereunder
independent of any other provision of this Agreement or of any opinion,
certificate,' instrument or other document issued or delivered hereunder or
pursuant hereto:
3A. Opinion of the Company's Counsel. The Investors and their
special counsel shall have received from Morgan, Lewis & Bockius, counsel for
the Company, a favorable opinion addressed to the Investors, dated the Closing
Date, reasonably satisfactory to the Investors and substantially in the form of
Exhibit C attached hereto.
3B. Representations and Warranties; Events of Default. The
representations and warranties contained in paragraph 11 hereof shall be true
in all material respects on and as of the Closing Date, except to the extent of
changes caused by the transactions herein contemplated; there shall exist on
the Closing Date no Event of Default or Default; and the Company shall have
delivered to each of the Investors an Officer's Certificate, dated the Closing
Date, to both such effects.
3C. Charter Documents and By-Laws. Each Investor shall have
received a certificate, dated the Closing Date, of the Secretary of the Company
attaching (i) a true and complete copy of the Certificate of Incorporation of
the Company and each Subsidiary with all amendments thereto, as filed with the
Secretary of State or other appropriate official of their respective states of
incorporation; (ii) true and complete copies of the By-Laws of the Company and
each Subsidiary in effect as of such date; (iii) certificates of good standing
of the appropriate officials of the jurisdiction of incorporation of the
Company and each Subsidiary and of each state or other jurisdiction in which
the Company and each Subsidiary is qualified to do business, and is doing
business, as a foreign corporation; and (iv) resolutions of the Board of
Directors of the Company, authorizing the execution and delivery of this
Agreement, the Coinvestors Agreement, the Registration Rights Agreement, the
Securities, the issuance and delivery of the Securities and the
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reservation for issuance of a sufficient number of shares of Common Stock for
which the Warrants may be exercised.
3D. Purchase Permitted by Applicable Laws. The purchase of and
payment for the Securities to be purchased by the Investors hereunder
(including the use of the proceeds of such Securities by the Company) shall not
be prohibited by any applicable law or governmental regulation (including,
without limitation, section 5 of the Securities Act of 1933, as amended (the
"1933 Act") or Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System) and shall not subject the Investors to any tax,
penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and the Investors shall have
received such certificates or other evidence as they may request to establish
compliance with this condition.
3E. Proceedings. All corporate and other proceedings taken or to
be taken in connection with the transactions contemplated hereby, and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors and their special counsel, and the Investors and
their special counsel shall have received all such counterpart originals or
certified or other copies of such documents as each of them may reasonably
request.
3F. Registration Rights and Coinvestors Agreement. The Investors
shall have received a fully executed counterpart of each of the Registration
Rights Agreement and the Coinvestors Agreement satisfactory in form and
substance to the Investors and to special counsel to the Investors and such
agreement shall be in full force and effect and no term or condition thereof
shall have been amended, modified or waived.
3G. Letter of Accountants: Accompanying Officer's Certificate.
Each of the Investors shall have received copies of a letter from the
independent public accountants of the Company, dated as of a date no less than
five days before the Closing Date, in form and substance satisfactory to the
Investors. Each of the Investors shall also have received a certificate from
the Chief Financial Officer of the Company, dated the Closing Date, in form and
substance satisfactory to the Investors, stating that; (i) the financial
statements for the fiscal years ended March 31, 1989, 1990 and 1991 have been
prepared in accordance with GAAP, (ii) the Company's monthly report for the
month of April 1991 reflects the operations of the Company for such month
subject to normal adjustments and (iii) the Company s accounting books and
records of accounts have been maintained properly and materially true and
correct entries therein have been made of all dealings and transactions in
relation to its business activities.
3H. No Adverse U.S. Legislation, Action or Decision. There shall
be no action, suit, investigation or proceeding pending, or, to the best of the
Investors' or the Company s knowledge, threatened, against the Company or the
Company's respective properties or rights, or the Company's affiliates,
associates, officers or directors, before any court, arbitrator or
administrative or governmental body which seeks to restrain, enjoin, prevent,
question the validity or legality of, or seek to recover damages or to obtain
other relief in connection with, the issuance of the Securities or the
Company's performance of its obligations pursuant to this
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Agreement, and, to the best of the Investors' or the Company s knowledge, there
shall be no valid basis for any such action, proceeding or investigation.
3I. Compliance with Securities Laws. The offering and sale of the
Securities under this Agreement, shall have complied with all applicable
requirements of federal and state securities laws, and the Investors shall have
received evidence of such compliance in form and substance satisfactory to
them.
3J. Approval and Consents. The Company shall have duly received
all authorizations, consents, approval, licenses, franchises, permits and
certificates by or of all federal, state and local governmental authorities
necessary for the issuance of the Securities and all thereof shall be in full
force and effect at the time of the Closing. The Company shall have delivered
to the Investors an Officer's Certificate, dated the Closing Date, to such
effect.
3K. Material Changes. Since March 31, 1991, there shall not have
been any changes in the business of the Company which shall individually or in
the aggregate, have a material adverse effect on the business, financial
condition, results of operations or prospects of the Company, nor has the
Company incurred any material liability, contingent or otherwise, which has
such effect.
3L. Compliance with Financial Covenants. The Company shall have
delivered to the Investors an Officer's Certificate, dated the Closing Date, in
form and substance satisfactory to the Investors, stating that immediately
subsequent to the financing made pursuant to this Agreement, the Company shall
be in material compliance with all covenants, agreements and undertakings in
agreements, contracts or documents evidencing or governing Indebtedness of the
Company and no default or event of default, or event which with notice, lapse
of time or both shall constitute a default or event of default, shall have
occurred and be continuing under the terms of any such agreements, contracts or
documents.
3M. Cumulative Convertible Preferred Stock.
(a) The Company shall have converted all the accrued and unpaid
dividends on its Cumulative Convertible Preferred Stock to Common Stock at
$5.00 per share and on the Closing Date there shall be no accrued and unpaid
dividends on the Cumulative Convertible Preferred Stock.
(b) The Company shall have amended its organizational documents to
eliminate all future accruals of dividends on its Cumulative Convertible
Preferred Stock except to the extent such Cumulative Convertible Preferred
Stock is entitled to participate on a pari passu basis with respect to
dividends declared on Common Stock, based on the number of shares of Common
Stock into which such Cumulative Convertible Preferred Stock is convertible.
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3N. Delivery of Securities. At the Closing, the Company shall
tender to all of the Investors the Securities to be purchased by them, in form
and substance satisfactory to the Investors and their special counsel.
4. Conditions to the Obligations of the Company. The Company's
obligation to sell the Securities to the Investors hereunder is subject to the
satisfaction, on or before the Closing Date, of the following conditions and if
by the Closing Date the following conditions shall not have been satisfied or
waived by the Company, the Company may, at its election, be relieved of all
further obligations under this Agreement, without thereby waiving any other
rights it may have by reason of such failure or such nonfulfillment:
4A. Accuracy of Representations and Warranties. The
representations and warranties of the Investors contained in paragraph 12
hereof shall be true in all material respects on and as of the Closing Date,
except to the extent of changes caused by the transactions herein contemplated.
4B. Blue Sky Approvals. The Company shall have received any
requisite approvals of state securities commissioners and such approvals shall
be in full force and effect on the Closing Date.
4C. Purchase of All Securities. Each Investor shall have tendered
full payment for the number of Units set forth opposite the name of such
Investor in the Purchaser Schedule.
5. Prepayments of Notes.
5A. Prepayments of Notes in General.
(i) The outstanding principal amount of the Notes shall be subject
to prepayment, repurchase or redemption prior to maturity only under the
circumstances set forth in this paragraph 5. No partial prepayment of the
outstanding principal amount of the Notes pursuant to paragraph 5C shall
relieve the Company of its obligation to make any of the required prepayments
pursuant to paragraph so.
(ii) If there is more than one holder of the Notes, the aggregate
principal amount of each partial prepayment of the Notes shall be allocated
among the holders of the Notes at the time outstanding in proportion to the
unpaid principal amounts of the Notes respectively held by each such holder.
5B. Mandatory Prepayments of the Notes.
(i) On the last day of June, September and December of 1993,
March, June, September and December of 1994 and 1995 and March of 1996, the
Company shall prepay $100,000 outstanding principal amount of the Notes,
without premium or penalty, together with accrued and unpaid interest thereon
to each such prepayment date, and such principal amount of
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<PAGE> 7
the Notes and accrued and unpaid interest thereon shall become due and payable
on each such prepayment date.
(ii) Concurrently with the consummation of any transaction
resulting in a Change of Control, regardless whether such transaction requires
the consent of the holders of the Notes, the Company shall prepay all
outstanding principal amount of the Notes, without premium or penalty, together
with accrued and unpaid interest thereon to such prepayment date, and such
principal amount of Notes and accrued and unpaid interest thereon shall
thereupon become due and payable on such date. Nothing in this paragraph 5B
shall be deemed to permit a transaction prohibited under paragraph 8G.
5C. Optional Prepayments of the Notes.
(i) At any time prior to maturity, the Company may, in its sole
discretion but subject to compliance with subparagraph (ii) below, prepay
outstanding principal amount of Notes, without premium or penalty, provided
that no holder of Notes shall receive a payment of principal in other than an
integral multiple of $1,000, together with accrued and unpaid interest thereon
to any such prepayment date.
(ii) The Company shall give each holder of Notes written notice of
each prepayment pursuant to subparagraph (i) of this paragraph 5C, not less
than 30 days but not more than 60 days prior to the prepayment date, specifying
such prepayment date, the principal amount of the Notes to be prepaid on such
date and that such prepayment is to be made pursuant to paragraph 5C Notice of
prepayment having been given as aforesaid, the principal amount of the Notes
specified in such notice, together with accrued and unpaid interest thereon to
the prepayment date, shall become due and payable on such prepayment date
unless (a) the holder of such Notes shall have prior to such prepayment date
tendered such Notes pursuant to an exercise of Warrants or (b) a holder of
Warrants or Common Stock purchased upon exercise thereof shall have requested
filing pursuant to the Registration Rights Agreement of, or the Company shall
otherwise have filed, a registration statement for Common Stock under the 1933
Act with the Commission, in which case prepayment shall be effected upon the
lapse of 60 days after the declaration of effectiveness of such registration
statement by the Commission and shall be effected only as to Notes that are not
tendered on or before such date pursuant to an exercise of Warrants.
6. Buyback of Warrants.
6A. Buyback of Warrants in General. The Warrants shall be subject
to call, repurchase or redemption prior to exercise or expiration only under
the circumstances set forth in this paragraph 6. No partial call of the
Warrants pursuant to paragraph 6C shall relieve the Company of its obligation
to purchase Warrants pursuant to paragraph 6B. If there is more than one
holder of the Warrants, the aggregate number of Warrants to be redeemed under
any partial redemption shall be allocated among the holders of the Warrants at
the time outstanding in proportion to the amounts of the shares purchasable
upon exercise of the Warrants respectively held by each such holder.
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6B. Put of the Warrants.
(i) At any time after March 31, 1998 but on or before March 31,
1999, a holder of Warrants may provide the Company with a written request for
the purchase of warrants and within 60 calendar days following receipt of such
request, the Company shall purchase from such holder Warrants representing 50%
of the shares purchasable upon exercise of all Warrants held by such holder, at
a price equal to the product of $5.00 and the number of shares purchasable upon
exercise of such purchased Warrants.
(ii) At any time after March 31, 1999, a holder of Warrants may
provide the Company with a written request for the purchase of Warrants and
within 60 calendar days following receipt of such request, the Company shall
purchase from such holder all Warrants held by such holder, at a price equal to
the product of $5.00 and the number of shares purchasable upon exercise of such
holder's Warrants.
(iii) Concurrently with the consummation of any transaction
resulting in a Change of Control, if requested in writing by a holder of
Warrants the Company shall purchase all Warrants held by such holder at an
aggregate price equal to the product of (x) (A) $1.00 (if the purchase occurs
on or before June 30, 1992), (B) $1.50 (if the purchase occurs after June 30,
1992 but on or before June 30, 1993), (C) $2.00 (if the purchase occurs after
June 30, 1993 but on or before June 30, 1994), or (D) $2,50 (if the purchase
occurs after June 30, 1994) and (y) the number of shares purchasable upon
exercise of such holder's Warrants, which amount shall thereupon become due and
payable on such date.
6C. Call of the Warrants.
(i) On or after the later of (i) the second anniversary of the
Closing Date or (ii) the date which is six months after the Company has
consummated an Initial Public Offering, the Company may, in its sole discretion
but subject to compliance with subparagraph (ii) below, purchase, and the
holders of outstanding Warrants shall, if the Company complies with
subparagraph (ii) below, sell to the Company, all outstanding Warrants at a
price equal to the product of $1.00 and the number of shares purchasable upon
exercise of such Warrants, provided that no such purchase and sale shall occur
unless, for at least 30 days within a period of 40 consecutive trading days
ending on the proposed purchase date, the closing bid or sale price of the
Company's Common Stock as reported on NASDAQ or the New York Stock Exchange has
been equal to or in excess of 200% of the Exercise Price in effect on such
proposed purchase date.
(ii) The Company shall give each holder of Warrants written notice
of a purchase of Warrants pursuant to subparagraph (i) of this paragraph 6C not
less than 60 days prior to the purchase date, specifying such date, the number
of the Warrants (computed by reference to the number of shares purchasable by
exercise thereof) to be purchased on such date and that such purchase is to be
made pursuant to this paragraph 6C. Each such notice shall be accompanied by
an Officer's Certificate stating that all of the applicable conditions set
forth in subparagraph
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(i) of this paragraph 6C have been fulfilled. Notice of purchase having been
given as aforesaid, the purchase price under this paragraph 6C shall become due
and payable on such purchase date unless (a) the holder of such Warrants shall
have exercised such Warrants previously pursuant to paragraph 11, (b) the
holder of such Warrants shall have made a request for purchase of its shares
pursuant to any provision of paragraph 6B or (c) a holder of Warrants or Common
Stock purchased upon exercise thereof shall have requested filing pursuant to
the Registration Rights Agreement of, or the Company shall otherwise have
filed, a registration statement for Common Stock under the 1933 Act with the
Commission, in which case purchase and sale shall not be effected until the
lapse of 60 days after the declaration of effectiveness of such registration
statement by the Commission. Should the Warrants not be purchased on such
purchase date due to the Company's failure to perform its obligations under
this paragraph 6C, any subsequent purchase may be effected only after
compliance with the provisions of this subparagraph (ii) from and after such
purchase date.
7. Affirmative Covenants. All covenants contained herein shall
be given independent effect so that if a particular action or condition is not
permitted by any such covenants, the fact that such action or condition would
be permitted by an exception to, or otherwise be within the limitations of,
another covenant shall not avoid the occurrence of a Default if such action is
taken or condition exists. The provisions of this paragraph 7 are for the
benefit of Investors so long as they hold any Securities and for the benefit of
each other holder of Securities; provided that (i) except for paragraphs 7A,
7B, 7H and 7I, such provisions shall have no further force or effect upon
payment in full of all Indebtedness under the Notes and (ii) upon payment in
full of all Indebtedness under the Notes and completion of an Initial Public
Offering, paragraphs 7A and 7B shall have no further force and effect.
7A. Financial Statements. The Company covenants that it will
deliver to each of the Investors and each other holder of Securities;
(i) as soon as practicable and in any event within 30 days after
the end of each month (other than the last month) in each fiscal year, the
consolidated statements of income for such month and for the period from the
beginning of the current fiscal year to the end of such month and a
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such month, setting forth in each case in comparative form figures for the
current year operating plan, all in reasonable detail to indicate the results
of the Company's operations for such period on a basis consistent with past
practice, and certified by the chief financial officer or chief accounting
officer of the Company as fairly presenting the financial condition of the
Company and its Subsidiaries, subject to the changes resulting from normal
adjustments (including audit and year-end adjustments), provided, however, that
all obligations pursuant to this clause (i) shall terminate upon consummation
of an Initial Public Offering;
(ii) as soon as practicable and in any event within 45 days after
the end of each quarterly period for which the Company shall prepare statements
for such period (other than the last quarterly period) in each fiscal year, the
consolidated statements of income, changes in stockholders, equity and cash
flow of the Company and its Subsidiaries for such quarterly period
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<PAGE> 10
and for the period from the beginning of the current fiscal year to the end of
such quarterly period, and a consolidated and consolidating balance sheet of
the Company and its Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year, all in reasonable detail, prepared in
accordance with GAAP on a basis consistent with past practice, and certified by
the chief financial officer or chief accounting officer of the Company as
fairly presenting the financial condition of the Company and its Subsidiaries,
subject to the changes resulting from audit and year-end adjustments;
(iii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, consolidated and consolidating statements of
income, changes in stockholders' equity and cash flow of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such year, setting forth in each case
(commencing with any such reports delivered after the close of the Company's
first full fiscal year following the date hereof) in comparative form
corresponding figures from the preceding annual audit, and accompanied by a
report, with respect to the consolidated financial statements, of independent
public accountants of recognized national standing selected by the Company and
reasonably satisfactory to the Investors, whose report shall state, without
qualification as to the scope of its audit, that such consolidated financial
statements present fairly the financial condition of the Company and its
Subsidiaries in accordance with GAAP on a basis consistent with past practice
and that the examination by such accountants has been made in accordance with
generally accepted auditing standards;
(iv) as soon as practicable and in any event no later than 30 days
before commencement of a new fiscal year, a business plan and operating budget
(including, without limitation, revenue accounts, cash flow and balance sheets)
of the Company for such fiscal year setting forth in each case in comparative
form corresponding figures from the preceding fiscal year, in reasonable
detail, provided, however, that all obligations pursuant to this clause (iv)
shall terminate upon consummation of an Initial Public Offering;
(v) promptly upon transmission thereof, copies of all financial
statements, proxy statements and reports as the Company shall send to its
stockholders and copies of all registration statements (without exhibits) and
all reports which it files with the Commission (or any governmental body or
agency succeeding to the functions of the Commission) or with any domestic
securities exchange on which any of its securities are listed and copies of any
such reports filed by the Company s directors or officers in their capacity as
such if the Company has received a copy of such report, and copies of all press
releases and other statements made available generally by the Company or its
Subsidiaries to the public concerning material developments in the business of
the Company and its Subsidiaries;
(vi) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any of its Subsidiaries by independent accountants
in connection with any annual, interim or special audit made by them of the
books of the Company or any of its Subsidiaries; and
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(vii) with reasonable promptness, such other financial and/or
operating data as the Investors may reasonably request.
Together with each delivery of financial statements required by clauses (i),
(ii) and (iii) above, the Company will deliver to the Investors an Officer's
Certificate (a) setting forth in narrative form the consolidated operational
results for the Company for the fiscal period covered by such financial
statements and (except to the extent specifically set forth in such financial
statements) the aggregate amount of Indebtedness, fixed charges and pretax cash
provided by operations, on a consolidated basis, of the Company outstanding at
the end of such fiscal period, and the aggregate amounts of interest expense
(stated separately) on Indebtedness, on a consolidated basis, of the Company,
in each instance during such fiscal period, (b) in the case of the financial
statements provided in clauses (ii) and (iii) above, demonstrating (with
computations in reasonable detail) compliance by the Company with the
provisions of paragraphs 8A, 8B, 8D, 8E and 8K, and (c) stating that there
exists no Event of Default or Default or, if any Event of Default or Default
exists, specifying the nature thereof, the period of existence thereof and what
action the Company, proposes to take with respect thereto. Together with each
delivery of financial statements required by clause (iii) above, the Company
will also deliver to the Investors a certification of the accountants referred
to in such clause (iii) stating that, in making the audit necessary to the
certification of such financial statements, they have obtained no knowledge of
any Event of Default or Default, or, if, to their knowledge, any Event of
Default or 'Default exists, specifying the nature and period of existence
thereof; provided that such accountants shall not be liable to anyone by reason
of their failure to obtain knowledge of any such Event of Default or Default
which would not be disclosed in the course of an audit conducted in accordance
with generally accepted auditing standards. Forthwith upon the discovery by an
executive officer of the Company of any Event of Default or Default, the
Company will deliver to the Investors an Officer's Certificate specifying the
nature thereof, the period of existence thereof and what action it proposes to
take with respect thereto. Each Investor is hereby authorized to deliver a
copy of any financial statement or certificate delivered pursuant to this
paragraph 7A to any regulatory body having jurisdiction over such Investor.
7B. Books and Records; Inspection of Property. The Company will
keep, and will cause each of its Subsidiaries to keep, proper books of record
and accounts in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities so that
the financial statements of the Company may be presented in accordance with
GAAP. The Company covenants that it will permit any Person representing the
Investors and designated in writing by such Investors, at the Investors'
expense, to visit and inspect any of the properties of the Company and its
Subsidiaries, to examine the corporate, financial and operating records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the directors, officers and independent accountants of the Company and its
Subsidiaries, all at such reasonable times and as often as the Investors may
reasonably request.
7C. Additional Covenants Pending the Closing. The Company
covenants that pending the Closing it will not, without the prior written
consent of the Investors, take any action which
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would result (i) in any of the representations or warranties contained in this
Agreement not being true in all material respects at and as of the time
immediately after such action or (ii) in any of the covenants contained in this
Agreement becoming unperformable. Pending the Closing, the Company will
promptly advise the Investors of any action or event of which it becomes aware
which has the effect of making incorrect any of such representations or
warranties or which has the effect of rendering unperformable any of such
covenants.
7D. Compliance with Laws, etc. The Company covenants that it will
exercise reasonable diligence in order to assure that it complies with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which would materially adversely
affect the business, condition (financial or other), assets, property or
operations of the Company and its Subsidiaries, taken as a whole.
7E. ERISA. Promptly (and in any event within 30 days) after the
Company or any of its Subsidiaries knows or, in the case of a single-employer
Pension Plan has reason to know, that a Reportable Event with respect to any
Pension Plan has occurred, that any Pension Plan is or may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA or that
the Company or any of its Subsidiaries will or may incur any liability to or on
account of a Pension Plan under Sections 4062, 4063, 4064, 4201 or 4204 of
ERISA, the Company will deliver to the Investors, so long as they shall hold
any of the Securities, a certificate of the chief financial officer of the
Company setting forth information as to such occurrence and what action, if
any, the Company is required or proposes to take with respect thereto, together
with any notices concerning such occurrences which are (a) required to be filed
by the Company or the plan administrator of any such Pension Plan controlled by
the Company or its Subsidiaries, with the PBGC or (b) received by the Company
or its Subsidiaries from any plan administrator of a Multiemployer Plan or
other Pension Plan not under its control, The Company shall furnish to the
Investors, so long as they shall hold any of the Securities, a copy of each
annual report (Form 5500 Series) of any Pension Plan received or prepared by
the Company or any of its Subsidiaries. Each annual report and any notice
required to be delivered hereunder shall be delivered no later than 10 days
after the later of the date such report or notice is filed with the Internal
Revenue Service or the PBGC or the date such report or notice is received by
the Company or any of its Subsidiaries, as the case may be.
7F. Corporate Existence; Maintenance of Properties. The Company
covenants that it: (i) will do or cause to be done all things necessary to
preserve and keep in full force and effect the corporate existence and rights
of the Company and its Subsidiaries (except that the corporate existence of any
of its Subsidiaries may be terminated if such termination is, in the judgment
of the Board of Directors of the Company, in the best interest of the Company
and is not materially disadvantageous to the holders of the Securities or any
securities issued in exchange therefor) ; (ii) will cause its properties and
the properties of its Subsidiaries used or useful in the conduct of their
respective businesses, other than properties which in the aggregate are not
material to the business and operations of the Company and its Subsidiaries,
taken as a whole, to be maintained and kept in good condition, repair and
working order and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as in the judgment of
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the Company may be necessary so that the businesses carried on in connection
therewith may be properly and advantageously conducted at all times; and (iii)
will, and will cause each of its Subsidiaries to, qualify and remain qualified
to conduct business in each jurisdiction where the nature of the business of or
ownership of property by the Company or such Subsidiary, as the case may be,
may require such qualification.
7G. Insurance. The Company covenants that, so long as the
Investors shall hold any of the Securities, it will maintain, and will cause
each of its Subsidiaries to maintain, with financially sound and reputable
insurance companies, funds or underwriters, insurance for the Company and its
Subsidiaries of the kinds, covering the risks and in the relative proportionate
amounts usually carried by companies conducting business activities similar to
those of the Company and its Subsidiaries.
7H. Filing of Reports under the 1934 Act. The Company shall give
prompt notice to each of the Investors of the filing of any registration
statement (an "Exchange Act Registration Statement") pursuant to the 1934 Act,
relating to any class of equity securities of the Company and the effectiveness
of such Exchange Act Registration Statement and the number of shares of such
class of equity security outstanding as reported in such Exchange Act
Registration Statement. If the Company shall have filed an Exchange Act
Registration Statement or a registration statement (including an offering
circular under Regulation A promulgated under the 1933 Act) pursuant to the
requirements of the 1933 Act, the Company shall use all reasonable efforts to
(i) comply with the reporting requirements of the 1934 Act, and (ii) comply
with all other public information reporting requirements of the Commission that
are a condition to the availability of an exemption from the 1933 Act (under
Rule 144 thereof, as amended from time to time, or successor rule thereto or
otherwise) for the sale of shares of Common Stock issuable upon exercise of the
Warrants by any Investor. The Company shall cooperate with each Investor in
supplying such information as may be necessary for such Investor to complete
and file any information reporting forms at present or hereafter required by
the Commission, including, without limitation, any information required as a
condition to the availability of an exemption from the 1933 Act (under Rule 144
thereof or otherwise), for the sale of shares of Common Stock issuable upon
exercise of the Warrants by any Investor.
7I. 1933 Act Registration Statements. The Company covenants that
it shall not file any registration statement under the 1933 Act (other than a
Form S-8 registration statement, or any successor to the Form S-8 registration
statement) covering any securities unless it shall first have given each
Investor written notice thereof. The Company further covenants that each
Investor shall have the right, at any time when it may be deemed by the Company
to be a controlling person of the Company, to participate in the preparation of
such registration statement (regardless of whether or not an Investor will be a
selling security holder in connection with such registration statement) and to
request the insertion therein of material furnished to the Company in writing
which in such Investor's judgment should be included. In connection with any
registration statement referred to in this paragraph 7I, the Company will
indemnify each Investor, its partners, officers and directors and each person,
if any, who controls such Investor within the meaning of section 15 of the 1933
Act, against all losses, claims, damages, liabilities and
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expenses caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus or any
preliminary prospectus or any amendment thereof or supplement thereto or caused
by any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses are caused by any untrue statement or alleged untrue statement or
omission or alleged omission contained in written information furnished to the
Company by such Investor expressly for use in such registration statement. If,
in connection with any such registration statement, such Investor shall furnish
written information to the Company expressly for use in the registration
statement, such Investor will indemnify the Company, its directors, each of its
officers who signs such registration statement and each person, if any, who
controls the Company within the meaning of the 1933 Act against all losses,
claims, damages, liabilities and expenses caused by any untrue statement or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any preliminary prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein not misleading, but only to
the extent that such untrue statement or alleged untrue statement or such
omission or alleged omission is contained in information so furnished in
writing by such Investor for use therein. The provisions of this paragraph 7I
are in addition to, and not in limitation of, the provisions of the
Registration Rights Agreement.
8. Negative Covenants. All covenants contained herein shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that such action or condition
would be permitted by an exception to, or otherwise be within the limitations
of, another covenant shall not avoid the occurrence of a Default if such action
is taken or condition exists. The provisions of this paragraph 8 are for the
benefit of Investors so long as they hold any of the Securities and for the
benefit of each other holder of any of the Securities, and, except for
paragraph 8F, such provisions shall have no further force or effect following
the payment of all Indebtedness under to the Notes.
8A. Restricted Payments.
(i) The Company covenants that before the consummation of an
Initial Public Offering it will not make, and will not permit any Subsidiary to
make, any Restricted Payments.
(ii) The Company covenants that after the consummation of an
Initial Public Offering it will not make, and will not permit any Subsidiary to
make, any Restricted Payments (a) until after the end of a fiscal quarter and
(b) then only to the extent of (x) 25% of Net Income of the Company in such
quarter reduced by (y) the amount of consolidated net losses of the Company for
the period commencing the first day of the fiscal year in which such Initial
Public Offering is consummated and ending the last date of the preceding fiscal
quarter, as such consolidated net losses would appear on a consolidated
statement of income for the Company for such period prepared in accordance with
GAAP, but only to the extent of such consolidated net losses that have not been
offset previously against Net Income under this subparagraph (ii).
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8B. Restrictions on Indebtedness. The Company covenants that it
will not incur, create, assume or suffer to exist any Indebtedness or permit
any of its Subsidiaries to do any of the foregoing, other than any of the
following;
(i) Indebtedness represented by the Notes and this Agreement;
(ii) additional unsecured Senior Debt or Senior Debt secured by
Liens as permitted by subparagraph 8C(v);
(iii) Indebtedness that is subordinated or pari passu to
Indebtedness evidenced by the Notes and subordinated to Senior Debt;
(iv) other Indebtedness of the Company and its Subsidiaries
outstanding on the date hereof as described in, and in the amounts set forth
in, Schedule 11E;
(v) any operating lease obligations; and
(vi) any Indebtedness secured by Liens as permitted by
subparagraphs 8C(iii) or (iv).
8C. Restrictions on Liens. Except as set forth in Schedule 8C,
the Company covenants that it will not and will not permit any Subsidiary to
create, assume or suffer to exist any Lien upon any of its property or assets,
whether now owned or hereafter acquired, except;
(i) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings and for which adequate
reserves have been established;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, in accordance with GAAP shall have been made
therefor;
(iii) purchase money security interests (including mortgages, leases
and other deferred purchase devices) attaching only to the property or assets
purchased;
(iv) security interests granted in connection with the purchase by
the Company of corporations or other entities which upon purchase thereof
become Subsidiaries, which security interests are (a) granted only to the
sellers of such Subsidiaries and (b) attach only to the stock of such
Subsidiaries;
(v) security interests in the assets of the Company securing
Senior Debt; and
(vi) security interests securing Indebtedness on Schedule 11E
hereof.
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8D. Loans, Advances and Investments. The Company covenants that
it will not, and will not permit any of its Subsidiaries to make or permit to
remain outstanding any loan or advance to, or guarantee, endorse or otherwise
be or become contingently liable, directly or indirectly, in connection with
the obligations, stock or dividends of, or own, purchase or acquire any stock,
obligations or securities of, or make any Investment in, any Person, except
that the Company or any Subsidiary may;
(i) make or permit to remain outstanding loans or advances to any
Subsidiary or, as to a Subsidiary, any such loan or advance to the Company;
(ii) own, purchase or acquire stock, obligations or securities of a
Subsidiary or of a corporation which immediately after such purchase or
acquisition will be a Subsidiary;
(iii) own, purchase or acquire (a) commercial paper rated P1 or
higher by Moody's Investors Service Inc., or A1 or higher by Standard & Poor's
Corporation on the date of acquisition, (b) certificates of deposit of United
States commercial banks (having a combined capital and surplus in excess of
$500,000,000), (c) obligations of or guaranteed by the United States government
or any agency thereof, and (d) money market funds organized under the laws of
the United States or any state thereof that invest substantially all of its
assets in any of the types of investments described in clauses (a), (b) or (c)
of this clause (iii);
(iv) endorse negotiable instruments for collection in the ordinary
course of business, make or permit to remain outstanding travel, moving and
other like advances to officers, employees and consultants in the ordinary
course of business or make or permit to remain outstanding lease, utility and
other similar deposits in the ordinary course of business;
(v) guarantee Indebtedness of any Subsidiary to the extent such
Subsidiary's Indebtedness is permitted by paragraph 8B; and
(vi) make loans or advances to employees in the ordinary course of
business, provided that such loans shall not exceed $25,000 per employee unless
a majority of disinterested members of the Company's Board of Directors
approves such loan.
8E. Shareholders' Equity.
(i) The Company covenants that it will not at any time permit its
Shareholders Equity to be less than (x) $4,000,000 plus (y) 50% of consolidated
earnings (less, without duplication, all provision for taxes) as the same would
appear on a consolidated statement of operations of the Company for the period
beginning April 1, 1991 and ending at the time of determination of Shareholders
Equity, prepared in accordance with GAAP.
(ii) The Company covenants that it will not at any time incur any
additional Indebtedness if its ratio of Indebtedness to Shareholders Equity is,
or if the effect of such incurrence is to cause such ratio to be, greater than
2 to 1.
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8F. Transactions with Affiliates. The Company covenants that it
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, enter into or permit to exist any transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service), with any Person who, prior to such transaction, is
the holder of 5% or more of any class of equity securities of the Company or
with any Affiliate of the Company or of any such holder on terms that are less
favorable to such Subsidiary or the Company, as the case may be, than those
that would be obtainable at the time from any Person who is not such a holder
or Affiliate, except that the Company may give guaranties and make loans and
advances in accordance with paragraph 8D(i), (v) and (vi).
8G. Merger and Asset Sales. The Company covenants that it will
not enter into any transaction of merger or consolidation or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or substantially all of the Company's business, property or
fixed assets (either through a sale of assets or stock), whether now owned or
hereafter acquired, except (i) if the Notes and all interest accrued thereon
have been paid in full or provided for at the closing of such transaction out
of the proceeds of it or (ii) that the Company may merge or consolidate if (a)
the Company is the surviving entity and remains an entity incorporated under
the laws of a state of the United States of America, (b) immediately after such
merger or consolidation (and giving effect thereto) no Default shall have
occurred and be continuing, and (c) after giving effect to such merger or
consolidation the Company would be able to incur at least $1.00 of additional
Indebtedness in accordance with paragraph 8E (ii) without a Default resulting.
8H. Certain Contracts. Except as otherwise specifically permitted
by any other provision of paragraph 8, the Company covenants that it will not,
and will not permit any of its Subsidiaries to, enter into or be a party to (i)
any contract providing for the making of loans, advances or capital
contributions to any Person other than a Subsidiary, or for the purchase of any
property from any Person (except as permitted by paragraph SD), in each case
primarily in order to enable such Person to maintain working capital, net worth
or any other balance sheet condition or to pay debts, dividends or expenses, or
(ii) any contract for the purchase of materials, supplies or other property or
services if such contract (or any related document) requires that payment for
such materials, supplies or other property or services shall be made regardless
of whether or not delivery of such materials, supplies or other property or
services is ever made or tendered, or (iii) any contract to rent or lease (as
lessee) any real or personal property if such contract (or any related
document) provides that the obligation to make payments thereunder is absolute
and unconditional under conditions not customarily found in commercial leases
then in general use or requires that the lessee purchase or otherwise acquire
securities or obligations of the lessor, or (iv) any contract for the sale or
use of materials, supplies or other property, or the rendering of services, if
such contract (or any related document) requires that payment for such
materials, supplies or other property, or the use thereof, or payment for such
services, shall be subordinated to any indebtedness (of the purchaser or user
of such materials, supplies or other property or the Person entitled to the
benefit of such services) owed or to be
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owed to any Person, or (v) any other contract which, in economic effect, is
substantially equivalent to a guarantee.
8I. Conduct of Business. The Company covenants that it will not,
and will not permit any of its Subsidiaries to, engage in any business other
than the business engaged in by the Company and its Subsidiaries on the date
hereof which includes the provision of training to individuals to improve or
create skills with respect to personal interests, existing careers or new
careers, and any businesses or activities substantially similar or related
thereto.
8J. No Amendments. The Company will not amend its Certificate of
Incorporation (including, without limitation, the Cumulative Convertible
Preferred Stock) or By-laws in any manner to cause the Investors to be unable
to exercise any right or privilege, or in such a way as to cause the Company to
be unable to perform any of its obligations to the Investors specifically
provided for in this Agreement, the Registration Rights Agreement or the
Coinvestors Agreement; without limiting the provisions of the preceding clause,
nothing in this paragraph 8J shall limit the Company's right to amend its
Certificate of Incorporation or take any other action with respect to the
authorization or issuance of capital stock, including the authorization or
issuance in the number of shares of common or preferred stock or the
designation of preferences as to distributions on liquidation, so long as
compliance by the Company with such terms will not conflict with the
prohibition contained in such clause; provided, however, that the Company shall
not create any class of capital stock having a preference superior to its
common stock with respect to dividends, or change the number of its directors.
8K. Interest Coverage Ratio. The Company covenants that it will
not permit, its Interest Coverage Ratio to be less than (i) 1 to 1 for any two
consecutive fiscal quarters or (ii) 1.5 to 1 at the end of any fiscal quarter,
for the twelve-month period then ended.
9. Subordination.
9A. Subordinated Debt Subordinate to Senior Debt. All
Subordinated Debt shall be junior and subordinate to all Senior Debt (as
defined in paragraph 14) to the extent and in the manner provided in this
paragraph 9 and each holder of a Note, by its acceptance thereof, agrees to be
bound by the provisions of this paragraph 9. Subordinated Debt shall not be
junior or subordinate to any Indebtedness of the Company other than Senior
Debt.
9B. Suspension of Right to Receive Payments of Subordinated Debt;
Other Defaults.
9B(l). Failure to Pay Principal of or Interest on Senior Debt. If at
the time any payment or prepayment with respect to any Subordinated Debt or any
purchase, redemption or other retirement (whether at the option of the holder
or otherwise) of Subordinated Debt is to be made, directly or indirectly, or
immediately after giving effect thereto there shall have occurred a Default in
the payment of principal or interest due on Senior Debt (whether by lapse of
time, acceleration or otherwise), then any payment or distribution of any kind
or character, whether in cash, property or securities, which may be payable or
deliverable with respect to Subordinated
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Debt shall be paid or delivered by the Company directly to the holders of
Senior Debt, ratably, for application in payment thereof, unless and until all
Senior Debt shall have been paid in full.
9B(2). Acceleration of Payment of Senior Debt or Subordinated Debt.
(a) If at the time any payment or prepayment with respect to any
Subordinated Debt or any purchase, redemption or other retirement (whether at
the option of the holder or otherwise) of Subordinated Debt is to be made,
directly, or indirectly, or immediately after giving effect thereto (i) the
Senior Debt or the Subordinated Debt shall have been declared by the holders
thereof due and payable before its expressed maturity and (ii) such
acceleration shall not have been expressly rescinded in writing by the holders
of Senior Debt pursuant to the relevant Senior Debt Agreement or by the holders
of Subordinated Debt pursuant to the relevant Subordinated Debt Agreement, as
the case may be, then any payment or distribution of any kind or character,
whether in cash, property or securities, which may be payable or deliverable
with respect to Subordinated Debt shall be paid or delivered by the Company
directly to the holders of Senior Debt, ratably, for application in payment
thereof, unless and until all Senior Debt shall have been paid in full or such
acceleration shall have been rescinded.
(b) Prior to the payment in full of all Senior Debt, the holders
of Notes will not, upon the occurrence of an Event of Default referred to in
paragraph 10 hereof (other than an Event of Default which, by the terms of
such paragraph 10, causes an immediate and automatic acceleration of all
payment obligations in respect of the Notes), declare any or all of the Notes
due and payable or demand or sue for the payment of any amount owing on the
Notes, unless and until the holders of the Notes have notified the holders of
Senior Debt of the occurrence of such particular Event of Default and 90 days
shall have elapsed since the date of such notice and such Event of Default
shall not have been cured; provided, however, that if such Event of Default is
of the nature set forth in paragraph 1OA(iii) and the event giving rise thereto
does not result in any other Event of Default described in such paragraph
1OA(iii), then the holders of Notes shall not, prior to the payment in full of
all Senior Debt, declare any or all of the Notes due and payable on demand or
sue for the payment of any amount owing on the Notes (such period of time
during which such rights are suspended being called the "Continuous Standstill
Period"); provided, further, however, that, notwithstanding the foregoing, if
any holder of Senior Debt shall accelerate the maturity of such Senior Debt
prior to the expiration of such 90-day period or during the Continuous
Standstill Period, the holders of Notes may forthwith accelerate the maturity
of the Notes. Nothing in this paragraph 9B(2)(b) shall be deemed to permit any
payment with respect to the Notes at a time when such payment would be
prohibited by paragraphs 9B(l) or 9b(2)(a).
9B(3). Bankruptcy or Insolvency. In the event of (i) any insolvency,
bankruptcy, liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the Company or
(ii) any proceedings for voluntary liquidation, dissolution or other winding-up
of the Company, whether or not involving insolvency or bankruptcy proceedings,
then all Senior Debt shall first be paid in full, or such payment shall have
been duly provided for, before any further payment is made with respect to
Subordinated
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Debt. In any of such proceedings, any payment or distribution of any kind or
character, whether in cash, property or securities, which may be payable or
deliverable with respect to Subordinated Debt shall be paid or delivered
directly to the holders of Senior Debt, ratably, for application in payment
thereof, unless and until all Senior Debt shall have been paid in full;
provided that in the event that payment or delivery of any cash, property or
securities to any holders of Subordinated Debt is authorized by a final
nonappealable order or decree giving effect, and stating in such order or
decree that effect is given, to the subordination of Subordinated Debt to
Senior Debt, and made by a court of competent jurisdiction in a reorganization
proceeding under any applicable law, no payment or delivery of such cash,
property or securities payable or deliverable with respect to Subordinated Debt
shall be made to the holders of Senior Debt. Anything in this paragraph 9 to
the contrary notwithstanding, no payment or delivery shall be made to holders
of Senior Debt of securities that are issued and delivered to holders of
Subordinated Debt pursuant to reorganization, dissolution or liquidation
proceedings, or upon any merger, consolidation, sale, lease, transfer or other
disposal not prohibited by the provisions of this Agreement, by the Company, as
reorganized, or by the corporation succeeding to the Company or acquiring its
property and assets, if such securities are subordinate and junior at least to
the extent provided in this paragraph 9 to the payment of all Senior Debt then
outstanding and to the payment of any securities that are issued in exchange or
substitution for any Senior Debt then outstanding.
9C. Rights of Holders of Senior Debt Not to Be Impaired. No right
of any present or future holder of any Senior Debt to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act by any such holder, or by any noncompliance by the
Company with the terms and provisions and covenants herein contained,
regardless of any knowledge thereof any such holder may have or otherwise be
charged with. The provisions of this paragraph 9 are intended to be for the
benefit of, and shall be enforceable directly by, the holders from time to time
of the Senior Debt. Each of the holders of Subordinated Debt waives notice of
or proof of reliance on this Agreement and protest, demand for payment and
notice of default by the holders of Senior Debt.
9D. Company's Obligation Unconditional. The provisions of this
paragraph 9 are solely for the purpose of defining the relative rights of the
holders of Senior Debt, on the one hand, and the holders of Subordinated Debt,
on the other hand, against the Company and its property. Nothing herein shall
impair, as between the Company and the holders of Subordinated Debt, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders thereof the full amount of the Subordinated Debt in accordance with the
terms thereof and the provisions hereof and nothing herein shall prevent the
holder of any Subordinated Debt from exercising all remedies otherwise
permitted by applicable law or hereunder upon Default hereunder or under any
Subordinated Debt (including, without limitation, the right to demand and sue
for payment and performance hereof and the Subordinated Debt and to accelerate
the maturity hereof as provided in paragraph 10), subject to the provisions of
Section 9B(2) and subject to the rights under this paragraph 9 of holders of
Senior Debt to receive cash, property or securities otherwise payable or
deliverable to the holders of Subordinated Debt, The failure to make any
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payment with respect to the Subordinated Debt by reason of any provision of
this paragraph 9 shall not be construed as preventing the occurrence of an
Event of Default under paragraph 10.
9E. Payments Held in Trust. If the holder of any Subordinated
Debt shall receive any payment or delivery of cash, property or securities in
respect of such Subordinated Debt which such holder is not entitled to receive
under the provisions of this paragraph 9, such holder will hold any amount so
received in trust for the holders of Senior Debt and will forthwith turn over
to the agent for the account of the holders of Senior Debt such payment or
delivery in the form received to be applied in payment or prepayment of Senior
Debt.
9F. Subrogation. Upon the payment in full of all Senior Debt and
termination of any Senior Debt Agreement, the holders of Subordinated Debt
shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of the Company applicable to Senior Debt
until all Subordinated Debt shall have been paid in full. For the purpose of
subrogation, no payments to the holders of Senior Debt of any cash, property or
securities that the holders of Subordinated Debt would be entitled to receive
and retain but for the provisions of this paragraph 9, and no payment pursuant
to the provisions of this paragraph 9, to holders of Senior Debt by holders of
Subordinated Debt, shall, as between the Company and its creditors (other than
the holders of Senior Debt), on the one hand, and the holders of Subordinated
Debt, on the other, be deemed to be a Payment by the Company with respect to
the Senior Debt.
9G. Reliance by Holders on Final Order or Decree. Anything in
this paragraph 9 to the contrary notwithstanding, in the event that payment or
delivery of any cash, property or securities to any holders of the Notes is
authorized by a final non-appeal able order or decree giving effect to the
subordination of the Indebtedness represented by the Notes to Senior Debt, and
made by a court of competent jurisdiction in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership, or
similar proceedings under any applicable law, no payment or delivery of such
cash, property or securities payable or deliverable with respect to the
Indebtedness represented by the Notes shall be made to the holders of Senior
Debt, nor shall any payment or delivery be made to holders of Senior Debt of
securities that are issued and delivered to holders of Notes pursuant to
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership, or similar proceedings, or upon any merger,
consolidation, sale, lease, transfer or other disposal not prohibited by the
provisions of this Agreement, by the Company, as reorganized, or by the
corporation succeeding to the Company or acquiring its properties and assets,
if such securities are subordinate and junior at least to the extent provided
in this paragraph 9 to the payment of all Senior Debt then outstanding and to
the payment of any securities that are issued in exchange or substitution for
any Senior Debt then outstanding.
10. Events of Default; Remedies.
10A. Events of Default. If any of the following events shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law or
otherwise);
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(i) the Company defaults in the payment of any principal of or
premiums on any Note or any mandatory prepayment of any Note after such payment
becomes due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest on any
Note for a period of 10 days after such payment becomes due; or
(iii) the Company or any Subsidiary defaults in any payment of
principal of or interest on any other obligation for money borrowed (or any
Capitalized Lease Obligation, any obligation under a conditional sale or other
title retention agreement, any obligation issued or assumed as full or partial
payment for property whether or not secured by a purchase money mortgage or any
obligation under notes payable or drafts accepted representing extensions of
credit) beyond any period of grace provided with respect thereto, or the
Company or any Subsidiary fails to perform or observe any other agreement, term
or condition contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is to
cause, or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become due prior
to any stated maturity; provided that the aggregate amount of all obligations
as to which such a payment default shall occur and be continuing or such a
failure or other event causing or permitting acceleration shall occur and be
continuing is equal to or greater than $100,000; or
(iv) any representation or warranty made by the Company herein or
in any writing furnished pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(v) the Company defaults in any material respect in the
performance or observance of any of its agreements contained in paragraphs 5, 6
7D, 7E, 7F or 8; or
(vi) the Company fails in any material respect to perform or
observe any other agreement, term or condition contained herein and such
failure shall not have been remedied within 30 days after notice by an Investor
to the Company; or
(vii) the Company or any of its Subsidiaries makes an assignment for
the benefit of creditors or is generally not paying its debts as such debts
become due; or
(viii) any decree or order for relief in respect of the Company or
any Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation or
similar law, whether now or hereafter in effect (herein called "Bankruptcy
Law"), of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the Company or
any Subsidiary, or of any substantial part of the assets of the
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Company or any Subsidiary, or commences a voluntary case under the Bankruptcy
Law of the United States or any proceedings (other than proceedings for the
voluntary liquidation and dissolution of a Subsidiary) relating to the Company
or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and the
Company or such Subsidiary by any act indicates its approval thereof, consent
thereto or acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings, and such order,
judgment or decree remains unstayed and in effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company or any of its Subsidiaries decreeing the dissolution of the
Company or such Subsidiary and such order, judgment or decree remains unstayed
and in effect for more than 90 days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any of its Subsidiaries decreeing a split-up of the
Company or such Subsidiary which requires the divestiture of substantial assets
of the Company and its Subsidiaries, taken as a whole, and such order, judgment
or decree remains unstayed and in effect for more than 90 days; or
(xiii) a final judgment in an amount in excess of $100,000 is
rendered against the Company or any of its Subsidiaries and, within 30 days
after entry thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within 60 days after expiration of any such stay,
such judgment is not discharged; or
(xiv) any Pension Plan fails to maintain the minimum funding
standard required by Section 412 of the Code for any plan year or a waiver of
such standard is sought or granted under Section 412 (d) of the Code, or any
Pension Plan subject to Title IV of ERISA is, has been or is likely to be
terminated or the subject of termination proceedings under ERISA, or the
Company or only Subsidiary or an ERISA Affiliate has incurred or is likely to
incur a liability to or on account of any Pension Plan under Sections 4062,
4063, 4064, 4201 or 4204 of ERISA, and there results from any such event or
events a liability or a material risk of incurring a liability to the PBGC or
any Pension Plan which, if incurred, could have a material adverse effect upon
the business, operations or financial condition of the Company or a Subsidiary
of the Company, or the Company or a Subsidiary has engaged in a prohibited
transaction that would result in a liability, penalty or tax under ERISA or
Section 4975 of the Code, as the case may be, which could have a material
adverse effect upon the business, operations or financial condition of the
Company or any Subsidiary of the Company; then (a) upon the occurrence of any
Event of Default described in the foregoing clauses (vii), (viii), (ix), (x),
(xi) or (xii), the unpaid principal amount of and accrued interest on the Notes
outstanding shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which
are hereby expressly waived by the Company, and (b) upon the occurrence of any
other Event of Default, the holder or holders of at least a majority of the
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aggregate unpaid principal amount of the Notes at the time outstanding may, at
its or their option and in addition to any right, power or remedy permitted by
law or equity, by notice in writing to the Company, declare all of the Notes to
be, and all of the Notes shall thereupon be and become, immediately due and
payable together with interest accrued thereon, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Company.
10B. Other Remedies. If any Event of Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by
suit in equity or by action at law, or both, whether for specific performance
of any covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the Investors or any other holder of any Note is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
11. Representations, Covenants and Warranties. The Company
represents, covenants and warrants to each Investor that;
11A. Organization; Qualification and Authority. The Company is a
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware, At the Closing Date, each Subsidiary of the Company
will be a corporation duly organized and existing under the laws of the
jurisdiction of its incorporation. As of the Closing Date, the Company and
each subsidiary will be duly qualified to do business as a foreign corporation
and in good standing in each jurisdiction in which the character of its
properties or the nature of its business makes such qualification necessary and
in which the failure to so qualify would have a materially adverse effect on
the operations or financial condition of the Company. The Company has, and as
of the Closing Date each of its Subsidiaries will have, the corporate power to
own its properties and to carry on its business as now being conducted. The
Company has all requisite corporate power and authority to enter into this
Agreement and each agreement executed by it, to issue and sell the Notes and
Warrants hereunder and to issue Common Stock upon exercise of the Warrants and
has the requisite corporate power and authority to carry out the transactions
contemplated hereby and thereby to be performed by it, and the execution,
delivery and performance hereof and thereof have been duly authorized by all
necessary corporate action. This Agreement constitutes, and each other
agreement or instrument executed and delivered by the Company pursuant hereto
or thereto or in connection herewith or therewith will constitute, legal, valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms.
11B. Financial Statements. The Company has furnished the Investors
with the following financial statements: audited consolidated balance sheets of
the Company as of March 31, 1989, 1990 and 1991, and the related consolidated
statements of income, retained earnings and cash flows of the Company for the
fiscal years then ended, together with the independent auditor's
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reports thereon, and a consolidated balance sheet as of April 30, 1991 and the
related consolidated statements of income, retained earnings and cash flows of
the Company for the calendar month then ended. Such financial statements
(including any related schedules and notes and except for the monthly financial
statements) have been prepared in accordance with GAAP consistently applied
throughout the period or periods in question and all of such financial
statements (including any related schedules and notes) show all liabilities,
direct or contingent, of the Company required to be shown in accordance with
GAAP consistently applied throughout the period or periods in question and
fairly present the consolidated financial position and the consolidated results
of the Company for the periods indicated therein, subject, in the case of the
monthly statements, to normal adjustments. There have been no material adverse
changes in the condition (financial or other), results of operations, business
or prospects of the Company since March 31, 1991.
11C. Capital Stock and Related Matters. As of the Closing Date and
after giving effect to the transactions contemplated in this Agreement, (i) the
Company's authorized capital stock will consist of (a) 3,500,000 shares of
Common Stock, par value $.0l per share, of which 823,982 shares will be issued
and outstanding; 1,000,000 shares will be reserved for issuance upon exercise
of the Warrants; and 838,888 shares will be issuable upon exercise of
outstanding Common Stock warrants; (b) 1,100,000 shares of Cumulative
Convertible Preferred Stock, par value $.0l per share, of which 1,020,000
shares will be issued and outstanding; 54,931 shares will be issuable upon
exercise of outstanding Cumulative Convertible Preferred Stock warrants; and
all issued and outstanding shares shall have been duly and validly issued,
fully paid and non-assessable; (ii) the Warrants, if exercised in full, would
represent approximately 27% of the Company's outstanding Common Stock on a
fully diluted basis; (iii) no shares of Common Stock will be owned or held by
or for the account of the Company or any of its Subsidiaries; (iv) neither the
Company nor any of its Subsidiaries will have outstanding any stock or other
securities convertible into or exchangeable for any shares of capital stock,
any rights to subscribe for or to purchase or, options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any other character relating to the issuance
of, any capital stock, or any stock or securities convertible into or
exchangeable for any capital stock which have not been waived (other than the
Notes and the Warrants and except as set forth on Schedule 11C hereto); (v)
except as contemplated hereby neither the Company nor any of its Subsidiaries
will be subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of capital stock; and (vi) the Company
will not have filed or be required to file, pursuant to Section 12 of the 1934
Act a registration statement relating to any class of debt or equity
securities. Except as contemplated by this Agreement and as disclosed by the
Company on Schedule 11C, there are no agreements, written or oral, between the
Company and any holder of its capital stock, or to the best knowledge of the
Company, among any holder of its capital stock relating to ownership or voting
of the capital stock of the Company.
11D. Actions Pending. Except as set forth in Schedule 11D, there
is no action, suit, investigation or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries or any
of their properties or rights, by or before any court,
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arbitrator or administrative or governmental body, which, if adversely decided,
would have a materially adverse effect on the Company or its Subsidiaries.
11E. Outstanding Debt. Except as set forth on the Company's
audited balance sheet as of March 31, 1991 or in Schedule 11E, neither the
Company nor any of its Subsidiaries has outstanding any material amount of
Indebtedness, and there exists no default or event of default, or event which
with notice or lapse of time or both will constitute a default or event of
default under the provisions of any instrument evidencing such Indebtedness or
of any agreement or document relating thereto.
11F. Title to Properties. Each of the Company and its Subsidiaries
has (i) good, sufficient and legal title to its respective real property (other
than real properties which it leases from others) subject to no Lien of any
kind except Liens permitted by paragraph 8C, and (ii) good title to all of its
other respective properties and assets which are material to the current
conduct of its business (other than properties and assets which it leases from
others and other than properties and assets disposed of in the ordinary course
of business), subject to no Lien of any kind except Liens permitted by
paragraph 8C. To the extent material to the Company's ability to carry on its
business in substantially the same manner as it is now being conducted, each of
the Company and its Subsidiaries enjoys peaceful and undisturbed possession
under all leases necessary in any material respect for the operation of its
respective properties and assets, none of which contains any unusual or
burdensome provisions which might materially affect or impair the operation of
such properties and assets, and all such leases are valid and subsisting and in
full force and effect.
11G. Taxes. Each of the Company and its Subsidiaries has filed all
federal, state and other income tax returns which are required to be filed, and
each has paid all taxes as shown on said returns and on all assessments
received by it to the extent that such taxes have become due or except such as
are being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP.
11H. Conflicting Acrreements. Neither the execution or delivery of
this Agreement, the Registration Rights Agreement, the Coinvestors Agreement or
the Securities, the offering, issuance and sale of the Securities, nor
fulfillment of or compliance with the terms and provisions hereof and thereof,
will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries pursuant to (i) the charter or By-Laws of
the Company or any of its Subsidiaries, or (ii) any award of any arbitrator or
any agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or any
of its Subsidiaries is subject. Neither the Company nor any of its
Subsidiaries is a party to, or otherwise subject to any provision contained in,
any instrument evidencing indebtedness for borrowed money of the Company or any
of its Subsidiaries, any agreement relating thereto or any other contract or
agreement (including its charter) which limits the amount of, or otherwise
imposes restrictions
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on the incurring of, Indebtedness of the type to be evidenced by the Notes, or
contains dividend or redemption limitations on any capital stock of the
Company, except for this Agreement.
11I. Offering of Securities. Neither the Company nor any Person
acting on its behalf has, directly or indirectly, offered any of the Securities
or any similar security of the Company for sale to, or solicited any offers to
buy any of the Securities or any similar security of the Company from, or
otherwise approached or negotiated with respect thereto with any Person other
than the Investors and their affiliates and other accredited investors (as such
term is defined in Regulation D promulgated under the 1933 Act); and the
Company has not taken and will not take any action which would subject the
issuance or sale of any of the Securities to the provisions of section 5 of the
1933 Act or violate the provisions of any securities, Blue Sky law of any
applicable jurisdiction.
11J. Broker's or Finder's Commissions. No broker's or finder's fee
or commission will be payable by the Company with respect to the issuance and
sale of the Securities or the transactions contemplated hereby except for fees
payable to Equitable Securities Corporation (which fees shall be the sole
responsibility of the Company).
11K. Regulation G, Etc.; Use of Proceeds. Neither the Company nor
any of its Subsidiaries owns or has any present intention of acquiring any
"margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of
Governors of the Federal Reserve System (herein called a "margin stock"). All
of the proceeds of the sale of the Securities will be used by the Company for
general corporate purposes and for the repayment of outstanding Indebtedness.
None of such proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin stock or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of Regulation G. Neither the Company, any
of its Subsidiaries nor any agent acting on its behalf has taken or will take
any action which might cause this Agreement or the Notes to violate Regulation
G, Regulation T, Regulation U or Regulation X or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the 1934 Act, in
each case as in effect now or as the same may hereafter be in effect.
11L. Pollution and Other Regulations. To the best of the Company's
knowledge, the Company and its Subsidiaries are in compliance in all material
respects with all laws and regulations including, without limitation, those
relating to pollution and environmental control, equal employment opportunity,
employee safety and other like governmental laws and regulations affecting the
general conduct of its business in all jurisdictions in which it is presently
doing business, and the Company will use its best efforts to comply and to
cause each of its Subsidiaries to comply in all material respects with all such
laws and regulations which may be legally imposed in the future in
jurisdictions in which the Company or any Subsidiary may then be doing
business.
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11M. Absence of Pension Plans. The Company neither maintains nor
has any present intention to implement any funded pension plan subject to ERISA
for the benefit of any of its employees.
11N. Agreements with Affiliates. Neither the Company nor any of
its Subsidiaries is a party to any contract or agreement with, or any other
commitment to, any Affiliate of the Company or any of its Subsidiaries, except
as contemplated hereby.
11O. Possession of Franchises, Licenses, Etc. To the best of the
Company's knowledge, the Company and its Subsidiaries possess all franchises,
certificates, licenses, permits and other authorizations from governmental
political subdivisions or regulatory authorities, that are necessary in any
material respect for the ownership, maintenance and operation of its properties
and assets, and neither the Company nor any of its Subsidiaries is in violation
of any thereof in any material respect.
11P. Patents, Etc. The Company and its Subsidiaries own or have
the right to use all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, which
are necessary for the operation of its business substantially as presently
conducted. As of the Closing Date and after giving effect to the transactions
contemplated hereby, nothing has come to the attention of the Company, any of
its Subsidiaries or, to the best of the Company's knowledge, any of their
respective directors and officers to the effect that (i) any product, process,
method, substance, part or other material presently contemplated to be sold by
or employed by the Company or any of its Subsidiaries in connection with its
business may infringe any patent, trademark, service mark, trade name,
copyright, license or other right owned by any other Person, (ii) there is
pending or threatened any claim or litigation against or affecting the Company
or any of its Subsidiaries contesting its right to sell or use any such
product, process, method, substance, part or other material or (iii) there is,
or there is pending or proposed, any patent, invention, device, application or
principle or any statute, law, rule, regulation, standard or code relating
thereto which would prevent, inhibit or render obsolete the production or sale
of any products of, or substantially reduce the projected revenues of, or
otherwise adversely affect in any material respect the business, condition or
operations of the Company and its Subsidiaries, taken as a whole.
11Q. Holding Company and Investment Company Status. Neither the
Company nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", or a "public utility", within
the meaning of the Public Utility Holding Company Act of 1935, as amended, or a
"public utility" within the meaning of the Federal Power Act, as amended.
Neither the Company nor any of its Subsidiaries is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940, as amended.
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11R. Governmental Consents. Neither the nature of the Company or
any of its Subsidiaries, nor any of their respective businesses or properties,
nor any relationship between the Company and any other Person, nor any
circumstance (other than circumstances relating to the Investors) in connection
with the offer, issue, sale or delivery of the Securities being purchased by
the Investors hereunder is such as to require on behalf of the Company or any
of its Subsidiaries any consent, approval or other action by or any notice to
or filing with any court or administrative or governmental body in connection
with the execution and delivery of this Agreement, the offer, issue, sale or
delivery of the Securities being purchased hereunder or fulfillment of or
compliance with the terms and provisions hereof or the Securities being
purchased hereunder.
11S. Insurance Coverage. The properties of the Company and each of
its Subsidiaries are insured for the benefit of the Company or such Subsidiary
of the Company in amounts deemed adequate by the Company's management against
general and professional liability risks usually insured against by Persons
operating businesses similar to those of the Company or its Subsidiaries in the
localities where such properties are located.
11T. Subsidiaries. Schedule 11T correctly sets forth the name of
each Subsidiary of the Company as of the Closing Date and the jurisdiction of
its incorporation. As of the Closing Date and after giving effect to the
transactions contemplated hereby, all the outstanding shares of stock of each
Subsidiary of the Company have been validly issued and are fully paid and
non-assessable and all such outstanding shares are owned by the Company or
another wholly owned Subsidiary of the Company free of any Lien or claim, and
no such Subsidiary has outstanding stock or securities convertible into or
exchangeable or exercisable for any shares of capital stock, nor does it have
outstanding any rights to subscribe for or to purchase, any options for the
purchase of, any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any other character
relating to the issuance of, any shares of capital stock or any securities
convertible into or exchangeable or exercisable for any shares of capital
stock.
11U. Disclosure. Neither this Agreement nor any other document,
certificate or written statement furnished to the Investors by or on behalf of
the Company in connection herewith (including, without limitation, the Private
Placement Memorandum as supplemented by an addendum dated June 26, 1991 and by
the audited financial statements for the year ended March 31, 1991) contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. To the best of the Company's knowledge, there is no fact peculiar
to the Company which materially adversely affects the business, property or
assets, financial condition or prospects of the Company which has not been set
forth in this Agreement or in the other documents, certificates and written
statements furnished to the Investors by or on behalf of the Company prior to
the date hereof in connection with the transactions contemplated hereby.
11V. Registration Rights. Except as provided in the Registration
Rights Agreement or as disclosed on Schedule 11V, no person has the right to
cause the Company to effect the
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registration under the 1933 Act of any shares of Common Stock or any other
securities (including debt securities) of the Company.
11W. Absence of Foreign or Enemy Status. Neither the Company nor
any of its Subsidiaries is (i) a "national" of a foreign country designated in
Executive Order No. 8389, as amended, or of any "designated enemy country" as
defined in Executive Order No. 9193, as amended, of the President of the United
States of America within the meaning of said Executive Orders, as amended, or
of any regulation issued thereunder, or a "national" of any "designated foreign
country" within the meaning of the Foreign Assets Control regulations, 31 CFR,
Part 500, as amended, or of the Cuban Assets Control Regulations, 31 CFR, Part
515, as amended, of the United States Treasury Department or (ii) an entity
"owned or controlled by" the Government of South Africa, within the meaning of
Executive Order No. 12532, of the President of the United States of America.
12. Representations of the Investors.
12A. Investment: ERISA.
(i) The Investors represent, and in making this sale to the
Investors it is specifically understood and agreed, that the Investors are
acquiring the Securities to be purchased by them hereunder for their own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof; provided, however, that nothing
herein contained shall prevent the Investors from selling or transferring any
Securities in any transaction that, in the opinion of their special counsel, is
exempt from the registration provisions of the 1933 Act.
(ii) The Investors also represent that no part of the funds being
used by them to pay the purchase price of the Securities being purchased by the
Investors hereunder constitutes assets allocated to any separate account
maintained by you in which any employee benefit plan, other than employee
benefit plans identified on a list which has been furnished by the Investors to
the Company, participates to the extent of 5% or more. For the purpose of this
paragraph 12, the terms "separate account" and "employee benefit plan" shall
have the respective meanings specified in section 3 of ERISA.
12B. Authority. Such Investor has full power and authority to
enter into and perform this Agreement in accordance with its terms. Any
investor which is a corporation, partnership or trust represents that it has
not been organized, reorganized or recapitalized specifically for the purpose
of investing in the Company.
13. Exercise of Warrants.
13A. Exercise Price and Method of Payment. Subject to and upon
compliance with the provisions hereof, the holder of any Warrant shall have the
right on or before June 30, 2001, at such holder's option, at any time or, in
the event that any Warrant has been called for redemption pursuant to paragraph
6, then until, but (unless the Company shall default in the payment due
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upon the redemption date) not after, the close of business on the last Business
Day before the date fixed for redemption, to exercise all or any part of such
Warrants into Common Stock at (i) a price equal to the lower of (a) $5.00 per
share or (b) 70% of the cash purchase price before paid per share deductions
for underwriting discounts and commissions in an Initial Public Offering or
(ii) in case an adjustment of such price has taken place pursuant to the
further provisions of this paragraph 11, then at the price as last adjusted and
in effect at the date such Warrant is surrendered for exercise (such price, as
adjusted, the "Exercise Price"). In order to exercise such right, the holder
thereof shall surrender (in person or by mail) such Warrant to the Company at
its office at 1050 Cambridge Square, Suite C, Alpharetta, Georgia 30201, ATTN:
Treasurer (or such other office or agency as the Company may designate by
notice in writing to the holders of the Warrants), together with a written
notice that the holder elects to exercise such Warrants, or a specified
principal amount thereof, in accordance with the provisions of this paragraph
13, Such notice shall also state the name or names (with addresses) in which
the certificate or certificates for Common Stock shall be issued. Together
with such notice there shall be paid an amount equal to the Exercise Price
times the number of shares of Common Stock as to which the Warrant is being
exercised. Such payment shall be by (i) certified or bank cashier's check, or
(ii) the delivery and surrender to the Company of Notes in an aggregate
principal amount equal to the amount of such payment. If Notes are so
delivered and surrendered, the Company shall pay to the holder thereof accrued
and unpaid interest on such Notes to the date of such delivery and surrender.
13B. Issuance of Certificates; When Exercise Effected. Promptly
after the receipt of the written notice referred to in paragraph 13A and
surrender of such Warrants as aforesaid, the Company shall issue and deliver to
such holder registered in such name or names as such holder may direct, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the exercise of such Warrant (or specified portion thereof),
bearing any appropriate restrictive legend. To the extent permitted by law,
such exercise shall be deemed to have been effected and the Exercise Price
shall be determined as of the close of business on the date by which both (i)
such written statement shall have been received by the Company and (ii) such
Warrant shall have been surrendered as aforesaid, and at such time the rights
of the holder of such Warrant (or specified portion thereof), as such holder
shall cease, and the Person or Persons in whose name or names any certificate
or certificates for shares of Common Stock shall then be issuable upon such
exercise shall be deemed to have become the holder or holders of record of the
shares of Common Stock represented thereby.
13C. Fractional Shares; Accrued Interest; Partial Exercise. No
fractional shares shall be issued upon exercise of Warrants and no payment or
adjustment shall be made upon any exercise on account of any cash dividends on
the Common Stock issued upon such exercise. In the case of any Warrant which
is exercised in part only the Company shall, upon such exercise, execute and
deliver to the holder thereof, at the expense of the Company, a new Warrant or
Warrants of authorized denominations in principal amount equal to the
unexercised portion of such Warrant, If any fractional interest in a share of
Common Stock would, except for the provisions of the first sentence of this
paragraph 13C, be deliverable upon the exercise of any
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Warrant, the Company shall, in lieu of delivering the fractional share
therefor, pay to the holder surrendering such Warrant an amount in cash equal
to the market price of such fractional interest.
13D. Adjustment of Price upon Issuance of Common Stock. If and
whenever the Company shall issue or sell any shares of its Common Stock
(except, for purposes of this paragraph 13D and for all of its subsections, as
provided in paragraph 13G) for a consideration per share less than the Exercise
Price, on the date of such issue or sale, then, forthwith upon such issue or
sale, the Exercise Price shall be reduced to the lowest consideration
(calculated to the nearest cent) per share received or deemed received by the
Company upon the date of such issue or sale of shares of Common Stock.
No adjustment of the Exercise Price shall be made in an amount less
than $.Ol per share, but any such lesser adjustment shall be carried forward
and shall be made at the time and together with the next subsequent adjustment
which together with any adjustments so carried forward shall amount to $.0l per
share or more.
For the purposes of this paragraph 13D, the following subparagraphs
13D(l) to 13D (6) inclusive, also shall be applicable:
13D(l). Issuance of Convertible Securities. If at any time the
Company shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any options
or warrants for the purchase of Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being herein called "Convertible Securities"),
whether or not such rights or options or warrants or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights or options or warrants or upon conversion or exchange of such
Convertible Securities (determined by dividing (a) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
rights or options or warrants, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such rights or
options or warrants, plus, in the case of such rights or options or warrants
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (b) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or warrants or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such rights or
options or warrants) shall be less than the Exercise Price determined as of the
date of granting such rights or options or warrants for each such grant, then
the total maximum number of shares of Common Stock issuable upon the exercise
of such rights or options or warrants or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such rights or options or warrants shall (as of the date of granting of such
rights or options or warrants) be deemed to be outstanding and to have been
issued for such price per share. If any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or to purchase
or any option or warrant to purchase any such Convertible Securities
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for which adjustments of the Exercise Price have been or are to be made
pursuant to other provisions of this subparagraph 13D, no further adjustment of
the Exercise Price shall be made by reason of such issue or sale. Except as
provided in subparagraph 13D(2) below, no adjustment of the Exercise Price
shall be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or warrants or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
13D(2). Change in Option Price or Conversion Rate. Upon the happening
of any of the following events, namely, if the purchase price provided for in
any right or option or warrant referred to in subparagraph 13D(l), the
additional consideration, if any, payable upon the conversion or exchange of
any Convertible Security referred to in subparagraph 13D (1), or the rate at
which any Convertible Securities referred to in subparagraph 13D(l) are
convertible into or exchangeable for Common Stock, shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such event shall
forthwith be readjusted to the Exercise Price which would have been in effect
at such time had such rights, options, warrants or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued
or sold, and on the expiration of any such right to convert or exchange such
Convertible Securities, the Exercise Price then in effect hereunder shall
forthwith be increased to the Exercise Price which would have been in effect at
the time of such expiration or termination had such right, option, warrant or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase price
provided for in any right, option or warrant referred to in subparagraph 13D(l)
or the rate at which any Convertible Securities referred to in subparagraph
13D(l) is convertible into or exchangeable for Common Stock, shall decrease at
any time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common Stock upon the
exercise of any such right, option, warrant, or upon conversion or exchange of
any such Convertible Securities, the Exercise Price then in effect hereunder
shall forthwith be adjusted to such respective amount as would have obtained
had such right, option, warrant or Convertible Security never been issued as to
such Common Stock and had adjustments been made upon the issuance of the shares
of Common Stock delivered as aforesaid, but only if as a result of such
adjustment the Exercise Price then in effect hereunder is thereby decreased.
13D(3). Stock Dividends. In case the Company shall declare a dividend
or make any other distribution upon any stock of the Company payable in Common
Stock or Convertible Securities, the Exercise Price then in effect shall be
reduced by multiplying such price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares constituting such dividend
or other distribution.
13D(4). Consideration for Stock. In case any shares of Common Stock
or Convertible Securities or any rights, options or warrants to purchase any
such Common Stock or Convertible
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Securities shall be issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the Company therefor,
without deduction therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or Convertible Securities or any
rights, options or warrants to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the Board of
Directors of the Company in good faith, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights, options or warrants to purchase such
Common Stock or Convertible Securities shall be issued in connection with any
merger of another corporation into the Company in which the Company is the
surviving corporation, the amount, of consideration therefor shall be deemed to
be the fair value, as determined by the Board of Directors of the Company in
good faith of such portion of the assets of the nonsurviving corporation or
corporations as such Board shall determine to be attributable to such Common
Stock, Convertible Securities, rights, options or warrants, as the case may be.
In the event of any consolidation or merger of the Company in which the Company
is not the surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation or in connection with which the Company shall be the survivor
but in which the shares of outstanding Common Stock shall be changed into stock
or other securities of another corporation, the Company shall be deemed to have
issued a number of shares of its Common Stock for stock or securities of the
other corporation computed on the basis of the actual exchange ratio on which
the transaction was predicated and for a consideration equal to the fair market
value on the date of such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment of the Exercise
Price, the determination of the number of shares of Common Stock receivable
upon exercise of the Warrants immediately prior to such merger, consolidation
or sale, for purposes of paragraph 136, shall be made after giving effect to
such adjustment of the Exercise Price.
13D(5). Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities, or (b) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issue
or sale of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
13D(6). Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this paragraph
13D.
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13E. Subdivision or Combination of Stock. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased.
13F. Adjustment of Number of Shares Subject to the Warrants.
(a) If the Company shall pay a dividend in shares of its Common
Stock, subdivide (split) its outstanding shares of Common Stock, combine
(reverse split or stock consolidation) its outstanding shares of Common Stock,
issue by reclassification of its shares of Common Stock any shares or other
securities of the Company, or distribute to holders of its Common Stock any
securities of the Company or of another entity, the number of shares of Common
Stock or other securities the holder of a Warrant is entitled to purchase
pursuant to such Warrant immediately prior thereto shall be adjusted so that
such holder shall be entitled to receive upon exercise the number of shares of
Common Stock or other securities of the Company which he or she would have
owned or would have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised immediately prior to the
happening of such event and the Exercise Price per share shall be
correspondingly adjusted; provided, however, that no adjustment in the number
of shares and/or the Exercise Price shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in such
number of shares and/or price; and provided further, however, that any
adjustments which by reason of this paragraph 13F are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
An adjustment made pursuant to this paragraph 13F shall become effective
immediately after the record date in the case of the stock dividend or other
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. The holder of such
Warrant shall be entitled to participate in any subscription or other rights
offering made to holders of Common Stock to the same extent as though the
holder had purchased the full number of shares as to which such Warrant remains
unexercised immediately prior to the record date for such rights offering. If
the Company is consolidated or merged with or into another corporation or if
all or substantially all of its assets are conveyed to another corporation,
such Warrant shall thereafter be exercisable for the purchase of the kind and
number of shares of stock or other securities or property, if any, receivable
upon such consolidation, merger or conveyance by a holder of the number of
shares of Common Stock of the Company which could have been purchased on the
exercise of such Warrant immediately prior to such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interest thereafter of the holder of
such Warrant to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the number of
shares of Common Stock the holder of such Warrant is entitled to purchase)
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the exercise
of such Warrant. Upon any adjustment of the number of shares of Common Stock
or other securities the holder
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of such Warrant is entitled to purchase, and of any change in Exercise Price
per share, then in each such case the Company shall give written notice thereof
to the then registered holder of such Warrant at the address of such holder as
shown on the books of the Company, which notice shall state such change and set
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Upon the request of any such holder there shall be
transmitted promptly to all holders a statement of the firm of independent
certified public accountants retained to audit the financial statements of the
Company to the effect that such firm concurs in the Company's calculation of
the change.
(b) Upon each adjustment of the Exercise Price, each Warrant
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
shares (calculated to the nearest whole share) obtained by (i) multiplying the
number of shares covered by a Warrant immediately prior to this adjustment by
the Exercise Price in effect immediately prior to such adjustment of the
Exercise Price, and (ii) dividing the product so obtained by the Exercise Price
in effect immediately after such adjustment of the Exercise Price.
13G. Certain Issues of Common Stock Excepted. Anything herein to
the contrary notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price in the case of (i) the issuance of the
Securities pursuant to this Agreement; (ii) the issuance of shares of capital
stock of the Company upon exercise of the Warrants; (iii) the issuance of up to
1,020,000 shares of Common Stock upon conversion of the Company's Cumulative
Convertible Preferred Stock issued and outstanding as of the Closing Date; and
(iv) the issuance of shares of Common Stock upon the exercise of existing stock
options granted prior to the Closing and the issuance of shares of Common Stock
after the Closing to employees, consultants or directors (and the grant of
options therefor) so long as such shares in the aggregate do not exceed at any
time 10% of the total number of shares of the Company's Common Stock on a fully
diluted basis (as adjusted for stock splits, stock dividends,
reclassifications, recharacterizations or similar events) and the exercise
price of the options is equal to or greater than the then Exercise Price. If
an option to an employee, director or consultant shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares shall
again be available for subsequent option grants and such shares shall be
considered as having been issued only one time.
13H. Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification or change of the
outstanding capital stock of the Company, or any consolidation or merger of the
Company with another corporation, or the sale of all or substantially all of
its assets to another corporation, shall be effected in such a way that holders
of Common Stock shall be entitled to receive any stock, securities or assets
with respect to or in exchange for Common Stock, then, as a condition of such
reorganization, adequate provision shall be made whereby each holder of any
Warrant shall thereafter have the right to receive upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of the Common
Stock of the Company immediately theretofore receivable upon the exercise of
such Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of
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shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, change, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of such holder to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the Exercise Price and the provisions of paragraph 13) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights
(including an immediate adjustment, by reason of such consolidation or merger,
of the Exercise Price to the value of the Common Stock reflected by the terms
of such consolidation or merger if the value so reflected is less than the
Exercise Price in effect immediately prior to such consolidation or merger).
The Company shall not effect any such reorganization, reclassification, change,
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets or the
corporation issuing the securities into which such shares of Common Stock shall
be changed (if other than the Company) shall assume by written instrument
executed and mailed or delivered to each holder of any Warrant the obligation
to deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive. If a purchase, tender or exchange offer is made to and accepted by
the holders of more than 50% of the outstanding shares of Common Stock of the
Company, the Company shall not effect any consolidation, merger or sale with
the Person having made such purchase, tender or exchange offer or with any
Affiliate of such Person, unless prior to the consummation of such
consolidation, merger or sale, each holder of any Warrant shall have been give
a reasonable opportunity to then elect to receive on exercise of any Warrant
held by such holder either the stock, securities or assets then issuable with
respect to the Common Stock of the Company or the stock, securities or assets
issued to previous holders of the Common Stock in accordance with such
purchase, tender or exchange offer.
13I. Notice of Adjustment. Upon any adjustment of the Exercise
Price then and in each such case the Company shall give written notice thereof
to the holder of each Warrant which notice shall state the Exercise Price
resulting from such adjustment, and shall set forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
13J. Other Notices. In case at any time:
(a) the Company shall declare any dividend upon its Common Stock
payable in stock;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights;
(c) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all of its assets to, another
corporation; or
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(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give to the holder of
each Warrant (i) at least 20 days' prior written notice of the date on which a
record shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least
20 days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, as the case may be.
13K. Stock to be Reserved. The Company will at all times keep
available, out of its authorized Common Stock, solely for the purpose of issue
upon the exercise of Warrants as herein provided, such number of shares of
Common Stock as shall then be issuable upon the exercise of all outstanding
Warrants. The Company covenants and agrees that all shares of Common Stock
which shall be so issuable will, upon issuance, be duly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof. The Company will not take any action which
results in any adjustment of the Exercise Price if the total number of shares
of Common Stock issuable after such action upon exercise of the Warrants (a)
would exceed the total number of shares of Common Stock then authorized by the
Company's Certificate of Incorporation or (b) would conflict with, or result in
any violation of, or require the consent or approval (unless the same shall be
obtained) of any court or administrative or governmental body pursuant to, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, the Certificate of Incorporation or By-Laws of the Company or
any of its Subsidiaries or any agreement or instrument to which the Company or
any of its Subsidiaries is then subject. The Company will take all such action
as may be necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable requirements of any exchange upon
which the Common Stock of the Company may be listed or in respect of which the
Common Stock has qualified for unlisted trading privileges.
13L. Issuance Tax. The issuance of certificates for shares of
Common Stock upon the exercise of any Warrant shall be made without charge to
the holder of such Warrant for any issuance tax in respect thereto; provided
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Warrant exercised.
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13M. Listing. If any shares of Common Stock issuable upon exercise
of Warrants hereunder require listing on any securities exchange, before such
shares may be issued upon exercise the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
listed on such securities exchange immediately prior to the issuance of such
shares.
13N. Closing of Books. The Company will not close its books
against the issuance or transfer of any shares of Common Stock issuable upon
exercise of the Warrants.
14. Definitions. For the purpose of this Agreement, and in
addition to terms defined elsewhere in this Agreement, the following terms
shall have the following meanings. In addition, all terms of an accounting
character not specifically defined herein shall have the meanings assigned
thereto by accounting principles generally accepted in the United States of
America.
"Affiliate" shall mean, with respect to any Person, a Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person, except a Subsidiary of such Person. A
Person shall be deemed to control a corporation if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Bankruptcy Law" shall have the meaning specified in clause (viii) of
paragraph 10A.
"Board" shall mean the Board of Directors of the Company or a committee
of directors lawfully exercising the relevant powers of the Board.
"Business Day" shall mean any day which is not a Saturday, Sunday or
day on which banks are authorized by law to close in the State of New York.
"Capital Asset" shall mean each asset of the Company or its
Subsidiaries which is not classified as a current asset under GAAP and each
operating business of the Company or its Subsidiaries (including the current
assets thereof).
"Capitalized Lease Obligation" shall mean any rental obligation which,
under GAAP in effect on the day such obligation is incurred, is required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance
with such principles.
"Change of Control" shall mean any event the effect of which is to
cause any Person or group of Persons acting in concert (other than the
Investors and shareholders of the Company on the date hereof, or Affiliates
thereof) to own more than 49.9% of the then outstanding Common Stock on a
fully diluted basis other than (i) the issuance of securities pursuant to an
offering which is the subject of a Registration Statement filed pursuant to
the 1933 Act, (ii) private sales of equity or equity-related securities by the
Company to institutional or qualified investors for
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investment purposes only and not with any intent to effect a change of control
of the Company, (iii) sales of Notes or shares of Common Stock issuable upon
conversion of the Notes or exercise of the Warrants or (iv) any distribution to
the constituent partners of Investech, L.P. as contemplated under the
Coinvestors Agreement.
"Code" shall mean the Internal Revenue Code of 1986 or any successor
or amendatory provision thereto.
"Coinvestors Agreement" shall mean the Coinvestors Agreement in the
form attached hereto as Exhibit E.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Common Stock" shall mean any of the shares of Common Stock of the
Company.
"Company" shall mean the corporation that originally executed this
Agreement as borrower until any corporation becomes a successor or transferee
in a transaction permitted by paragraph 86, and thereafter shall mean any such
successor or transferee corporation.
"Convertible Securities" shall have the meaning specified in paragraph
13D (1).
"Cumulative Convertible Preferred Stock" shall mean any of the shares
of the Cumulative Convertible Preferred Stock of the Company.
"Designee" shall have the meaning specified in paragraph 2.
"Dollars" and the sign "$" shall mean such coin or currency of the
United States of America as is, at the relevant time, legal tender for the
payment of public and private debts.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA as in
effect at the date of this Agreement and any subsequent provisions of ERISA
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the Company
would be deemed to be a "single employer" within the meaning of Section 4001 of
ERISA immediately following the Closing.
"Event of Default" shall mean any of the events specified in paragraph
10, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "Default" shall mean any of such
events, whether or not any such requirement has been satisfied.
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"Exercise Price" shall mean the price at which the Warrants are
convertible into shares of Common Stock as determined in accordance with
paragraph 13.
"GAAP" shall mean generally accepted accounting principles
consistently applied throughout the period or periods in question.
"Indebtedness" of any Person as of any date shall mean and include (i)
all indebtedness for money borrowed of such Person or evidenced by notes,
bonds, debentures or similar evidences of indebtedness of such Person, (ii)
indebtedness of such Person under leases which are capitalized under GAAP as of
the time they were entered into, (iii) indebtedness of such Person representing
the deferred and unpaid purchase price of any property or business (excluding
in any event trade and service payables incurred in the ordinary course of
business and constituting current liabilities), (iv) all guarantees by such
Person of Indebtedness of others (including repurchase arrangements and
financial condition or liquidity maintenance arrangements), (v) all obligations
of such Person in respect of interest rate protection agreements and foreign
currency hedging arrangements and (vi) all obligations of such Person as an
account party in respect of letters of credit (other than documentary letters
of credit) and in respect of banker's acceptances, in the case of each of the
foregoing clauses, in the principal amount that such indebtedness would be
shown on a balance sheet of such Person prepared as of such date in accordance
with GAAP.
"Initial Public Offering" shall mean the Company 5 initial public
offering of equity securities pursuant to a registration statement under the
1933 Act as declared effective by the Commission.
"Interest Coverage Ratio" shall mean for any period the ratio of (i)
the sum of, without duplication, (a) Net Income for such period and before
gains and losses on sale of Capital Assets realized during such period and
taxes incurred in respect of such dispositions ("Adjusted Net Income"), plus
(b) provision for taxes based on income or profits to the extent such taxes
were paid on, or accruals therefor were taken into account in, income or
profits included in computing Adjusted Net Income for such period, plus (c)
consolidated interest expense (including amortization of original issue
discount and non-cash interest payments or accruals and the interest component
of capital leases) to the extent such expenses were paid on, or accruals
therefor were taken into account in, Adjusted Net Income for such period, plus
(d) all non-cash charges (including depreciation, depletion and amortization)
deducted from consolidated revenues in determining Adjusted Net Income for such
period over (ii) consolidated interest expense of the Company and its
Subsidiaries (including amortization of original issue discount and non-cash
interest, payments or accruals and the interest component of capital leases).
"Investment" shall mean any stock or other security, any loan, advance,
contribution to capital, extension of credit (except for deferred franchise
fees and trade and customer accounts receivable for inventory sold or services
rendered in the ordinary course of business and payable in accordance with
customary trade terms), any acquisitions of real or personal property (other
than real and personal property acquired in the ordinary course of business)
and any purchase or
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commitment or option to purchase stock or other securities of or any interest
in another Person or any integral part of any business or the assets comprising
such business or part thereof if the aggregate consideration for such purchase,
commitment or option was in excess of $10,000, or any other investment, and
whether existing on the date of this Agreement or hereafter made.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction).
"Multiemplover Plan" shall mean a plan defined as such in Section 3
(37) of ERISA to which contributions have been made by the Company or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations System.
"Net Income" shall mean consolidated gross revenues (excluding
extraordinary gains) of the Company and its Subsidiaries less all operating and
non-operating expenses (including extraordinary losses) of the Company and its
Subsidiaries including, without limitation, all charges of a proper character
(including current and deferred taxes on income and current additions to
reserves) but not including in net revenues any gains (net of expenses and
taxes applicable thereto) in excess of losses resulting from the sale,
conversion or other disposition of assets other than current assets, any gains
resulting from the write-up of assets, any equity of the Company or any
Subsidiary in the unremitted earnings of any corporation which is not a
Subsidiary, any earnings of any Person acquired by the Company or any
Subsidiary through purchase, merger or consolidation or otherwise for any year
prior to the year of acquisition or any deferred credit representing the excess
of equity in any Subsidiary at the date of acquisition over the cost of the
investment in such Subsidiary, all determined in accordance with GAAP.
"1934 Act" shall mean the Securities Exchange Act of 1934.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Note" and "Notes" shall have the meaning specified in paragraph 1.
"Officer's Certificate" shall mean a certificate signed in the name of
the Company, by its President, one of its Vice Presidents or its Treasurer.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor entity thereto.
"Pension Plan" shall mean any employee benefit or other plan, other
than a Multiemployer Plan, as defined in Section 4001 of ERISA and subject to
Title IV of ERISA, which is
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maintained after the Closing for employees of the Company, any of its
Subsidiaries or any ERISA Affiliates.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement in the form attached hereto as Exhibit D.
"Reportable Event" shall mean an event described in Section 4043(b) of
ERISA with respect to which the 30-day notice requirement has not been waived
by the PBGC.
"Restricted Payment" shall mean (i) any dividend or other distribution
(including, but not limited to, any payments made with respect to the capital
stock of the Company upon the dissolution, liquidation or winding up of the
Company) on any shares of capital stock (except dividends or distributions
payable solely in shares of such capital stock) of the Company; and (ii) any
payment on account of the purchase, redemption, retirement or other acquisition
of (a) any shares of capital stock of the Company or (b) any option, warrant,
convertible security or other right to purchase or acquire shares of capital
stock of the Company, other than (i) repurchases of shares of Common Stock from
employees or consultants of the Company upon termination of their employment or
consulting pursuant to written agreements, and (ii) repurchases of the
Warrants.
"Securities" shall mean the securities evidencing the Notes and the
Warrants.
"Senior Debt" shall mean all obligations (whether now outstanding or
hereafter incurred) for the payment of which the Company is responsible or
liable as obligor, guarantor or otherwise in respect of the principal, premium
(if any), and unpaid interest on, and all other amounts due with respect to (i)
any Indebtedness for money borrowed or evidenced by bonds, notes, debentures,
or similar instruments whether now existing or hereafter arising, absolute or
contingent, direct or indirect, due or to become due, (ii) Indebtedness under
leases which are capitalized under GAAP, (iii) any Indebtedness representing
the deferred and unpaid purchase price of any property or business, and (iv)
all deferrals, renewals, extensions and refundings of any such Indebtedness or
obligations; provided, that the following shall not constitute Senior Debt: (a)
Indebtedness evidenced by the Notes or any extension or refunding thereof, (b)
Indebtedness which is expressly made equal in right of payment with the Notes
or subordinate and subject in right of payment to the Notes, (c) Indebtedness
for goods or materials purchased in the ordinary course of business or (d)
Indebtedness which purports to be senior to Subordinated Debt, including the
Notes, and subordinate to the Indebtedness described in clauses (i) through
(iv) above.
"Senior Debt Agreement" shall mean any agreement pursuant to which
Senior Debt is incurred.
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"Shareholders Equity" shall mean shareholders' equity as the same
would be shown on a consolidated balance sheet of the Company prepared in
accordance with GAAP.
"Single-Employer Pension Plan" shall mean a Pension Plan which is a
"single-employer plan" as defined in Section 4001 of ERISA.
"Subordinated Debt" shall mean Indebtedness evidenced by the Notes.
"Subordinated Debt Agreement" shall mean any agreement pursuant to
which Subordinated Debt is incurred.
"Subsidiary" shall mean any corporation or similar entity, which at the
time as of which any determination is being made, would be consolidated under
GAAP.
"Warrants" shall have the meaning specified in paragraph I.
15. Miscellaneous.
15A. Home Office Payment. The Company agrees that, so long as the
Investors shall hold any Registered Note in registered form (or any Note in
order form with respect to which such Investors shall have requested in writing
that the provisions of this paragraph 15A shall apply), it will make payments
of principal of, premium (if any), interest and redemption payments on such
Notes not later than 12:00 o'clock noon, New York time, on the date such
payment is due, by transfer of immediately available funds (or by check, if
acceptable to the Investor receiving such payment) for credit to the Investors.
Payments shall be made to the account of the Investors specified in the
Purchaser Schedule attached hereto or such other account in the United States
as the Investors may designate in writing, notwithstanding any contrary
provision contained herein or in the Notes with respect to the place of
payment. The Investors agree that, before disposing of any Note, they will
make a notation thereon of all principal payments previously made thereon and
of the date to which interest thereon has been paid. The Company agrees to
afford the benefits of this paragraph 15A to any institutional investor of
recognized standing which is the direct or indirect transferee of any Note and
which, in the case of the transferee of any Note, has made the same agreement
relating to such Note as the Investors have made in this paragraph 15A.
15B. Expenses; Indemnification. The Company agrees, whether or not
the transactions hereby contemplated shall be consummated, to pay, and save the
Investors harmless against liability for the payment of, all reasonable out-
of-pocket expenses arising in connection with the transactions and other
agreements and instruments contemplated by this Agreement, including (i) travel
and travel-related expenses, including travel by and hotel accommodations for
any officer of Pecks Management Partners Ltd. in connection with conducting due
diligence inspections of the Company, attending board or shareholder meetings
or inspecting any properties of the Company or any Subsidiary following an
Event of Default; (ii) fees and expenses of Willkie Farr & Gallagher, special
counsel to the Investors in connection with this Agreement, including fees
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<PAGE> 45
and expenses of such counsel incurred in connection with the exercise, call,
exchange and conversion provisions of this Agreement, any other agreement or
instrument to be executed and delivered in connection with this Agreement, and
any subsequent modification hereof or thereof or consent hereunder or
thereunder regardless of whether any such modification or consent becomes
effective; and (iii) the cost and expenses, including reasonable attorneys fees
(which shall include allocated costs of in-house counsel of the Investors),
incurred by any Investor in enforcing any of its rights hereunder or
thereunder, including without limitation costs and expenses incurred in any
bankruptcy case. The Company agrees to indemnify the Investors and hold the
Investors harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind (including, without limitation, the reasonable
fees and disbursements of the Investors' special counsel in connection with any
investigative, administrative or judicial proceeding, whether or not the
Investors shall be designated a party thereto) which may be incurred by the
Investors, relating to or arising out of this Agreement, the Securities, or any
actual or proposed use of the proceeds of the sale of the securities hereunder,
provided that the Investors shall not have the right to be indemnified
hereunder for their own gross negligence or willful misconduct as determined by
a court of competent jurisdiction. The obligations of the Company under this
paragraph 15B shall survive the transfer of any of the Securities and the
payment of any Note.
15C. Consent to Amendments. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act of the holder
or holders of not less than 510-aggregate principal amount of Notes at the
time outstanding. Each holder of any Note or any Warrant, as the case may be,
at the time or thereafter outstanding shall be bound by any consent authorized
by this paragraph 15C, whether or not such Note or such Warrant, as the case
may be, shall have been marked to indicate such consent; provided that
notwithstanding anything in this paragraph 15C to the contrary, without the
written consent of the holder or holders of all Notes at the time outstanding,
no consent, amendment or waiver to or under this Agreement shall (i) extend or
reduce the maturity of any Note, or reduce the rate or affect the time of
payment of interest or any premium payable with respect to any Note, or affect
the time, amount or allocation of any required or optional prepayments, or
reduce the proportion of the principal amount of the Notes required with
respect to any consent, amendment or waiver; (ii) change the terms on which the
Warrants are exercisable as provided in paragraph 13; or (iii) amend the
provisions of this paragraph 15C. The Company shall promptly send copies of
any amendment, waiver or consent (and any request for any such amendment,
waiver or consent) relating to this Agreement or the Securities to each holder
of the Securities and, to the extent practicable, shall consult with each
Investor and such other holders in connection with each such amendment, consent
and waiver. No course of dealing between the Company and the holder of any
Note or any Warrant, as the case may be, nor any delay in exercising any rights
hereunder or under any Note or any Warrant, as the case may be, shall operate
as a waiver of any rights of any holder of such Note or such Warrant, as the
case may be. As used herein and in the Note and the Warrant, the term "this
Agreement" and references thereto shall mean this Agreement as it may, from
time to time, be amended or supplemented.
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<PAGE> 46
15D. Form, Registration, Transfer and Exchange of Notes or
Warrants; Lost Notes or Warrants. The Notes and Warrants are issuable as
Registered Notes and Registered Warrants, respectively, each transferable by
endorsement and delivery, and the Notes without coupons in the denominations of
$1,000 and any larger integral multiple of $1,000 and the Warrants in multiples
representing 200 shares of Common Stock. The Company shall keep at its
principal offices registers in which the Company shall provide for the
registration of the Notes and the Warrants, respectively. Upon surrender for
registration of transfer of any Registered Note or Registered Warrant at such
office, the Company shall, at its expense, execute and deliver one or more
replacing Notes or Warrants, as the case may be, of like tenor and of a like
aggregate principal amount or representing a like amount of shares of Common
Stock, as the case may be, which replacing Notes shall, at the option of such
holder and subject to the following provisions of this paragraph 15D, be
Registered Notes. At the option of the holder of any Note or Warrant, as the
case may be, such Note or Warrant may be exchanged for other Notes or Warrants,
as the case may be, of any authorized denominations, of a like tenor, of a like
aggregate principal amount or representing a like amount of shares of Common
Stock, as the case may be, and, in the case of Notes, subject to the following
provisions of this paragraph 15D, upon surrender of the Note or Warrant, as the
case may be, to be exchanged at the office of the Company. Whenever any Notes
or Warrants, as the case may be, are so surrendered for exchange, the Company
shall execute and deliver, at its expense, the Notes or Warrants which the
holder thereof making the exchange is entitled to receive. Every Note or
Warrant presented or surrendered for registration of transfer shall be duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the holder of such Note or Warrant, or his attorney duly authorized in writing.
Any Note issued in exchange for or upon transfer shall carry the rights to
unpaid interest and interest to accrue which were carried by the Note so
exchanged or transferred, so that neither gain nor loss of interest shall
result from any such transfer or exchange. Upon receipt of written notice from
the Investor or other evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of any Note or Warrant, as the case may
be, held by the Investor and, in the case of any such loss, theft or
destruction, upon receipt of its unsecured indemnity agreement, or other
indemnity reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Note or Warrant, as the case
may be, the Company will make and deliver a replacing Note or Warrant, as the
case may be, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note or Warrant.
15E. Provisions Applicable If Any of the Securities Are Sold. In
the event that the Investors should sell or otherwise transfer any Note or
Warrant or any part thereof to any Person other than the Company, the following
provisions shall apply:
15E(1). Notices to Subsequent Holder. If any Note or Warrant shall
have been transferred to another holder and such holder shall have designated
in writing the address to which communications with respect to such Note or
Warrant, as the case may be, shall be mailed, all notices, certificates,
requests, statements and other documents required to be delivered to the
transferring Investors by any provision hereof by reason of the holding of the
transferred Securities shall also be delivered to such holder, except that
financial statements and other
45
<PAGE> 47
documents provided for in paragraph 7A need be delivered only to any such
holder holding at least 5% of the aggregate principal amount of the Notes or 5%
of the aggregate number of Warrants then outstanding.
15E(2). Pro Rata Payments. All interest payments and payments or
prepayments of principal and premium (if any) on the Notes shall be made and
applied pro rata on all Notes outstanding including, for the purposes of this
paragraph 15E(2) only, all Notes acquired by the Company or any Affiliate of
the Company or any of its Subsidiaries other than by prepayment in accordance
with the terms of this Agreement.
15F. Registration Rights. The Company covenants that it will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted in the Registration Rights Agreement. The
Company further covenants that it will not grant any registration rights
relating to any shares of its stock or any other of its securities to any
Person, which are more favorable than the rights granted in the Registration
Rights Agreement.
15G. Restrictive Legend. Each Security and any Security issued in
exchange therefor shall bear the following (or substantially equivalent) legend
thereon;
"The transfer of these securities is subject to certain restrictions
set forth in a Securities Purchase Agreement, dated as of July 23,
1991, and any amendments thereto. The securities represented hereby
have not been registered under the Securities Act of 1933, as amended,
or applicable state securities laws, and the securities may not be
sold, transferred or otherwise disposed of in the absence of such
registration or an exemption therefrom under said Act and such laws
and the respective rules and regulations thereunder."
15H. Persons Deemed Owners. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Registered Note or Registered Warrant, as the case may be, is registered as the
owner and holder of such Note or Warrant, as the case may be, for the purpose
of receiving payment of principal of (and premium, if any) and interest on such
Note or all such rights under such Warrant, and for all other purposes
whatsoever, whether or not, in the case of such Note, such Note shall be
overdue, and the Company shall not be affected by notice to the contrary.
15I. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by or on
behalf of any party to this Agreement in connection herewith shall survive the
execution and delivery of this Agreement, regardless of any investigation made
by the Investors or on their behalf.
15J. Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto,
whether so expressed or not.
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<PAGE> 48
15K. Notices. All communications provided for hereunder shall be
sent by first class mail or nationwide overnight delivery services (with
charges prepaid) and, if to the Investors, addressed to the Investors in the
manner (except as otherwise provided in paragraph 15A with respect to payments
of principal of, premium (if any), and interest on the Notes) in which its
address appears in the Purchaser Schedule attached hereto, with a copy to
William J. Grant, Jr., Esq., at Willkie Farr & Gallagher, One Citicorp Center,
153 East 53rd Street, New York, New York 10022, if to the Company, addressed to
it at 1050 Cambridge Square, Suite C, Alpharetta, Georgia 30201, Attn:
President, with a copy to Morris C. Brown, Esq., at Morgan, Lewis & Bockius,
5300 Southeast Financial Center, 200 South Biscayne Boulevard, Miami, Florida
33131, or to such other address with respect to any party as such party shall
notify the other in writing; provided, however, that the Company may also, at
the option of the Investors, have any such communication be either delivered to
the Company at the Company's address set forth above or to any officer of the
Company.
15L. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
15M. Satisfaction Requirement. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to the Investors, the determination of
such satisfaction shall be made by the Investors in their sole and exclusive
judgment exercised in good faith. Unless otherwise provided, holders of at
least 510- of the principal amount of the then outstanding Notes shall have the
power to make such determination.
15N. Governing Law, Consent to Jurisdiction. This Agreement is
being executed by the Investors in the State of New York, and shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of such State. Any legal action or proceeding with
respect to this Agreement shall be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, the Company hereby accepts
for itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Company irrevocably consents to the
service of process out of any of the aforementioned courts in any such action
or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its address, such service to become
effective 30 days after such mailing. Nothing herein shall affect the right of
the Investors or any holder of a Note or Warrant to serve process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against the Company in any other jurisdiction.
15O. Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the Company
or any Investor, the Company or the Investors (or any of them), as applicable,
may proceed to protect and enforce its or their rights either by suit in equity
and/or by action at law, including, but not limited to, an action for damages
as a result of any such breach and/or an action for specific performance of any
such covenant or agreement contained in this Agreement. The Company or an
Investor acting pursuant
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<PAGE> 49
to this paragraph 15O shall be indemnified against all liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal and accounting fees and expenses) in accordance
with paragraph 15B.
15P. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior and contemporaneous arrangements or understandings with respect thereto.
15Q. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15R. Amendments. This Agreement may not be changed orally, but
(subject to the provisions of paragraphs 15C) only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
15S. Payment Date. Notwithstanding any provision of this Agreement
to the contrary, any payment on account of principal of or premium, if any, or
interest on any Note which is due on a date which is not a Business Day shall
be paid on the next succeeding Business Day, and the amount of interest
included in any such payment shall be computed to the date on which such
payment is actually made.
15T. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
15U. Confidentiality. Each Investor agrees that he or it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Investor may obtain from the Company pursuant to
this Agreement and which the Company has advised the Investor is protected
information, unless such information is known, or until such information
becomes known, to the public; provided, however, that such information may be
disclosed by the Investor to comply with applicable laws or governmental
regulations, in any court proceeding, in any action the Investor must take to
protect and enforce its rights under this Agreement if any Event of Default
shall occur and be continuing, or pursuant to an audit, provided that the
Investor provides prior written notice of such disclosure to the Company and
takes reasonable and lawful action to avoid or minimize the extent of such
disclosure; provided further, however, that an Investor may disclose such
information to any Affiliate of such Investor or to a partner or shareholder of
such Investor.
15V. Transfers of Certain Rights. The rights granted to an
Investor under this Agreement may be transferred by such Investor to another
Investor, to any affiliate of the
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<PAGE> 50
Investor or to any Person or entity, provided, however, that the rights set
forth in paragraphs 7A and 7B may not be transferred to a company in the
business of selling or producing products which the Company in good faith
reasonably determines are competitive with its own products.
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below, whereupon this letter shall become a
binding agreement between the parties hereto.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Authorized Signing Officer
Name: Gary D. Kerber
Title: CEO & Chairman
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<PAGE> 51
The foregoing Agreement is
hereby accepted as of the
date first above written.
TRUST FOR DEFINED BENEFIT PLAN
OF ICI AMERICAN HOLDING, INC.
By: Pecks Management Partners Ltd.
its Investment Adviser
By:
------------------------------------
Robert J. Cresci Principal Amount of Convertible
Managing Director Subordinated Notes: $1,100,000
Fuelship & Company Warrants to Purchase
---------------------------------- Common Stock: 220,000 Shares
(Name of Designee, if any)
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The foregoing Agreement is
hereby accepted as of the
date first above written.
STATE EMPLOYEES' RETIREMENT
FUND OF THE STATE OF DELAWARE
By: Pecks Management Partners Ltd.
its Investment Adviser
By:
----------------------------------------
Robert J. Cresci Principal Amount of Convertible
Managing Director Subordinated Notes: $2,900,000
NAP & Company Warrants to Purchase
-------------------------------------- Common Stock: 580,000 Shares
(Name of Designee, if any)
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TABLE OF CONTENTS
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1. Preliminary Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1A. Authorization of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1B. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of Units; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2A. Purchase and Sale of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2B. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Conditions of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3A. Opinion of the Company's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3B. Representations and Warranties; Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 2
3C. Charter Documents and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3D. Purchase Permitted by Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3E. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3F. Registration Rights and Coinvestors Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3G. Letter of Accountants: Accompanying Officer's Certificate . . . . . . . . . . . . . . . . . . . . . 3
3H. No Adverse U.S. Legislation, Action or Decision . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3I. Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3J. Approval and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3K. Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3L. Compliance with Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3M. Cumulative Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3N. Delivery of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Conditions to the Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4A. Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4B. Blue Sky Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4C. Purchase of All Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Prepayments of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5A. Prepayments of Notes in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5B. Mandatory Prepayments of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5C. Optional Prepayments of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Buyback of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6A. Buyback of Warrants in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6B. Put of the Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6C. Call of the Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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7. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7A. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7B. Books and Records; Inspection of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7C. Additional Covenants Pending the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7D. Compliance with Laws, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7E. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7F. Corporate Existence; Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7G. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7H. Filing of Reports under the 1934 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7I. 1933 Act Registration Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8A. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8B. Restrictions on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8C. Restrictions on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8D. Loans, Advances and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8E. Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8F. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8G. Merger and Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8H. Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8I. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8J. No Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8K. Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9A. Subordinated Debt Subordinate to Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9B. Suspension of Right to Receive Payments of Subordinated
Debt; Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9B(l). Failure to Pay Principal of or Interest on Senior Debt . . . . . . . . . . . . . . . . . . 17
9B(2). Acceleration of Payment of Senior Debt or Subordinated Debt . . . . . . . . . . . . . . . . 18
9B(3). Bankruptcy or Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9C. Rights of Holders of Senior Debt Not to Be Impaired . . . . . . . . . . . . . . . . . . . . . . . . 19
9D. Company's Obligation Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9E. Payments Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9F. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9G. Reliance by Holders on Final Order or Decree . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10. Events of Default; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10A. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10B. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<S> <C> <C>
11. Representations, Covenants and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11A. Organization; Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11B. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11C. Capital Stock and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11D. Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11E. Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11F. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11G. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11H. Conflicting Acrreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11I. Offering of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11J. Broker's or Finder's Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11K. Regulation G, Etc.; Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11L. Pollution and Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11M. Absence of Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11N. Agreements with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11O. Possession of Franchises, Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11P. Patents, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11Q. Holding Company and Investment Company Status . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11R. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11S. Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11T. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11U. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11V. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11W. Absence of Foreign or Enemy Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12. Representations of the Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12A. Investment: ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12B. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13. Exercise of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13A. Exercise Price and Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13B. Issuance of Certificates; When Exercise Effected . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13C. Fractional Shares: Accrued Interest; Partial Exercise . . . . . . . . . . . . . . . . . . . . . . . 30
13D. Adjustment of Price upon Issuance of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 31
13D(l). Issuance of Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13D(2). Change in Option Price or Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . 32
13D(3). Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13D(4). Consideration for Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13D(5). Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13D(6). Treasury Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13E. Subdivision or Combination of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13F. Adjustment of Number of Shares Subject to the Warrants . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
iii
<PAGE> 56
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
13G. Certain Issues of Common Stock Excepted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13H. Reorganization, Reclassification, Consolidation, Merger or Sale . . . . . . . . . . . . . . . . . . 35
13I. Notice of Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13J. Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13K. Stock to be Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13L. Issuance Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13M. Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13N. Closing of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
14. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15A. Home Office Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15B. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15C. Consent to Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15D. Form, Registration, Transfer and Exchange of Notes or Warrants: Lost Notes or Warrants . . . . . . . 44
15E. Provisions Applicable If Any of the Securities Are Sold . . . . . . . . . . . . . . . . . . . . . . 45
15E(1). Notices to Subsequent Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
15E(2). Pro Rata Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15F. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15H. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15I. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15J. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
15K. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15L. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15M. Satisfaction Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15N. Governing Law, Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15O. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
15P. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15Q. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15R. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15S. Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15T. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15U. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
15V. Transfers of Certain Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
iv
<PAGE> 57
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
============================================================================================================
Aggregate
Principal
Amount of Purchase
Notes to Be Shares of
PURCHASER Purchased Common Stock
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRUST FOR DEFINED BENEFIT PLAN OF ICI AMERICAN $1,100,000 220,000 Shares
HOLDINGS, INC.
(1) The Notes shall be registered in the name of:
Fuelship & Company
- ------------------------------------------------------------------------------------------------------------
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
ABA Routing Number 0110-00028 for Master
Trust/State Street
Acct. JG10
Attn: Al Bovarnick in State Street
Bank & Trust Company
Master Trust Division
P.O. Box 1992
North Quincy, MA 02105
Each such wire transfer shall set forth the name of the
Purchaser, the full title (including the interest rate
and final maturity date) of the Notes, and the due date
and application (as among principal, premium and
interest) of the payment being made.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
============================================================================================================
Aggregate
Principal
Amount of Purchase
Notes to Be Shares of
PURCHASER Purchased Common Stock
- ------------------------------------------------------------------------------------------------------------
<S> <C>
(3) The Notes and Warrants shall be physically
delivered to:
State Street Bank & Trust Company
61 Broadway
TP Concourse Level
New York, New York 10004
Account Name: ICI Americas
#JG10
Attn: Ms. Hiranyaket
- ------------------------------------------------------------------------------------------------------------
(4) Address for all communications and notices:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Robert J. Cresci
Managing Director
============================================================================================================
</TABLE>
<PAGE> 59
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
=========================================================================================================
Aggregate
Principal Warrants to
Amount of Purchase
Notes to Be Shares of
PURCHASER Purchased Common Stock
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
STATE EMPLOYEES' RETIREMENT FUND OF THE STATE OF $2,900,000 580,000 Shares
DELAWARE
(1) The Notes shall be registered in the name of:
NAP & Company
- ---------------------------------------------------------------------------------------------------------
(2) All payments on account of Notes held by such
purchaser shall be made by wire transfer of
immediately available funds for credit to:
ABA Routing Number 052-00618
for State of Delaware Account
Acct. #214380 in
Mercantile Safe Deposit & Trust
Company
2 Hopkins Plaza
Baltimore, Maryland 21201
Attn: Edward Holthause
Each such wire transfer shall set forth the name of the
Purchaser, the full title (including the interest rate
and final maturity date) of the Notes, and the due date
and application (as among principal, premium and
interest) of the payment being made.
- ---------------------------------------------------------------------------------------------------------
(3) The Notes and Warrants shall be physically
delivered to:
Mercantile Safe Deposit & Trust
Company
2 Hopkins Plaza
Baltimore, Maryland 21201
Attn: Edward Holthause
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
================================================================================================================
Aggregate
Principal Warrants to
Amount of Purchase
Notes to Be Shares of
PURCHASER Purchased Common Stock
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
(4) Address for all communications and notices:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Robert J. Cresci
Managing Director
================================================================================================================
</TABLE>
<PAGE> 61
SCHEDULE 8C TO SECURITIES PURCHASE AGREEMENT
(LIENS)
Pledge securing $350,000.00 Note issued in connection
with the acquisition of Meadows College of Business.
<PAGE> 62
SCHEDULE 11C TO SECURITIES PURCHASE AGREEMENT
EDUCATIONAL MEDICAL, INC.
EQUITY OWNERSHIP
AS OF JULY 23, 1991
<TABLE>
<CAPTION>
============================================================================================================
Preferred Common Preferred Common
Stock Stock* Warrants Warrants
----- ------ -------- --------
<S> <C> <C> <C> <C>
Sprout/DLJ 382,500 159,384 21,697 9,041
----------------------------------------------------------------------------------------------------------
LTOS 382,500 159,383 18,768 7,820
----------------------------------------------------------------------------------------------------------
Investech 255,000 106,256 14,466 6,027
----------------------------------------------------------------------------------------------------------
Kerber 0 192,267 0 0
----------------------------------------------------------------------------------------------------------
Davis 0 94,222 0 0
----------------------------------------------------------------------------------------------------------
Pisano 0 92,721 0 0
----------------------------------------------------------------------------------------------------------
Lavery 0 17,499 0 0
----------------------------------------------------------------------------------------------------------
Equitable Securities 0 0 0 16,000
----------------------------------------------------------------------------------------------------------
Corporation
----------------------------------------------------------------------------------------------------------
Other Management 0 2,250 0 0
----------------------------------------------------------------------------------------------------------
TOTAL ISSUED 1,020,000 823,982 54,931 38,888
AND OUTSTANDING
============================================================================================================
</TABLE>
* 18,000 SHARES OF COMMON STOCK ARE RESERVED FOR ISSUANCE PURSUANT TO THE
INCENTIVE COMPENSATION AGREEMENT.
==============================================================================
NOTES:
The Company has agreed to issue to Robert Heidric, an executive search
agent, warrants (the "Heidric Warrants") to purchase 10,000 shares of its
common stock at the offering price of such shares in an Initial Public
Offering, such warrants to have a term of 5 years from the date of such Public
Offering.
The Company is issuing approximately 250,000 shares of common stock to
the holders of its cumulative preferred stock in connection with the
transactions provided for in the Securities Purchase Agreement to which this
Schedule is attached.
<PAGE> 63
SCHEDULE 11D TO SECURITIES PURCHASE AGREEMENT
(ACTIONS PENDING)
1. Richard I. Lyles, Jr. and Richard I. Lyles, III v. Educational
Medical, Inc., a Delaware corporation, et al., Case No.
631689, in the Superior Court of California for the County of
San Diego, filed December 11, 1990.
The sellers of the Maric Schools brought this action against
the Company to enforce payment of Notes (the "Notes") in the principal amount
of $180, 000 issued in connection with the purchase of the Maric Schools by the
Company. The Company has withheld payments on the Notes because of alleged
breaches by the sellers of the agreement pursuant to which the sale occurred,
relating to the notice of deficiency described below, and has asserted such
counterclaims in the litigation. Discovery has not yet been completed, and
although the Company is vigorously pursuing its claims, we are unable to
predict the outcome of the litigation. Substantially all of the payments
provided for in the promissory notes have been placed into escrow and will be
disbursed upon completion of the litigation.
2. Notice of Deficiency from the U.S. Department of Education
with respect to Maric College of San Diego for the period ended June 30, 1985
(see page 10 of the Private Placement Memorandum dated October 24, 1990).
Reaudited results have been filed and the Company is awaiting a response.
<PAGE> 64
SCHEDULE 11E TO SECURITIES PURCHASE AGREEMENT
(OUTSTANDING DEBT OF EDUCATIONAL MEDICAL, INC.
OR ANY OF ITS SUBSIDIARIES)
NONE OTHER THAN DISCLOSED
IN FINANCIAL STATEMENTS.
<PAGE> 65
SCHEDULE 11T TO SECURITIES PURCHASE AGREEMENT
(SUBSIDIARIES OF
EDUCATIONAL MEDICAL, INC.)
1. Andon Colleges, Inc., a California corporation.
a) Dest Education Corporation, a California corporation, a
subsidiary of Andon Colleges, Inc.
2. Maric Learning Systems, a California corporation.
3. Meadows Acquisition Corp., a Delaware corporation.
4. Palo Vista College of Nursing and Allied Health Services, Inc., a
California corporation.
5. Scottsdale Educational Center for Allied Health Careers, Incorporated.
<PAGE> 66
SCHEDULE 11V TO SECURITIES PURCHASE AGREEMENT
(REGISTRATION RIGHTS)
NONE OTHER THAN AS CONTAINED IN OR REFERRED TO IN
THE REGISTRATION RIGHTS AGREEMENT DATED JULY 23, 1991.
<PAGE> 67
EXHIBIT "A"
[Form of Senior Subordinated Note]
THE TRANSFER AND PAYMENT OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY __,
1991, AND ANY AMENDMENTS THERETO. THE NOTE REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
AND SUCH LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.
EDUCATIONAL MEDICAL, INC.
13% SENIOR SUBORDINATED NOTE
DUE JULY ____, 1996
R-_______________ __________________________
$ _______________ [Date]
FOR VALUE RECEIVED, the undersigned, EDUCATIONAL MEDICAL, INC., a
corporation organized and existing under the laws of the State of
_______________ (herein called the "Company"), hereby promises to pay to
__________________ or ________________ registered assigns, the principal sum of
____________________ DOLLARS ($) on July ___, 1996, with interest (computed for
the actual number of days elapsed on the basis of a 365-day year) (a) on the
unpaid balance thereof at the rate of 13% per annum from the date hereof,
payable quarterly on the last day of March, June, September and December in
each year, commencing with the March, June, September or December next
succeeding the date hereof, until the principal hereof (or any portion thereof)
shall have become due and payable, and (b) on any overdue payment (including
any overdue prepayment) of principal and, to the extent permitted by applicable
law, any overdue payment of interest, payable quarterly as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to 16%.
Payments of both principal and interest are to be made at the main
office of Chase Manhattan Bank in New York, or such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
This Note is issued pursuant to a Securities Purchase Agreement dated
as of July __, 1991 (the "Agreement"), between the Company and the Investors
named on the signature page thereof and is entitled to the benefits of the
Agreement. As provided in the Agreement, this Note is subject to prepayment,
in whole or in part, in certain cases without premium and in other cases with a
premium as specified in the Agreement.
<PAGE> 68
PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY) AND INTEREST IN RESPECT OF
THIS NOTE ARE SUBORDINATE TO SENIOR DEBT (AS DEFINED IN THE AGREEMENT).
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in writing,
a new Note for a like principal amount will be issued to, and registered in the
name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
The Company agrees to make prepayments of principal of the Notes on
the dates and in the amounts specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared due and payable
in the manner and with the effect provided in the Agreement. The Company
agrees to pay, and save the holder hereof harmless against any liability for,
any expenses arising in connection with the enforcement by the holder hereof of
any of its rights under this Note or the Agreement.
Payment of principal, premium (if any) and interest in respect of this
Note are subordinate, to the extent set forth in the Agreement, to all
principal of and interest on Senior Debt (as defined in the Agreement).
This Note is intended to be performed in the State of New York, and
shall be construed and enforced in accordance with the law of such State.
EDUCATIONAL MEDICAL, INC.
By:
-------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE> 69
EXHIBIT "B"
[Form of Warrant Certificate]
Warrant No. R-_____________________________________
THE TRANSFER OF THIS WARRANT IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN A
SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 11, 1991, AND ANY AMENDMENTS
THERETO. THE WARRANT REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND IT
MAY NOT BE SOLD, Transferred OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
Registration OR AN EXEMPTION THEREFROM UNDER SAID ACT AND SUCH LAWS AND THE
RESPECTIVE RULES AND REGULATIONS THEREUNDER.
WARRANT TO PURCHASE COMMON STOCK OF
EDUCATIONAL MEDICAL, INC.
Exercisable Commencing
------------
Void After
June 30, 2001
THIS CERTIFIES that, for value received, or registered assigns, is
entitled, subject to the terms and conditions set forth in this Warrant
Certificate, to purchase from EDUCATIONAL MEDICAL, INC., a _______________
corporation (the "Company"), _______________ fully paid and non-assessable
shares of Common Stock of the Company (the "Common Stock"), at any time
commencing __________ and continuing up to 5 p.m. New York time on June 30,
2001, originally at a price of $5.00 per share and thereafter at the price
calculated pursuant to the Purchase Agreement (as hereinafter defined) (the
"Exercise Price").
This Warrant is issued pursuant to a Securities Purchase Agreement
dated as of July 1991 (the "Purchase Agreement"), between the Investors listed
on the Purchaser Schedules thereto and the Company. The Purchase Agreement is
hereby incorporated by reference in and made a part of this Warrant and is
hereby referred to for a description of the rights, obligations, duties and
immunities thereunder of the Company and the registered holder or registered
holders of the Warrants (the "Holder(s)"). A copy of the Purchase Agreement
may be obtained by the Holder(s) hereof upon written request directed to the
Company. Capitalized terms used herein shall have the meaning ascribed to them
in the Purchase Agreement.
Warrants may be exercised at such times and in such amounts as are
provided for in the Purchase Agreement, but in no event later than 5:00 p.m.,
New York time, on June 30, 2001.
The Holder(s) of Warrants evidenced by this Warrant Certificate may
exercise them by surrendering this Warrant Certificate, with the form of
election to purchase attached hereto
<PAGE> 70
properly completed and executed, together with payment of the Exercise Price at
the principal office of the Company (or at such other address as the Company
may designate by notice in writing to the Holder(s) hereof at the address of
such Holder(s) appearing on the books of the Company). Payment of the Exercise
Price may be made in cash, by certified check payable to the order of the
Company, or by payment by way of a call on the Notes with a concurrent
direction to the Company to credit such amount in payment of the Exercise
Price, or any combination thereof. In the event that upon any exercise of
Warrants evidenced hereby, the number of Warrants exercised shall be less than
the total number of Warrants evidenced hereby, there shall be issued to the
Holder(s) hereof or the assignee of the Holder (s), without charge, a new
Warrant Certificate evidencing the number of Warrants not exercised.
The Purchase Agreement provides that upon the occurrence of certain
events, the Exercise Price or number of shares of Common Stock set forth on the
face hereof may be adjusted, subject to certain conditions. "No fractions of a
share of Common Stock shall be issued upon the exercise of any Warrant, but the
Company shall pay the cash value thereof determined as provided in the Purchase
Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered Holder(s) thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Purchase Agreement, but without
payment of any service charge, for another Warrant Certificate of like tenor
evidencing in the aggregate a like number of Warrants.
The Company agrees to provide the Holder(s) hereof with written notice
of the expiration of the Warrants at least sixty days prior to the date of
expiration. Such notice shall be sent by first class mail or nationwide
overnight delivery services (with charges prepaid) to the Holder(s) hereof at
the address of such Holder(s) appearing on the books of the Company.
Upon due presentation for registration of a transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants will be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided in the Purchase Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the Holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereof made by anyone), for the purpose of any exercise
hereof, of any distribution to the Holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Except as otherwise referred to in the Purchase Agreement, neither the Warrants
nor this Warrant Certificate entitles any Holder(s) hereof to any rights of a
stockholder of the Company.
The Warrants are callable by the Company and redeemable at certain
times and in certain events.
This Warrant Certificate is intended to be performed in the State of
New York and shall be construed and enforced in accordance with the law of such
State.
<PAGE> 71
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer on this _____ day of July, 1991.
EDUCATIONAL MEDICAL, INC.
By:
-------------------------------------------------
Name:
-----------------------------------------------
Title:
<PAGE> 72
FORM OF ELECTION TO PURCHASE
TO: EDUCATIONAL MEDICAL, INC.
The undersigned holder of this Warrant (1) hereby irrevocably elects
to exercise the right to purchase hereunder (______________ ) fully-paid shares
of the Common Stock of EDUCATIONAL MEDICAL, INC., (2) makes paint in full of
the purchase price of such shares, (3) requests that certificates for such
shares be issued in the name of ___________
_________________________________________________ and (4) if said number of
shares shall not be all the shares the holder is entitled to purchase under
this Warrant, requests that a new warrant for the unexercised portion of this
Warrant be issued. If payment is being made by delivery of 13% Senior
Subordinated Notes due July _____, 1996 to the Company, the undersigned hereby
directs the Company to apply such payment on the Notes on account of the
Exercise Price.
Dated:________________________
__________________________________________________
(SIGNATURE)
<PAGE> 73
EXHIBIT "C"
[Form of Opinion of Company Counsel]
July 1991
State Employees' Retirement Fund
of the State of Delaware
Baltimore, Maryland
Trust for Defined Benefit Plan
of ICI American Holdings Inc.
New York, New York
Willkie Farr & Gallagher
New York, New York
Re: Educational Medical, Inc.
13% Senior Subordinated Notes and
Warrants to Purchase Common Stock
Gentlemen:
We refer to the Securities Purchase Agreement (the "Securities
Purchase Agreement") dated July 23, 1991 by and among Educational Medical, Inc.
(the "Company"), a Delaware corporation, and the investors listed on the
Purchaser Schedules thereto (the "Investors"), which provides for the issuance
and sale by the Company to the Investors of 4,000 Units (the "Units"), each
Unit comprising (i) $1,000 principal amount of 13% Senior Subordinated
Promissory Notes of the Company (the "Notes") and (ii) warrants to purchase 200
shares of Common Stock (the "Warrants") . This opinion is being rendered to you
pursuant to Paragraph 3A of the Securities Purchase Agreement. Capitalized
terms used herein without definition have the respective meanings ascribed to
such terms in the Securities Purchase Agreement.
We have acted as counsel to the Company in connection with the
issuance and sale to the Investors of the Units pursuant to the Securities
Purchase Agreement. In connection with the foregoing, we have examined
originals or copies satisfactory to us of: (i) the Securities Purchase
Agreement and the schedules and exhibits thereto, (ii) the Restated Certificate
of Incorporation of the Company, (iii) the By-laws of the Company, (iv) the
Registration Rights Agreement, (v) the Coinvestors Agreement, (vi) the form of
Note and (vii) the form of Warrant.
We have also examined originals or copies satisfactory to us of all
such corporate records and of all such agreements, certificates, governmental
orders and permits and other documents as we have deemed relevant and necessary
as a basis for the opinions hereinafter expressed. In our examination we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with the original documents of
all documents submitted to us as copies. As to any facts material to such
opinions, we have, to the
<PAGE> 74
<TABLE>
<S> <C>
State Employees' Retirement Fund Trust for Defined Benefit Plan
of the State of Delaware of ICI American Holdings Inc.
Baltimore, Maryland New York, New York
Willkie Farr & Gallagher July ______, 1993
New York, New York Page 2
</TABLE>
extent that such facts were not independently established by us, relied upon
certificates of public officials and officers of the Company.
Based upon the foregoing, we are of the opinion that:
The Company is a corporation, duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. The Company is duly
qualified to do business as a foreign corporation and in good standing in each
jurisdiction in which the character of its properties or the nature of its
business makes such qualification necessary. Each of the Company's
Subsidiaries is duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, and each of the Company's
Subsidiaries is duly qualified to do business as a foreign coloration and in
good standing in each jurisdiction in which the character of its properties or
the nature of its business makes such qualification necessary. The Company and
each of its Subsidiaries have all requisite corporate power and authority to
own, and in all material respects to operate, their respective properties and
to carry on their respective businesses as now conducted in all material
respects.
The Company has all requisite corporate power and authority to enter
into and carry out the transactions contemplated by the Securities Purchase
Agreement and each agreement executed by the Company pursuant thereto and to
issue and sell the Units and to issue Common Stock upon exercise of the
Warrants. The execution, delivery and performance of the Securities Purchase
Agreement, the Shareholders Agreement and the Registration Rights Agreement
have been duly authorized by all necessary corporate action on the part of the
Company, and such Agreements have been duly executed and delivered by the State
Employees' Retirement Fund of the Company and constitute legal, valid and
binding obligations of the Company, enforceable against it in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization and other laws relating to
or affecting the enforcement of the rights and remedies of creditors generally
and by general principles of equity. The Company's authorized capital stock is
as set forth in Section 11C of the Securities Purchase Agreement.
The Warrants to be issued and sold on the Closing Date have been
issued and sold by the Company pursuant to the Securities Purchase Agreement.
The shares of Common Stock issuable upon exercise of the Warrants have been
duly authorized by all necessary corporate action on the part of the Company
and have been validly reserved for issuance upon such exercise; such shares,
when issued upon such exercise, will be validly issued, fully paid and
nonassessable. Neither the issuance, sale and delivery of the Warrants nor the
issuance of the Common Stock issuable upon exercise of the Warrants is subject
to any applicable preemptive rights of shareholders of the
<PAGE> 75
<TABLE>
<S> <C>
State Employees' Retirement Fund Trust for Defined Benefit Plan
of the State of Delaware of ICI American Holdings Inc.
Baltimore, Maryland New York, New York
Willkie Farr & Gallagher July ______, 1993
New York, New York Page 3
</TABLE>
Company which have not been waived or, to our best knowledge, after due
inquiry, to any right of first refusal or other similar right in favor of any
person or entity.
To the best of our knowledge after due inquiry, and except as set
forth in Schedule 11D of the Securities Purchase Agreement, there is no action,
suit, investigation or proceeding pending or threatened against the Company or
any of its Subsidiaries or any of their properties by or before any court,
arbitrator or administrative or governmental body.
To the best of our knowledge after due inquiry, except as set forth on
Schedule 11D of the Securities Purchase Agreement, there exists no default,
which has not been waived or cured, under the provisions of any instrument of
which we have actual knowledge evidencing Indebtedness of the Company or any of
its Subsidiaries or of any agreement of which we have actual knowledge relating
thereto.
To the best of our knowledge after due inquiry, and except as
otherwise disclosed in the Securities Purchase Agreement, neither the execution
nor the delivery of State Employees' Retirement Fund of the Securities Purchase
Agreement, the Registration Rights Agreement, the Co investors Agreement or
fulfillment of or compliance with the terms and provisions of any thereof,
including, without limitation, the exercise of Warrants for Common Stock, will
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries pursuant to, the Amended and Restated Certificate of
Incorporation or By-Laws of the Company or any of its Subsidiaries, any award
of any arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment or decree, statute, law, rule or regulation to
which the Company or any of its Subsidiaries is subject, and neither the
Company nor any of its Subsidiaries is a party to, or otherwise subject to any
provision contained in, any instrument evidencing indebtedness for borrowed
money of the Company or any of its Subsidiaries, any agreement relating thereto
or any other contract or agreement (including its Amended and Restated
Certificate of Incorporation) which contains dividend or redemption limitations
on any capital stock of the Company, except for the Securities Purchase
Agreement, the Notes and the Warrants.
To the best of our knowledge, the Company and its Subsidiaries possess
all franchises, certificates, licenses, permits and other authorizations from
governmental political subdivisions or regulatory authorities that are
necessary in any material respect for the ownership, maintenance and operation
of its properties and assets when taken as a whole.
<PAGE> 76
<TABLE>
<S> <C>
State Employees' Retirement Fund Trust for Defined Benefit Plan
of the State of Delaware of ICI American Holdings Inc.
Baltimore, Maryland New York, New York
Willkie Farr & Gallagher July ______, 1993
New York, New York Page 4
</TABLE>
Neither the Company nor any of its Subsidiaries is, or upon the sale
of the Units will be, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or an "investment advisor" within the meaning of the Investment
Advisors Act of 1940, as amended.
The offer, issue, sale and delivery of the Units under the
circumstances contemplated by the Securities Purchase Agreement do not require
registration under the Securities Act of 1933, as amended. The Company is not
required to file, nor has the Company filed, pursuant to Section 12 of the
Securities Exchange Act of 1934, a registration statement relating to any class
of debt or equity securities.
This opinion is furnished solely to you and may not be relied upon by
any other party and may not be quoted or referred to without our prior written
approval.
Very truly yours,
MORGAN, LEWIS & BOCKIUS
<PAGE> 1
EXHIBIT 10.2
THE TRANSFER AND PAYMENT OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 16,
1991, AND ANY AMENDMENTS THERETO. THE NOTE REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
SUCH LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.
EDUCATIONAL MEDICAL, INC.
13% SENIOR SUBORDINATED NOTE
DUE JULY 16, 1996
R-002 July 16, 1991
$2,900,000
FOR VALUE RECEIVED, the undersigned, EDUCATIONAL MEDICAL, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "Company"), hereby promises to pay to NAP & Company or
registered assigns, the principal sum of TWO MILLION NINE HUNDRED THOUSAND
DOLLARS on July 16, 1996, with interest (computed for the actual number of days
elapsed on the basis of a 365-day year) (a) on the unpaid balance thereof at the
rate of 13% per annum from the date hereof, payable quarterly on the last day of
March, June, September and December in each year, commencing with the March,
June, September or December next succeeding the date hereof, until the principal
hereof (or any portion thereof) shall have become due and payable, and (b) on
any overdue payment (including any overdue prepayment) of principal and, to the
extent permitted by applicable law, any overdue payment of interest, payable
quarterly as aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum from time to time equal to 16%.
This Note is issued pursuant to a Securities Purchase Agreement
dated as of July 16, 1991 (the "Agreement"), between the Company and the
Investors named on the signature page thereof and is entitled to the benefits of
the Agreement. As provided in the Agreement, this Note is subject to prepayment,
in whole or in part, in certain cases without premium and in other cases with a
premium as specified in the Agreement.
Payments of both principal and interest are to be made at and as
designated in the Purchaser Schedule to the Agreement in lawful money of the
United States of America.
PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY) AND INTEREST IN RESPECT
OF THIS NOTE ARE SUBORDINATE, TO THE EXTENT SET FORTH IN THE AGREEMENT, TO
SENIOR DEBT (AS DEFINED IN THE AGREEMENT).
<PAGE> 2
This Note is a registered Note and, as provided in the
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
The Company agrees to make prepayments of principal of the Notes
on the dates and in the amounts specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall
occur and be continuing, the principal of this Note may be declared due and
payable in the manner and with the effect provided in the Agreement. The Company
agrees to pay, and save the holder hereof harmless against any liability for,
any expenses arising in connection with the enforcement by the holder hereof of
any of its rights under this Note or the Agreement.
This Note is intended to be performed in the State of New York,
and shall be construed and enforced in accordance with the law of such State.
EDUCATIONAL MEDICAL, INC
By: /s/ Gary D. Kerber
--------------------------------
Name: Gary D. Kerber
Title: CEO
-2-
<PAGE> 1
EXHIBIT 10.3
THE TRANSFER AND PAYMENT OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 23,
1991, AND ANY AMENDMENTS THERETO. THE NOTE REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
AND SUCH LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.
EDUCATIONAL MEDICAL, INC.
13% SENIOR SUBORDINATED NOTE
DUE JULY 23, 1996
R-003 July 23, 1991
$603,000
FOR VALUE RECEIVED, the undersigned, EDUCATIONAL MEDICAL, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "Company"), hereby promises to pay to Fuelship & Company or
registered assigns, the principal sum of SIX HUNDRED THREE THOUSAND DOLLARS on
July 23, 1996, with interest (computed for the actual number of days elapsed on
the basis of a 365-day year) (a) on the unpaid balance thereof at the rate of
13% per annum from the date hereof, payable quarterly on the last day of March,
June, September and December in each year, commencing with the March, June,
September or December next succeeding the date hereof, until the principal
hereof (or any portion thereof) shall have become due and payable, and (b) on
any overdue payment (including any overdue prepayment) of principal and, to the
extent permitted by applicable law, any overdue payment of interest, payable
quarterly as aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum from time to time equal to 16%.
This Note is issued pursuant to a Securities Purchase Agreement dated
as of July 23, 1991 (the "Agreement"), between the Company and the Investors
named on the signature page thereof and is entitled to the benefits of the
Agreement. As provided in the Agreement, this Note is subject to prepayment,
in whole or in part, in certain cases without premium and in other cases with a
premium as specified in the Agreement.
Payments of both principal and interest are to be made at and as
designated in the Purchaser Schedule to the Agreement in lawful money of the
United States of America.
PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY) AND INTEREST IN RESPECT OF
THIS NOTE ARE SUBORDINATE, TO THE EXTENT SET FORTH IN THE AGREEMENT, TO SENIOR
DEBT (AS DEFINED IN THE AGREEMENT).
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in writing,
a new Note for a like principal amount will be issued to, and registered in the
name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
The Company agrees to make prepayments of principal of the Notes on
the dates and in the amounts specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared due and payable
in the manner and with the effect provided in the Agreement. The Company
agrees to pay, and save the holder hereof harmless against any liability for,
any expenses arising in connection with the enforcement by the holder hereof of
any of its rights under this Note or the Agreement.
This Note is intended to be performed in the State of New York, and
shall be construed and enforced in accordance with the law of such State.
EDUCATIONAL MEDICAL, INC.
By:
--------------------------
Name: Gary D. Kerber
Title: Chairman and Chief
Executive Officer
<PAGE> 1
EXHIBIT 10.4
THE TRANSFER AND PAYMENT OF THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF JULY 23,
1991, AND ANY AMENDMENTS THERETO. THE NOTE REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
AND SUCH LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.
EDUCATIONAL MEDICAL, INC.
13% SENIOR SUBORDINATED NOTE
DUE JULY 23, 1996
R-004 July 23, 1991
$497,000
FOR VALUE RECEIVED, the undersigned, EDUCATIONAL MEDICAL, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "Company"), hereby promises to pay to Fuelship & Company or
registered assigns, the principal sum of FOUR HUNDRED NINETY-SEVEN THOUSAND
DOLLARS on July 23, 1996, with interest (computed for the actual number of days
elapsed on the basis of a 365-day year) (a) on the unpaid balance thereof at
the rate of 13% per annum from the date hereof, payable quarterly on the last
day of March, June, September and December in each year, commencing with the
March, June, September or December next succeeding the date hereof, until the
principal hereof (or any portion thereof) shall have become due and payable,
and (b) on any overdue payment (including any overdue prepayment) of principal
and, to the extent permitted by applicable law, any overdue payment of
interest, payable quarterly as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to 16%.
This Note is issued pursuant to a Securities Purchase Agreement dated
as of July 23, 1991 (the "Agreement"), between the Company and the Investors
named on the signature page thereof and is entitled to the benefits of the
Agreement. As provided in the Agreement, this Note is subject to prepayment,
in whole or in part, in certain cases without premium and in other cases with a
premium as specified in the Agreement.
Payments of both principal and interest are to be made at and as
designated in the Purchaser Schedule to the Agreement in lawful money of the
United States of America.
PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY) AND INTEREST IN RESPECT OF
THIS NOTE ARE SUBORDINATE, TO THE EXTENT SET FORTH IN THE AGREEMENT, TO SENIOR
DEBT (AS DEFINED IN THE AGREEMENT).
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in writing,
a new Note for a like principal amount will be issued to, and registered in the
name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
The Company agrees to make prepayments of principal of the Notes on
the dates and in the amounts specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared due and payable
in the manner and with the effect provided in the Agreement. The Company
agrees to pay, and save the holder hereof harmless against any liability for,
any expenses arising in connection with the enforcement by the holder hereof of
any of its rights under this Note or the Agreement.
This Note is intended to be performed in the State of New York, and
shall be construed and enforced in accordance with the law of such State.
EDUCATIONAL MEDICAL, INC.
By:
--------------------------------
Name: Gary D. Kerber
Title: Chairman and Chief
Executive Officer
<PAGE> 1
EXHIBIT 10.5
ALLONGE
The 13% Senior Subordinated Note, dated July 16, 1991, issued by
Educational Medical, Inc. ("Company") to State Employees' Retirement Fund of
the State of Delaware (the "Retirement Fund") and NAP & Company, its Registered
Nominee, pursuant to the Securities Purchase Agreement (the "Purchase
Agreement") dated April 16, 1993, among the Retirement Fund, Trust for Defined
Benefit Plan of ICI American Holdings, Inc. and the Company, in the original
principal sum of Two Million Nine Hundred Thousand and 00/100 Dollars
($2,900,000.00) (the "Note") is hereby amended to provide that, instead of
paying interest quarterly and the entire unpaid principal amount of the Note on
July 16, 1996 as provided in the Note, the Company shall pay an installment of
principal in the amount of Seventy-Two Thousand Five Hundred and 00/100 Dollars
($72,500.00), with interest (computed for the actual number of days elapsed on
the basis of a 365 day year) on the unpaid principal balance outstanding from
time to time at the rate of thirteen percent (13%) per annum, quarterly on the
last day of March, June, September and December in each year, until (x) the
Note has been paid in full or (y) all obligations of the Company to Sirrom
Capital Corporation ("Sirrom") pursuant to the Loan Agreement between the
Company and Sirrom dated March 31, 1995 have been paid in full (the "Sirrom
Satisfaction"). On the last day of the first full calendar month following the
Sirrom Satisfaction, fifteen percent of the unpaid principal balance
outstanding (the "Outstanding Balance") and all related interest shall be due
and payable, and additional payments of twenty percent of the Outstanding
Balance, twenty-five percent of the Outstanding Balance and the remainder of
the Outstanding Balance, and all related interest, shall be due and payable on
the last day of the following second, third and fourth calendar months.
Further, Section 9 of the Purchase Agreement is hereby amended to read
as follows:
(d) All notices given pursuant to this Paragraph 9 shall be sent
by first class mail or by a reputable overnight nationwide delivery
service (with charges prepaid) to the holders of the Notes or to the
holders of the Senior Debt, as applicable, at the following addresses:
If to the holders of the Notes, to them, in care of their
representative at:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Mr. Robert J. Cresci
If to the holders of the Senior Debt, to them, in care of
their representative at:
Sirrom Capital Corporation
511 Union Street
Suite 2310
Nashville, Tennessee 37219
All notices given pursuant to this Paragraph 9 shall be deemed to be
given three (3) days following deposit in the mail, if sent by mail,
and one (1) day following delivery to an overnight delivery service,
if sent by overnight courier, or, if earlier, upon actual receipt by
the intended recipient.
Except as specifically provided for in this Allonge, the terms of the
Note and the Purchase Agreement shall remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Allonge as of the _____ day of _____________, 1995.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------
Name:
Title:
STATE EMPLOYEES' RETIREMENT FUND OF THE
STATE OF DELAWARE AND NAP & COMPANY,
ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
--------------------------------
Robert J. Cresci
Managing Director
<PAGE> 1
EXHIBIT 10.6
A L L O N G E
The 13% Senior Subordinated Note, dated July 23, 1991, issued by
Educational Medical, Inc. ("Company") to Trust for Defined Benefit Plan of ICI
American Holdings, Inc. (the "Benefit Plan") and Fuelship & Company, its
Registered Nominee, pursuant to the Securities Purchase Agreement (the
"Purchase Agreement") dated April 16, 1993, among the Benefit Plan, State
Employees' Retirement Fund of the State of Delaware and the Company, in the
original principal sum of Six Hundred Three Thousand and 00/100 Dollars
($603,000.00) (the "Note") is hereby amended to provide that, instead of paying
interest quarterly and the entire unpaid principal amount of the Note on July
23, 1996 as provided in the Note, the Company shall pay an installment of
principal in the amount of Fifteen Thousand Seventy-Five and 00/100 Dollars
($15,075.00), with interest (computed for the actual number of days elapsed on
the basis of a 365 day year) on the unpaid principal balance outstanding from
time to time at the rate of thirteen percent (13%) per annum, quarterly on the
last day of March, June, September and December in each year, until (x) the
Note has been paid in full or (y) all obligations of the Company to Sirrom
Capital Corporation ("Sirrom") pursuant to the Loan Agreement between the
Company and Sirrom dated March 31, 1995 have been paid in full (the "Sirrom
Satisfaction"). On the last day of the first full calendar month following the
Sirrom Satisfaction, fifteen percent of the unpaid principal balance
outstanding (the "Outstanding Balance") and all related interest shall be due
and payable, and additional payments of twenty percent of the Outstanding
Balance, twenty-five percent of the Outstanding Balance and the remainder of
the Outstanding Balance, and all related interest, shall be due and payable on
the last day of the following second, third and fourth calendar months.
Further, Section 9 of the Purchase Agreement is hereby amended to read
as follows:
(d) All notices given pursuant to this Paragraph 9 shall be sent
by first class mail or by a reputable overnight nationwide delivery
service (with charges prepaid) to the holders of the Notes or to the
holders of the Senior Debt, as applicable, at the following addresses:
If to the holders of the Notes, to them, in care of their
representative at:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Mr. Robert J. Cresci
If to the holders of the Senior Debt, to them, in care of
their representative at:
Sirrom Capital Corporation
511 Union Street
Suite 2310
Nashville, Tennessee 37219
All notices given pursuant to this Paragraph 9 shall be deemed to be
given three (3) days following deposit in the mail, if sent by mail,
and one (1) day following delivery to an overnight delivery service,
if sent by overnight courier, or, if earlier, upon actual receipt by
the intended recipient.
Except as specifically provided for in this Allonge, the terms of the
Note, and the Purchase Agreement shall remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Allonge as of the day of , 1995.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------
Name:
Title:
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. and FUELSHIP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners,
Ltd., its Investment Adviser
By:
----------------------------------
Robert J. Cresci
Managing Director
<PAGE> 1
EXHIBIT 10.7
A L L O N G E
The 13% Senior Subordinated Note, dated July 23, 1991, issued by
Educational Medical, Inc. ("Company") to Trust for Defined Benefit Plan of ICI
American Holdings, Inc. (the "Benefit Plan") and Fuelship & Company, its
Registered Nominee, pursuant to the Securities Purchase Agreement (the
"Purchase Agreement") dated April 16, 1993, among the Benefit Plan, State
Employees' Retirement Fund of the State of Delaware and the Company, in the
original principal sum of Four Hundred Ninety-Seven Thousand and 00/100 Dollars
($497,000.00) (the "Note") is hereby amended to provide that, instead of paying
interest quarterly and the entire unpaid principal amount of the Note on July
23, 1996 as provided in the Note, the Company shall pay an installment of
principal in the amount of Twelve Thousand Four Hundred Twenty-Five and 00/100
Dollars ($12,425.00), with interest (computed for the actual number of days
elapsed on the basis of a 365 day year) on the unpaid principal balance
outstanding from time to time at the rate of thirteen percent (13%) per annum,
quarterly on the last day of March, June, September and December in each year,
until (x) the Note has been paid in full or (y) all obligations of the Company
to Sirrom Capital Corporation ("Sirrom") pursuant to the Loan Agreement between
the Company and Sirrom dated March 31, 1995 have been paid in full (the "Sirrom
Satisfaction"). On the last day of the first full calendar month following the
Sirrom Satisfaction, fifteen percent of the unpaid principal balance
outstanding (the "Outstanding Balance") and all related interest shall be due
and payable, and additional payments of twenty percent of the Outstanding
Balance, twenty-five percent of the Outstanding Balance and the remainder of
the Outstanding Balance, and all related interest, shall be due and payable on
the last day of the following second, third and fourth calendar months.
Further, Section 9 of the Purchase Agreement is hereby amended to read
as follows:
(d) All notices given pursuant to this Paragraph 9 shall be sent
by first class mail or by a reputable overnight nationwide delivery
service (with charges prepaid) to the holders of the Notes or to the
holders of the Senior Debt, as applicable, at the following addresses:
If to the holders of the Notes, to them, in care of their
representative at:
Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attn: Mr. Robert J. Cresci
<PAGE> 2
If to the holders of the Senior Debt, to them, in care of
their representative at:
Sirrom Capital Corporation
511 Union Street
Suite 2310
Nashville, Tennessee 37219
All notices given pursuant to this Paragraph 9 shall be deemed to be
given three (3) days following deposit in the mail, if sent by mail,
and one (1) day following delivery to an overnight delivery service,
if sent by overnight courier, or, if earlier, upon actual receipt by
the intended recipient.
Except as specifically provided for in this Allonge, the terms of the
Note shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Allonge as of the day of , 1995.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------
Name:
Title:
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. and
FUELSHIP & COMPANY, ITS REGISTERED
NOMINEE
By: Pecks Management Partners,
Ltd., its Investment Adviser
By:
-----------------------------------
Robert J. Cresci
Managing Director
-2-
<PAGE> 1
Warrant No. R-001 EXHIBIT 10.8
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
CERTAIN RESTRICTIONS SET FORTH IN A
SECURITIES PURCHASE AGREEMENT, DATED AS OF
JULY 16, 1991, AND ANY AMENDMENTS THERETO.
THE WARRANT REPRESENTED HEREBY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND
SUCH LAWS AND THE RESPECTIVE RULES AND
REGULATIONS THEREUNDER.
WARRANT TO PURCHASE COMMON STOCK OF
EDUCATIONAL MEDICAL, INC.
Exercisable Commencing
July 16, 1991
Void After
June 30, 2001
THIS CERTIFIES that, for value received, Fuelship & Company, or
registered assigns, is entitled, subject to the terms and conditions set forth
in this Warrant Certificate, to purchase from EDUCATIONAL MEDICAL, INC., a
Delaware corporation (the "Company"), 220,000 fully paid and non-assessable
shares of Common Stock of the Company (the "Common Stock"), at any time
commencing July 16, 1991 and continuing up to 5 p.m. New York time on June 30,
2001, originally at a price of $5.00 per share and thereafter at the price
calculated pursuant to the Purchase Agreement (as hereinafter defined) (the
"Exercise Price").
This Warrant is issued pursuant to a Securities Purchase Agreement
dated as of July 16, 1991 (the "Purchase Agreement"), between the Investors
listed on the Purchaser Schedules thereto and the Company. The Purchase
Agreement is hereby incorporated by reference in and made a part of this Warrant
and is hereby referred to for a description of the rights, obligations, duties
and immunities thereunder of the Company and the registered holder or registered
holders of the Warrants (the "Holder(s)"). A copy of the Purchase Agreement may
be obtained by the Holder(s) hereof upon written request directed to the
Company. Capitalized terms used herein shall have the meaning ascribed to them
in the Purchase Agreement.
<PAGE> 2
Warrants may be exercised at such times and in such amounts as are
provided for in the Purchase Agreement, but in no event later than 5:00 p.m.,
New York time, on June 30, 2001.
The Holder(s) of Warrants evidenced by this Warrant Certificate may
exercise them by surrendering this Warrant Certificate, with the form of
election to purchase attached hereto properly completed and executed, together
with payment of the Exercise Price at the principal office of the Company (or at
such other address as the Company may designate by notice in writing to the
Holder(s) hereof at the address of such Holder(s) appearing on the books of the
Company). Payment of the Exercise Price may be made in cash, by certified check
payable to the order of the Company, or by payment by way of a call on the Notes
with a concurrent direction to the Company to credit such amount in payment of
the Exercise Price, or any combination thereof. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the Holder(s) hereof or the assignee of the Holder(s), without charge, a new
Warrant Certificate evidencing the number of Warrants not exercised.
The Purchase Agreement provides that upon the occurrence of certain
events, the Exercise Price or number of shares of Common Stock set forth on the
face hereof may be adjusted, subject to certain conditions. No fractions of a
share of Common Stock shall be issued upon the exercise of any Warrant, but the
Company shall pay the cash value thereof determined as provided in the Purchase
Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered Holder(s) thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Purchase Agreement, but without payment of
any service charge, for another Warrant Certificate of like tenor evidencing in
the aggregate a like number of Warrants.
The Company agrees to provide the Holder(s) hereof with written notice
of the expiration of the Warrants at least sixty days prior to the date of
expiration. Such notice shall be sent by first class mail or nationwide
overnight delivery services (with charges prepaid) to the Holder(s) hereof at
the address of such Holder(s) appearing on the books of the Company.
Upon due presentation for registration of a transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants will be
-2-
<PAGE> 3
issued to the transferee(s) in exchange for this Warrant Certificate, subject to
the limitations provided in the Purchase Agreement, without charge except for
any tax or other governmental charge imposed in connection therewith.
The Company may deem and treat the Holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereof made by anyone), for the purpose of any exercise hereof,
of any distribution to the Holder(s) hereof, and for all other purposes, and the
Company shall not be affected by any notice to the contrary. Except as
otherwise referred to in the Purchase Agreement, neither the Warrants nor this
Warrant Certificate entitles any Holder(s) hereof to any rights of a stockholder
of the Company.
The Warrants are callable by the Company and puttable at certain times
and in certain events.
This Warrant Certificate is intended to be performed in the State of
New York and shall be construed and enforced in accordance with the law of such
State.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer on this 16th day of July, 1991.
EDUCATIONAL MEDICAL, INC.
By: Gary D. Kerber
----------------------------------
Name: Gary D. Kerber
Title: CEO
-3-
<PAGE> 4
FORM OF ELECTION TO PURCHASE
TO EDUCATIONAL MEDICAL, INC.:
The undersigned holder of this Warrant (1) hereby irrevocably elects
to exercise the right to purchase hereunder ____ fully paid shares of the Common
Stock of EDUCATIONAL MEDICAL, INC., (2) makes payment in full of the purchase
price of such shares, (3) requests that certificates for such shares be issued
in the name of _______________ , and (4) if said number of shares shall not be
all the shares the holder is entitled to purchase under this Warrant, requests
that a new warrant for the unexercised portion of this Warrant be issued. If
payment is being made by delivery of 13% Senior Subordinated Notes due July 16,
1996 to the Company, the undersigned hereby directs the Company to apply such
payment on the Notes on account of the Exercise Price.
Dated:______________
____________________
(SIGNATURE)
<PAGE> 1
Warrant No. R-002 EXHIBIT 10.9
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
CERTAIN RESTRICTIONS SET FORTH IN A
SECURITIES PURCHASE AGREEMENT, DATED AS OF
JULY 16, 1991, AND ANY AMENDMENTS THERETO.
THE WARRANT REPRESENTED HEREBY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND IT MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND
SUCH LAWS AND THE RESPECTIVE RULES AND
REGULATIONS THEREUNDER.
WARRANT TO PURCHASE COMMON STOCK OF
EDUCATIONAL MEDICAL, INC.
Exercisable Commencing
July 16, 1991
Void After
June 30, 2001
THIS CERTIFIES that, for value received, NAP & Company, or registered
assigns, is entitled, subject to the terms and conditions set forth in this
Warrant Certificate, to purchase from EDUCATIONAL MEDICAL, INC., a Delaware
corporation (the "Company"), 580,000 fully paid and non-assessable shares of
Common Stock of the Company (the "Common Stock"), at any time commencing July
16, 1991 and continuing up to 5 p.m. New York time on June 30, 2001, originally
at a price of $5.00 per share and thereafter at the price calculated pursuant to
the Purchase Agreement (as hereinafter defined) (the "Exercise Price").
This Warrant is issued pursuant to a Securities Purchase Agreement
dated as of July 16, 1991 (the "Purchase Agreement"), between the Investors
listed on the Purchaser Schedules thereto and the Company. The Purchase
Agreement is hereby incorporated by reference in and made a part of this Warrant
and is hereby referred to for a description of the rights, obligations, duties
and immunities thereunder of the Company and the registered holder or registered
holders of the Warrants (the "Holder(s)"). A copy of the Purchase Agreement may
be obtained by the Holder(s) hereof upon written request directed to the
Company. Capitalized terms used herein shall have the meaning ascribed to them
in the Purchase Agreement.
<PAGE> 2
Warrants may be exercised at such times and in such amounts as are
provided for in the Purchase Agreement, but in no event later than 5:00 p.m.,
New York time, on June 30, 2001.
The Holder(s) of Warrants evidenced by this Warrant Certificate may
exercise them by surrendering this Warrant Certificate, with the form of
election to purchase attached hereto properly completed and executed, together
with payment of the Exercise Price at the principal office of the Company (or at
such other address as the Company may designate by notice in writing to the
Holder(s) hereof at the address of such Holder(s) appearing on the books of the
Company). Payment of the Exercise Price may be made in cash, by certified check
payable to the order of the Company, or by payment by way of a call on the Notes
with a concurrent direction to the Company to credit such amount in payment of
the Exercise Price, or any combination thereof. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the Holder(s) hereof or the assignee of the Holder(s), without charge, a new
Warrant Certificate evidencing the number of Warrants not exercised.
The Purchase Agreement provides that upon the occurrence of certain
events, the Exercise Price or number of shares of Common Stock set forth on the
face hereof may be adjusted, subject to certain conditions. No fractions of a
share of Common Stock shall be issued upon the exercise of any Warrant, but the
Company shall pay the cash value thereof determined as provided in the Purchase
Agreement.
Warrant Certificates, when surrendered at the office of the Company by
the registered Holder(s) thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Purchase Agreement, but without payment of
any service charge, for another Warrant Certificate of like tenor evidencing in
the aggregate a like number of Warrants.
The Company agrees to provide the Holder(s) hereof with written notice
of the expiration of the Warrants at least sixty days prior to the date of
expiration. Such notice shall be sent by first class mail or nationwide
overnight delivery services (with charges prepaid) to the Holder(s) hereof at
the address of such Holder(s) appearing on the books of the Company.
Upon due presentation for registration of a transfer of this Warrant
Certificate at the office of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants will be
-2-
<PAGE> 3
issued to the transferee(s) in exchange for this Warrant Certificate, subject to
the limitations provided in the Purchase Agreement, without charge except for
any tax or other governmental charge imposed in connection therewith.
The Company may deem and treat the Holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereof made by anyone), for the purpose of any exercise hereof,
of any distribution to the Holder(s) hereof, and for all other purposes, and the
Company shall not be affected by any notice to the contrary. Except as
otherwise referred to in the Purchase Agreement, neither the Warrants nor this
Warrant Certificate entitles any Holder(s) hereof to any rights of a stockholder
of the Company.
The Warrants are callable by the Company and puttable at certain times
and in certain events.
This Warrant Certificate is intended to be performed in the State of
New York and shall be construed and enforced in accordance with the law of such
State.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer on this 16th day of July, 1991.
EDUCATIONAL MEDICAL, INC.
By: Gary D. Kerber
----------------------------
Name: Gary D. Kerber
Title: CEO
-3-
<PAGE> 4
FORM OF ELECTION TO PURCHASE
TO EDUCATIONAL MEDICAL, INC.:
The undersigned holder of this Warrant (1) hereby irrevocably elects
to exercise the right to purchase hereunder ______ fully paid shares of the
Common Stock of EDUCATIONAL MEDICAL, INC., (2) makes payment in full of the
purchase price of such shares, (3) requests that certificates for such shares be
issued in the name of _______________ , and (4) if said number of shares shall
not be all the shares the holder is entitled to purchase under this Warrant,
requests that a new warrant for the unexercised portion of this Warrant be
issued. If payment is being made by delivery of 13% Senior Subordinated Notes
due July 16, 1996 to the Company, the undersigned hereby directs the Company to
apply such payment on the Notes on account of the Exercise Price.
Dated:____________________
____________________________
(SIGNATURE)
<PAGE> 1
EXHIBIT 10.10
Warrant No. E-007
THE WARRANT REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
AND IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
AND SUCH LAWS AND THE RESPECTIVE RULES AND REGULATIONS THEREUNDER.
EDUCATIONAL MEDICAL, INC.
WARRANT TO PURCHASE COMMON STOCK
Exercisable Commencing
July 23, 1991
Void After
July 31, 1996
THIS CERTIFIES that, for value received, Equitable Securities
Corporation, or registered assigns, is entitled, subject to the terms and
conditions set forth in this Warrant Certificate, to purchase from EDUCATIONAL
MEDICAL, INC., a Delaware corporation (the "Corporation"), 16,000 fully paid
and non-assessable shares of Common Stock of the Corporation (the "Common
Stock"), at any time commencing July 23, 1991 and continuing up to 5:00 p.m.
New York time on July 31, 1996, (the "Exercise Period"), at a price of $6.00
per share (the "Warrant Price").
SECTION 1. Exercise of Warrant. The Warrants represented by this
certificate shall vest immediately. The rights represented by this Warrant may
be exercised by the holder hereof, in whole at any time or in part from time to
time during the Exercise Period, but only in respect of a share or shares. No
fractional shares of Common Stock will be issued under this Warrant. The Holder
may exercise this Warrant by surrendering it (properly endorsed) at the office
of the Corporation at 1050 Cambridge Square, Suite C, Alpharetta, Georgia 30201
(or at such other agency or office of the Corporation in the United States of
America as it may designate by notice in writing to the holder hereof at the
address of such holder appearing on the books of the Corporation), and by
payment to the Corporation of the Warrant Price in cash or by check for each
Unit being purchased. In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of Common Stock so purchased,
registered in the name of the person entitled to receive the same, shall be
delivered to the holder hereof within a
<PAGE> 2
reasonable time, not exceeding ten days after the rights represented by this
Warrant shall have been so exercised; and, unless this Warrant has expired, a
new Warrant representing the number of shares (except a remaining fractional
share of Common Stock, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the holder hereof within such time.
The person in whose name any certificates for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Corporation are closed, such person shall be deemed to have become the
holder of record of such shares at the close of business on the next succeeding
date on which the stock transfer books are open.
SECTION 2. Covenants as to Common Stock. The Corporation
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
validly issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to the issue thereof. If and so long as the Common
Stock issuable upon the exercise of this Warrant are listed on any national
securities exchange, the Corporation will, if permitted by the rules of such
exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon exercise of this
Warrant.
SECTION 3. Adjustment of Number of Shares and Warrant Price. (a)
Upon the occurrence of any event which, under ARTICLE THIRD of the Certificate
of Incorporation of the Corporation as in effect on the date hereof, would
result in an increase in the number of shares of Common Stock of the Corporation
into which a share of Preferred Stock of the Corporation would be convertible
(whether or not any of such stock is then outstanding), the holder of this
Warrant shall thereafter be entitled to purchase (at the applicable Warrant
Price adjusted in the manner provided below) (i) the number of shares of Common
Stock obtained by multiplying the number of shares which the holder of this
Warrant was entitled to purchase hereunder immediately prior to such event by a
fraction the numerator of which shall be the number of shares of Common Stock
into which a share of Preferred Stock would be convertible immediately after
such event as calculated in accordance with such ARTICLE THIRD and the
denominator of which shall be the number of shares of Common Stock into which a
-2-
<PAGE> 3
share of such Preferred Stock would have been convertible immediately prior to
such event as calculated pursuant to such ARTICLE THIRD and (ii) the number of
shares of Preferred Stock calculated as set forth in clause (i) above (assuming
for the purposes of this clause (ii) the conversion of such shares of Preferred
Stock into shares of Common Stock). After any such adjustment in the number of
shares purchasable pursuant hereto, the applicable Warrant Price shall be
adjusted by dividing (i) the product of such Warrant Price hereunder in effect
immediately prior to such adjustment and the number of shares purchasable
pursuant hereto immediately prior to such adjustment by (ii) the number of
shares purchasable pursuant hereto immediately after such adjustment.
(b) All calculations under this Section 3 shall be made to the nearest
cent or to the nearest one-tenth (1/10) of a share, as the case may be.
(c) Whenever a Warrant price shall be adjusted as provided in this
Section 3, the Corporation shall forthwith prepare a statement showing the facts
requiring such adjustment and such Warrant Price that shall be in effect after
such adjustment. The Corporation shall cause a copy of such statement to be sent
by mail, first class postage prepaid, to each holder, of this Warrant at his
address appearing on the Corporations records.
(d) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon exercise of all or any part of this
Warrant; provided, however, that the Corporation shall not be required to pay
any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of this Warrant.
SECTION 4. No Stockholder Rights. This Warrant shall not entitle the
holder hereof to any voting rights or other rights as a stockholder of the
Corporation.
SECTION 5. Transfer of Warrant. This Warrant and all rights hereunder
are transferable, in whole or in part, at the agency or office of the
Corporation referred to in Section 1, by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
talker and holder of this Warrant properly endorsed. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed in blank, shall be deemed negotiable, and, when so
endorsed the holder hereof, may be treated by the Corporation and all other
persons dealing with this Warrant as the absolute owner hereof
-3-
<PAGE> 4
for any purposes and as the person entitled to exercise the rights represented
by this Warrant, or to the transfer hereof on the books of the Corporation, any
notice to the contrary notwithstanding; but until each transfer on such books,
the Corporation may treat the registered holder hereof as the owner hereof for
all purposes.
SECTION 6. Exchange of Warrant. This Warrant is exchangeable,
upon the surrender hereof by the holder hereof at the office or agency of the
Corporation designated in Section 1 hereof, for new Warrants of like tenor
representing in the aggregate the rights to subscribe for and purchase the
number of shares which may be subscribed for and purchased hereunder, each of
such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
SECTION 7. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such
terms as to indemnity or otherwise as it may in its discretion impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Corporation, whether or not the allegedly lost,
stole, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
IN WITNESS WHEREOF, EDUCATIONAL MEDICAL, INC. has caused this
Warrant to be executed by its duly authorized officers under its corporate
seal, and this Warrant to be dated as of the date first set forth above.
EDUCATIONAL MEDICAL, INC.
(CORPORATE SEAL]
By: /s/ Gary D. Kerber
ATTEST: ----------------------------
/s/ Gary D. Kerber, President
- ---------------------------------
Secretary
-4-
<PAGE> 5
FORM OF ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, as signs and transfers
unto ________________, the rights represented by the within Warrant to purchase
____________ shares of Common Stock, $.01 par value, of EDUCATIONAL MEDICAL,
INC. to which the within Warrant relates, and appoints _________________________
Attorney to transfer such right on the books of EDUCATIONAL MEDICAL, INC. with
full power of substitution in the premises.
Dated:
----------------------------
(Signature)
----------------------------
(Address)
Signed in the presence of:
- -------------------------------
-5-
<PAGE> 6
FORM OF SUBSCRIPTION
[To be signed upon exercise of Warrant]
TO EDUCATIONAL MEDICAL, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ___________ shares of Common Stock, $.01 par value, of
EDUCATIONAL MEDICAL, INC. and herewith tenders payment of $__________ in full
payment of the purchase price for such shares, and requests that the
certificates for such shares be issued in the name of, and be delivered to,
____________, whose address is _______________.
Dated:
----------------------------
(Signature)
----------------------------
(Address)
-6-
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT TO
SECURITIES PURCHASE AGREEMENT
FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT, dated as of March
31, 1995 executed by EDUCATIONAL MEDICAL, INC., a Delaware corporation (the
"Company") and the parties named in Schedule I attached to this Amendment.
PRELIMINARY STATEMENT
WHEREAS, the Trust for Defined Benefit Plan of ICI American Holdings,
Inc. and Fuelship & Company, its Registered Nominee, the holder of the
Company's Warrant No. R-001 dated July 16, 1991 and the Payee under the 13%
Senior Subordinated Note dated July 23, 1991 in the original principal sum of
$497,000.00 executed by the Company and the Payee under the 13% Senior
Subordinated Note dated July 23, 1991 in the original principal sum of
$603,000.00 executed by the Company, the State Employees' Retirement Fund of
the State of Delaware and NAP & Company, its Registered Nominee, the holder of
the Company's Warrant No. R-002 dated July 16, 1991 and the Payee under the 13%
Senior Subordinated Note dated July 16, 1991 in the original principal sum of
$2,900,000.00 executed by the Company, and the Company desire to amend the
Educational Medical, Inc. Securities Purchase Agreement (the "Securities
Purchase Agreement") dated as of July 23, 1991 to add a new clause to Section
13G of the Securities Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration, and intending to
be legally bound, the undersigned parties agree to amend Section 13G of the
Securities Purchase Agreement to read as follows:
"13G. Certain Issues of Common Stock Excepted. Anything
herein to the contrary notwithstanding, the Company shall not
be required to make any adjustment of the Exercise Price in
the case of (i) the issuance of the Securities pursuant to
this Agreement; (ii) the issuance of shares of capital stock
of the Company upon exercise of the Warrants; (iii) the
issuance of up to 1,020,000 shares of Common Stock upon
conversion of the Company's Cumulative Convertible Preferred
Stock issued and outstanding as of the Closing Date; (iv) the
issuance of shares of Common Stock upon the exercise of
existing stock options granted prior to the Closing and the
issuance of shares of Common Stock after the Closing to
employees, consultants or directors (and the grant of options
therefor) so long as such shares in the aggregate do not
exceed at any time 10% of the total number of shares of the
<PAGE> 2
Company's Common Stock on a fully diluted basis (as adjusted
for stock splits, stock dividends, reclassifications,
recharacterizations or similar events) and the exercise price
of the options is equal to or greater than the then Exercise
Price; and (v) any and all Common Stock issued upon exercise
of the Stock Purchase Warrant dated as of March 31, 1995
between the Company and Sirrom Capital Corporation. If an
option to an employee, director or consultant shall expire or
terminate for any reason without having been exercised in
full, the unpurchased shares shall again be available for
subsequent option grants and such shares shall be considered
as having been issued only one time."
Except as specifically amended hereby, all provisions of the
Securities Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned parties have caused this First
Amendment to be executed and delivered by their respective officers thereunto
duly authorized as of the date first above written.
EDUCATIONAL MEDICAL, INC.
By:
-------------------------------------
Authorized Signatory
STATE EMPLOYEES' RETIREMENT FUND OF THE
STATE OF DELAWARE AND NAP & COMPANY,
ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:
----------------------------
Robert J. Cresci, Managing
Director
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. AND FUELSHIP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:
--------------------------
Robert J. Cresci, Managing
Director
<PAGE> 3
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. AND FUELSHIP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By:
--------------------------
Robert J. Cresci, Managing
Director
-3-
<PAGE> 1
EXHIBIT 10.12
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 31st day of March,
1995, is made and entered into on the terms and conditions hereinafter set
forth, by and between EDUCATIONAL MEDICAL, INC., a Delaware corporation, ANDON
COLLEGES, INC. d/b/a Andon College, DBS ACQUISITION CORP. d/b/a Dominion
Business School, MARIC LEARNING SYSTEMS d/b/a Maric College of Medical Careers,
MTSX ACQUISITION CORP. d/b/a Modern Technology School of X-Ray, PALO VISTA
COLLEGE OF NURSING AND ALLIED HEALTH SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion Merchandising, Art and Design, ICM ACQUISITION
CORP. d/b/a ICM School of Business, MEADOWS ACQUISITION CORP. d/b/a Meadows
College of Business, OIOPT ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical Institute, and DEST EDUCATION CORPORATION
d/b/a Andon College (individually, a "Borrower" and collectively the
"Borrowers"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").
RECITALS:
WHEREAS, Borrowers have requested that Lender make available to
Borrowers a term loan in the original principal amount of Two Million Two
Hundred Thousand and No/100ths Dollars ($2,200,000.00) (the "Loan") on the
terms and conditions hereinafter set forth, and for the purpose(s) hereinafter
set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrowers,
Borrowers have made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrowers, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make
the Loan, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the
terms and conditions hereof, the Lender shall make the Loan to Borrowers by wire
transfer in immediately
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available funds. The Loan shall be evidenced by a Secured Promissory Note in
the original principal amount of Two Million Two Hundred Thousand and No/100ths
Dollars ($2,200,000.00), substantially in the form of Exhibit A attached hereto
and incorporated herein by this reference (the "Note"), dated as of the date
hereof, executed by each Borrower, in favor of Lender. The Loan shall be
payable in accordance with the terms of the Note. The Note, this Agreement and
any other instruments and documents executed by Borrowers, now or hereafter
evidencing, securing or in any way related to the indebtedness evidenced by the
Note are herein individually referred to as a "Loan Document" and collectively
referred to as the "Loan Documents."
1.2 Processing Fee. Borrowers shall pay Lender a processing fee
of Forty Four Thousand Dollars ($44,000.00) on the date the Loan is funded.
1.3 Partial Prepayment. Borrowers may prepay the indebtedness
evidenced by the Note in whole or in part at any time and from time to time.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrowers' Representations. Each Borrower hereby represents
and warrants to Lender as follows:
(a) Corporate Status. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation; and has the corporate power to own and operate its
properties, to carry on its business as now conducted and to enter into and to
perform its obligations under this Agreement and the other Loan Documents to
which it is a party. Each Borrower is duly qualified to do business and in
good standing in each state in which a failure to be so qualified would have a
material adverse effect on each Borrower's financial position or its ability to
conduct its business in the manner now conducted.
(b) Subsidiaries. Except as set forth on Schedule 2.1(b),
no Borrower owns, directly or indirectly, any capital stock or other equity
interest, or with respect to which such Borrower, alone or in combination with
others, is in a control position. Each Borrower, other than EMI, is a wholly
owned subsidiary of EMI or another Borrower and the outstanding capital stock
of each such Borrower is validly issued, fully paid and nonassessable and EMI
has good and valid title to the equity interests in each of them free and clear
of all liens, claims, charges, restrictions, security interests, equities,
proxies, pledges or encumbrances of any kind, except as indicated on Schedule
2.1(b).
(c) Authorization. Each Borrower has full legal right,
power and authority to conduct its business and affairs. Each Borrower has
full legal right, power and authority to enter into and perform its obligations
hereunder, without the consent or approval of any other person, firm,
governmental agency or other legal entity. The execution and delivery of this
Agreement, the borrowing hereunder, the execution and delivery of each Loan
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Document to which each Borrower is a party, and the performance by such
Borrower of its obligations thereunder are within the corporate powers of such
Borrower and have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental approvals, if any were
required, and do not and will not contravene or conflict with any provision of
law, any applicable judgment, ordinance, regulation or order of any court or
governmental agency, the charter or bylaws of such Borrower, or any agreement
binding upon such Borrower or its properties. The officer(s) executing this
Agreement, the Note and all of the other Loan Documents to which such Borrower
is a party are duly authorized to act on behalf of such Borrower.
(d) Validity and Binding Effect. This Agreement and the
other Loan Documents are the legal, valid and binding obligations of the each
Borrower, enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally or the application of general
equitable principles.
(e) Capitalization. The authorized capital stock of EMI
consists solely of 3,500,000 shares of common stock, $.01 par value per share
("Common Stock"), of which _____________________ shares (the "Common Shares")
are issued and outstanding and 1,100,000 shares of Cumulative Convertible
Preferred Stock (the "Preferred Shares"), __________ shares of which are issued
and outstanding (collectively the Shares and Preferred Shares are called the
"Shares"). All of the Shares are duly authorized, validly issued and
outstanding and fully paid and nonassessable and free of preemptive rights.
Except for the Shares, there are no shares of capital stock or other securities
of EMI issued or outstanding. There are no outstanding options, warrants or
rights to purchase or acquire from EMI any securities of EMI, and there are no
contracts, commitments, agreements, understandings, arrangements or
restrictions as to which EMI is a party or by which it is bound relating to any
shares of capital stock of EMI (including the Shares), whether or not
outstanding except as provided for in Schedule 2.1(e).
(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an
accurate and complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses, formulas and
applications therefor owned by Borrowers or used or required by Borrowers in
the operation of Borrowers' businesses, title to each of which is, except as
set forth in Schedule 2.1(f) hereto, held by Borrowers free and clear of all
adverse claims, liens, security agreements, restrictions or other encumbrances.
There is no infringement action, lawsuit, claim or complaint which asserts that
Borrowers's operations violate or infringe the rights or the trade names,
trademarks, trademark registration, service name, service mark or copyright of
others with respect to any apparatus or method of Borrowers or any adversely
held trademark, trade name, trademark registration, service name, service mark
or copyright, and Borrowers is not in any way making use of any confidential
information or trade secrets of any person except with the consent of such
person.
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(g) No Conflicts. Consummation of the transactions hereby
contemplated and the performance of the obligations of Borrowers under and by
virtue of the Loan Documents will not result in any breach of, or constitute a
default under, any mortgage, security deed or agreement, deed of trust, lease,
bank loan or credit agreement, corporate charter or bylaws, agreement or
certificate of limited partnership, partnership agreement, license, franchise
or any other instrument or agreement to which any Borrower is a party or by
which any Borrower or its respective properties may be bound or affected or to
which such Borrower has not obtained an effective waiver.
(h) Litigation. Except as set forth in Schedule 2.1(h),
there are no actions, suits or proceedings pending, or, to the knowledge of
Borrowers threatened, against or affecting Borrowers or involving the validity
or enforceability of any of the Loan Documents at law or in equity, or before
any governmental or administrative agency; and to Borrowers' knowledge, no
Borrower is in default with respect to any order, writ, injunction, decree or
demand of any court or any governmental authority.
(i) Financial Statements. The consolidated financial
statements of Borrowers dated December 31, 1994, which are attached hereto as
Schedule 2.1(i)(A), are true and correct in all material respects have been
prepared on the basis of accounting principles consistently applied, and fairly
present the financial condition of the Borrowers as of the date(s) thereof. No
material adverse change has occurred in the financial condition of Borrowers
since the date(s) thereof, and no additional borrowings have been made by
Borrowers since the date(s) thereof other than as set forth on Schedule
2.1(i)(B).
(j) Other Agreements; No Defaults. Except as set forth in
Schedule 2.1(j), Borrowers are not a party to any indenture, loan or credit
agreement, lease or other agreement or instrument, or subject to any charter or
corporate restriction, that could have a material adverse effect on the
business, properties, assets, operations or conditions, financial or otherwise,
of the Borrowers when taken as a whole, or the ability of the Borrowers to
carry out their obligations under the Loan Documents to which they are a party.
No Borrower is in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument material to the Borrowers' business when taken as a
whole to which it is a party, including but not limited to this Agreement and
the other Loan Documents, and no other default or event has occurred and is
continuing that with notice or the passage of time or both would constitute a
default or event of default under any of same.
(k) Compliance With Law. Borrowers have obtained all
necessary licenses, permits and approvals and authorizations necessary or
required in order to conduct their business and affairs as heretofore conducted
and as hereafter intended to be conducted. To Borrowers' knowledge, each
Borrower is in compliance with all laws, regulations, decrees and orders
applicable to it (including but not limited to laws, regulations, decrees and
orders relating to environmental, occupational and health standards and
controls, antitrust, monopoly, restraint of trade or unfair competition), to
the extent that noncompliance, in the aggregate, cannot reasonably be expected
to have a material adverse
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effect on its respective business, operations, property or financial condition
and will not materially adversely affect Borrowers' ability to perform its
obligations under the Loan Documents.
(l) Debt. Schedule 2.1(l) is a complete and correct list
of all credit agreements, indentures, purchase agreements, promissory notes and
other evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing for or
relating to extensions of credit (including agreements and arrangements for the
issuance of letters of credit or for acceptance financing) in respect of which
the Borrowers or any of the properties thereof is in any manner directly or
contingently obligated; and the maximum principal or face amounts of the credit
in question that are outstanding and that can be outstanding are correctly
stated, and all liens of any nature given or agreed to be given as security
therefore are correctly described or indicated in such Schedule other than
leases and similar arrangements for incidental office equipment which in the
aggregate do not exceed $600,000.
(m) Taxes. Each Borrower has filed or caused to be filed
all tax returns that to its knowledge are required to be filed (except for
returns that have been appropriately extended), and has paid, or will pay when
due, all taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any delinquency
with respect thereto (other than taxes, impositions, assessments, fees and
charges currently being contested in good faith by appropriate proceedings, for
which appropriate amounts have been reserved). No tax liens have been filed
against Borrowers or any of the property thereof.
(n) Small Business Concern. The information set forth in
the Small Business Administration Forms 480, 652 and Part A of Form 1031
regarding Borrowers upon delivery, pursuant to Section 4.1 hereof, will be
accurate and complete.
(o) Certain Transactions. Except as set forth on
Schedule 2.1(o) hereto, no Borrower is indebted, directly or indirectly, to any
of its officers or directors or to their respective spouses or children, in any
amount whatsoever; none of said officers or directors or any members of their
immediate families, are indebted to Borrowers or have any direct or indirect
ownership interest in any firm or corporation with which Borrower has a
business relationship, or any firm or corporation which competes with any
Borrower, except that officers and/or directors of Borrowers may own no more
than 4.9% of outstanding stock of publicly traded companies which may compete
with Borrowers. No officer or director or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
Borrowers. Except as set forth on Schedule 2.1(o), no Borrower is a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
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(p) Statements Not False or Misleading. No
representation or warranty given as of the date hereof by Borrowers contained
in this Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished to
Lender pursuant hereto, taken as a whole, contains or will (as of the time so
furnished) contain any untrue statement of a material fact, or omits or will
(as of the time so furnished) omit to state any material fact which is
necessary in order to make the statements contained therein not misleading.
(q) Margin Regulations. No Borrower is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock. No proceeds received pursuant to this Agreement will be used to
purchase or carry any equity security of a class which is registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended.
(r) Significant Contracts. Schedule 2.1(r) is a complete
and correct list of all contracts, agreements and other documents pursuant to
which Borrowers receive revenue in excess of $25,000 per year. Each such
contract, agreement and other document is in full force and effect as of the
date hereof and Borrowers know of no reason why such contracts, agreements and
other documents would not remain in full force and effect pursuant to the terms
thereof.
(s) Environment. Each Borrower to the best of its
knowledge has duly complied with, and its business, operations, assets,
equipment, property, leaseholds or other facilities are in compliance with, the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations promulgated
thereunder except for incidental incidences of non-compliance of which
Borrowers are unaware. Each Borrower has been issued and will maintain all
required federal, state and local permits, licenses, certificates and approvals
relating to (1) air emissions; (2) discharges to surface water or groundwater;
(3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and
regulations promulgated thereunder as hazardous or potentially hazardous); or
(6) other environmental, health or safety matters. No Borrower has received
notice of, or knows of facts which might constitute any violations of any
federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder with respect to
its businesses, operations, assets, equipment, property, leaseholds, or other
facilities. Except in accordance with all applicable laws, codes and
ordinances and rules and regulations promulgated thereunder, or a valid
governmental permit, license, certificate or approval, there has been no
emission, spill, release or discharge into or upon (1) the air; (2) soils, or
any improvements located thereon; (3) surface water or groundwater; or (4) the
sewer, septic system or waste treatment, storage or disposal system servicing
the premises, of any toxic or hazardous substances or wastes at or from the
premises. There has been no complaint, order, directive, claim, citation or
notice to any Borrower by any governmental authority or any person or entity
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with respect to (1) air emissions; (2) spills, releases or discharges to soils
or improvements located thereon, surface water, groundwater or the sewer,
septic system or waste treatment, storage or disposal systems servicing the
premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or waste; or (6) other environmental, health or safety matters
affecting any Borrower or its business, operations, assets, equipment,
property, leaseholds or other facilities. No Borrower has any indebtedness,
obligation or liability (absolute or contingent, matured or not matured), with
respect to the storage, treatment, cleanup or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup
or disposal).
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrowers covenant and agree, jointly and severally, that during the
term of this Agreement:
3.1 Payment of Obligations. Borrowers shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, any other obligations of Borrowers to Lender,
direct or contingent, however evidenced or denominated, and however and
whenever incurred, including but not limited to indebtedness incurred pursuant
to any present or future commitment of Lender to Borrowers, together with
interest thereon, and any extensions, modifications, consolidations and/or
renewals thereof and any notes given in payment thereof.
3.2 Financial Statements and Reports. EMI shall furnish to Lender
(i) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of EMI, a consolidated audited balance sheet of EMI as
of the close of such fiscal year, a consolidated audited statement of earnings
and retained earnings of EMI as of the close of such fiscal year and a
consolidated audited statement of cash flows for EMI for such fiscal year,
prepared in accordance with generally accepted accounting principles
consistently applied and accompanied by an unqualified audit report prepared by
an independent certified public accountant acceptable to Lender showing the
financial condition of Borrowers at the close of such year and the results of
their consolidated operations during such year and accompanied by a certificate
of the President of EMI, stating that to the best of the knowledge of such
officer, Borrowers have fulfilled each covenant, term and condition of this
Agreement and the other Loan Documents during the preceding fiscal year and
that no Event of Default has occurred and is continuing (or if an Event of
Default has occurred and is continuing, specifying the nature of same, the
period of existence of same and the action Borrowers proposes to take in
connection therewith), (ii) within twenty (20) days of the end of each calendar
month, a status report indicating the consolidated financial performance of EMI
during such month and the financial position of EMI as of the end of such
month, (iii) within forty-five (45) days of the end of each quarter, a
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consolidated balance sheet of Borrowers as of the close of such quarter and a
consolidated statement of earnings and retained earnings of Borrowers as of the
close of such quarter, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied
(except for the absence of footnotes and subject to year-end adjustments), and
(iv) with reasonable promptness, such other financial data as Lender may
reasonably request.
3.3 Maintenance of Books and Records; Inspection. Borrowers shall
maintain their consolidated and consolidating books, accounts and records in
accordance with generally accepted accounting principles consistently applied,
and permit Lender, its officers and employees and any professionals designated
by Lender in writing, at Lender's expense, to visit and inspect any of its
properties, corporate books and financial records, and to discuss its accounts,
affairs and finances with Borrowers or the principal officers of Borrowers
during reasonable business hours, all at such times as Lender may reasonably
request; provided that no such inspection shall materially interfere with the
conduct of Borrowers's business.
3.4 Insurance. Without limiting any of the requirements of any of
the other Loan Documents, Borrowers shall maintain, in amounts customary for
entities engaged in comparable business activities, (i) to the extent required
by applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to
be unreasonably withheld or delayed), and (ii) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts
as are customary in Borrowers' business. Borrowers will make reasonable
efforts to obtain and maintain public liability insurance in an amount, and at
a cost, deemed reasonable to EMI's Board of Directors. At the request of
Lender, Borrowers will deliver forthwith a certificate specifying the details
of such insurance in effect.
3.5 Taxes and Assessments. Borrowers shall (i) file all tax
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of delinquency, (ii) pay and discharge all
taxes, assessments and governmental charges or levies imposed upon Borrowers
upon their income and profits or upon any properties belonging to them, prior
to the date on which penalties attach thereto, and (iii) pay all taxes,
assessments and governmental charges or levies that, if unpaid, might become a
lien or charge upon any of their properties; provided, however, that Borrowers
in good faith may contest any such tax, assessment, governmental charge or
levy described in the foregoing clauses (ii) and (iii) so long as appropriate
reserves are maintained with respect thereto.
3.6 Corporate Existence. Each Borrower shall maintain its
corporate existence and good standing in the state of its incorporation, and
its qualification and good standing as a foreign corporation in each
jurisdiction in which such qualification is necessary pursuant to applicable
law.
3.7 Compliance with Law and Other Agreements. Except where the
failure to do so would not materially adversely affect Borrowers' operations
when taken as a whole or their ability to fulfill their obligations under the
Loan Documents, Borrowers shall maintain their
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business operations and property owned or used in connection therewith in
compliance with (i) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, in each case to the extent material to the conduct of the
Borrowers' business and (ii) all agreements, licenses, franchises, indentures
and mortgages to which each Borrower is a party or by which each Borrower or
any of its properties is bound. Without limiting the foregoing, Borrowers
shall pay all of their indebtedness promptly in accordance with the terms
thereof.
3.8 Notice of Default. EMI shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. EMI shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings wherein the amount at issue is
in excess of Twenty-Five Thousand and No/100ths Dollars ($25,000.00) instituted
by any persons whomsoever against any Borrower or affecting any of the assets
of any Borrower, and (ii) any dispute, not resolved within sixty (60) days of
the commencement thereof, between any Borrower on the one hand and any
governmental regulatory body on the other hand, which dispute might materially
interfere with the normal operations of any Borrower.
3.10 Conduct of Business. Borrowers will continue to engage in a
business of the same general type and manner as conducted by them on the date
of this Agreement.
3.11 ERISA Plan. If any Borrower has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406,
September 2, 1974, 88 Stat. 829, 29 U.S.C.A. Section 1001 et seq. (1975), as
amended from time to time ("ERISA"), then the following warranty and covenants
shall be applicable during such period as any such plan (the "Plan") shall be
in effect: (i) each Borrower hereby warrants that no fact that might constitute
grounds for the involuntary termination of the Plan, or for the appointment by
the appropriate United States District Court of a trustee to administer the
Plan, exists at the time of execution of this Agreement, (ii) each Borrower
hereby covenants that throughout the existence of the Plan, each Borrower's
contributions under the Plan will meet the minimum funding standards required
by ERISA and each Borrower will not institute a distress termination of the
Plan, and (iii) each Borrower covenants that it will send to Lender a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the Pension Benefit Guaranty Corporation, at
the time that such notice is so filed.
3.12 Dividends, Stock Rights, etc. Except as set forth on Schedule
3.12, Borrowers shall not declare or pay any dividend of any kind (other than
stock dividends payable to all holders of any class of capital stock), in cash
or in property, on any class of the capital stock of Borrowers, or purchase,
redeem, retire or otherwise acquire for value any shares of such stock, nor
make any distribution of any kind in cash or property in respect thereof
(except for the redemption of stock from employees upon termination of
employment that in the aggregate amount does not exceed $25,000), nor make any
return of capital of shareholders, nor make any
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payments in cash or property in respect of any stock options, stock bonus or
similar plan (except as required or permitted hereunder), nor grant any
preemptive rights with respect to the capital stock of Borrowers, without the
prior written consent of Lender.
3.13 Guaranties; Loans; Payment of Debt. Except as set forth on
Schedule 3.13, Borrowers shall not, without Lender's prior express written
consent, guarantee nor be liable in any manner, whether directly or indirectly,
or become contingently liable after the date of this Agreement in connection
with the obligations or indebtedness of any person or entity whatsoever, except
for the endorsement of negotiable instruments payable to Borrower for deposit
or collection in the ordinary course of business. Except as set forth on
Schedule 3.13, Borrowers shall not, without Lender's prior express written
consent, which shall not be unreasonably withheld, (i) make any loan, advance
or extension of credit to any person other than in the normal course of its
business or (ii) make any payment on any indebtedness that is subordinate by
its terms to the indebtedness owed to Lender; provided, however, that Borrower
may make quarterly payments of $100,000 of principal and accrued interest with
respect to the 13% Senior Subordinated Notes listed on Schedule 2.1(l) hereto
until such notes are fully amortized.
3.14 Debt. Without the express prior written consent of Lender,
Borrowers shall not create, incur, assume or suffer to exist indebtedness of
any description whatsoever, excluding (i) the indebtedness evidenced by the
Note, (ii) the endorsement of negotiable instruments payable to Borrowers for
deposit or collection in the ordinary course of business, (iii) debts incurred
in the ordinary course of business (each of which, individually, does not
exceed $25,000), and (iv) the indebtedness listed on Schedule 2.1(l) hereto.
Notwithstanding the foregoing, Borrowers may establish up to a $3,000,000
credit facility (which amount shall include amounts outstanding to Bank South
as listed on Schedule 2.1(l)) without Lender's prior consent provided that it
receives Lender's prior written consent to any draw under such facility.
3.15 No Liens. Borrowers shall not create, incur, assume or suffer
to exist any lien, security interest, security title, mortgage, deed of trust
or other encumbrance upon or with respect to any of its properties, now owned
or hereafter acquired, except:
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental
charges or levies if not yet due and payable;
(c) liens in connection with the leasing of equipment in
favor of the Lessor of such equipment;
(d) liens described on Schedule 2.1(l) hereto.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the
prior written consent of Lender, Borrowers shall not (a) be a party to any
merger, consolidation or corporate reorganization, nor (b) sell, transfer,
convey, grant a security interest in or lease all or any substantial
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part of its assets, nor (c) create any subsidiaries nor convey any of their
assets to any subsidiary unless such subsidiary is wholly owned by EMI and
becomes a party to this Agreement.
3.17 Transactions With Affiliates. Borrowers shall not enter into
any transaction, including, without limitation, the purchase, sale or exchange
of property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of EMI's
business when taken as a whole and upon fair and reasonable terms no less
favorable to Borrower than Borrower would obtain in a comparable arm's length
transaction with a person not an affiliate. For the purposes of this Section
3.17, "affiliate" shall mean a person, corporation, partnership or other entity
controlling, controlled by or under common control with EMI.
3.18 Environment. Borrowers shall be and remain in compliance with
the provisions of all federal, state and local environmental, health, and
safety laws, codes and ordinances, and all rules and regulations issued
thereunder except for incidental incidences of noncompliance not material to
the Borrowers' business when considered as a whole; notify Lender immediately
of any notice of a hazardous discharge or environmental complaint received from
any governmental agency or any other party; notify Lender immediately of any
hazardous discharge from or affecting its premises; immediately contain and
remove the same, in compliance with all applicable laws; promptly pay any fine
or penalty assessed in connection therewith; permit Lender to inspect the
premises, to conduct tests thereon, and to inspect all books, correspondence,
and records pertaining thereto; and at Lender's request, and at Borrowers'
expense, provide a report of a qualified environmental engineer, satisfactory
in scope, form, and content to Lender, and such other and further assurances
reasonably satisfactory to Lender that the condition has been corrected.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loan. The obligation of Lender to fund the
Loan on the date hereof (the "Closing Date") is subject to the fulfillment, on
or prior to the Closing Date, of each of the following conditions:
(a) Borrowers shall have performed and complied in all
material respects with all of the covenants, agreements, obligations
and conditions required by this Agreement.
(b) Lender shall have received an opinion of the
Borrowers' counsel, Honigman Miller Schwartz and Cohn, dated the
Closing Date, in form and substance satisfactory to Lender's counsel,
Bass, Berry & Sims.
(c) Borrowers shall have delivered to Lender a Note
executed by Borrower, substantially in the form of Exhibit A attached
hereto and incorporated herein by this reference.
11
<PAGE> 12
(d) Borrowers shall have delivered to Lender a Stock
Purchase Warrant executed by EMI, substantially in the form of Exhibit
B attached hereto and incorporated herein by this reference.
(e) Borrowers shall have delivered to Lender a Security
Agreement executed by Borrower and related UCC-1 Financing Statements
executed by Borrowers, each of which is substantially in the form of
Exhibit C attached hereto and incorporated herein by this reference.
(f) EMI shall have delivered to Lender the Small Business
Administration Forms 480, 652 and 1031 (Part A) completed by EMI.
(g) EMI shall have delivered to Lender the Small Business
Administration Economic Impact Assessment completed by EMI, a form of
which is attached hereto as Exhibit D and incorporated herein by this
reference.
(h) EMI shall have delivered to Lender a Pledge Agreement
executed by EMI and one executed by Andon Colleges, Inc. and related
stock certificates endorsed in blank or Consent to Pledge Agreement to
Hold as Agent for Second Lien or, each of which is substantially in
the form of Exhibit E attached hereto and incorporated herein by this
reference.
(i) Lender shall have received copies of the corporate
charter and other publicly filed organizational documents of
Borrowers, certified by the Secretary of State or other appropriate
public official in the jurisdiction in which Borrower is incorporated.
(j) Lender shall have received certified (as of the date
of this Agreement) copies of all corporate action taken by Borrowers,
including resolutions of their Board of Directors, authorizing the
execution, delivery and performance of the Loan Documents.
(k) Lender shall have received a certificate as to the
legal existence and good standing of each Borrower, issued by the
Secretary of State or other appropriate public official in the
jurisdiction in which each Borrower is incorporated.
(l) Lender shall have received certificates of the
Secretaries of State or other appropriate public officials as to
Borrowers' qualification to do business and good standing in each
jurisdiction in which a failure to be so qualified would have a
material adverse effect on their financial position or its ability to
conduct its business in the manner now conducted and as hereafter
intended to be conducted.
12
<PAGE> 13
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or
interest on the indebtedness evidenced by the Note in accordance with
the terms of the Note, which default is not cured within ten (10) days;
(b) Any misrepresentation by Borrowers as to any matter
hereunder or under any of the other Loan Documents which is material
to Borrowers' consolidated business, or delivery by Borrowers of any
schedule, statement, resolution, report, certificate, notice or
writing to Lender that is untrue in any respect material to the
Borrowers' consolidated business on the date as of which the facts set
forth therein are stated or certified;
(c) Failure of Borrowers to perform any of its
obligations, covenants or agreements under this Agreement, the Note or
any of the other Loan Documents;
(d) Any Borrower (i) shall generally not pay or shall be
unable to pay its debts as such debts become due; or (ii) shall make
an assignment for the benefit of creditors or petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for
it or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order
for relief or the appointment of a custodian, receiver or trustee for
it or a substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged
for a period of sixty (60) days or more;
(e) Any Borrower shall be liquidated, dissolved,
partitioned or terminated, or the charter thereof shall expire or be
revoked;
(f) A default or event of default shall occur under any
of the other Loan Documents and, if subject to a cure right, such
default or event of default shall not be cured within the applicable
cure period;
(g) Borrowers shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrowers now or hereafter
owed to Lender;
13
<PAGE> 14
(h) Any Borrower shall have defaulted and continue to be
in default beyond any applicable cure period in the timely payment or
performance of any other indebtedness or obligation, which in the
aggregate exceeds Twenty-Five Thousand and No/100ths Dollars
($25,000.00) or materially adversely affects Borrower's financial
condition; or
(i) A significant change in the executive staff or
management of EMI shall occur.
With respect to any Event of Default described above that is capable
of being cured and that does not already provide its own cure procedure (a
"Curable Default"), the occurrence of such Curable Default shall not constitute
an Event of Default hereunder if such Curable Default is fully cured and/or
corrected within thirty (30) days (ten (10) days, if such Curable Default may
be cured by payment of a sum of money) of notice thereof to EMI given in
accordance with the provisions hereof; provided, however, that this provision
shall not require notice to EMI and an opportunity to cure any Curable Default
of which any Borrower have had actual knowledge for the requisite number of
days set forth.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of
any Event of Default described in subsection 5.1(d), the indebtedness evidenced
by the Note as well as any and all other indebtedness of Borrowers to Lender
shall be immediately due and payable in full; and upon the occurrence of any
other Event of Default described above, Lender at any time thereafter may at
its option accelerate the maturity of the indebtedness evidenced by the Note as
well as any and all other indebtedness of Borrowers to Lender; all without
notice of any kind. Upon the occurrence of any such Event of Default and the
acceleration of the maturity of the indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any
and all rights and remedies possessed by Lender pursuant to the terms
of the Note and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and
remedies that Lender may now or hereafter possess at law, in equity or
by statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy
conferred upon or reserved to Lender by this Agreement or any of the other Loan
Documents is intended to be exclusive of any other right, power or remedy, but
each and every such right, power and remedy shall be cumulative and concurrent
and shall be in addition to any other right, power and remedy given hereunder,
under any of the other Loan Documents or now or hereafter existing at law, in
equity or by statute. No delay or omission by Lender to exercise any right,
power or remedy accruing upon the occurrence of any Event of Default shall
exhaust or impair any such right, power or remedy or shall be construed to be a
waiver of any such Event of Default or an acquiescence therein, and every
right, power and remedy given by this Agreement and the other Loan Documents to
Lender may be exercised from time to time and as often as may be deemed
expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy
14
<PAGE> 15
or remedies exercised; if none is specified, or if the remedy is provided by
this Agreement, then as follows:
First, to the costs and expenses, including reasonable
attorney's fees, incurred by Lender in connection with the
exercise of its remedies;
Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole
discretion, to cure the default that has occurred;
Third, to the payment of the obligations of Borrowers
under the Loan Documents (the "Obligations"), including but
not limited to the payment of the principal of and interest on
the indebtedness evidenced by the Note, in such order of
priority as Lender shall determine in its sole discretion; and
Fourth, the remainder, if any, to Borrowers or to any
other person lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall
remain in full force and effect until the later of (i) the Maturity Date (as
defined in the Note), or (ii) the payment by Borrowers of all amounts owed to
Lender, at which time Lender shall cancel the Note and deliver it to Borrowers;
provided, however, that if at any time Borrowers have satisfied all obligations
to Lender, Borrower may terminate this Agreement by providing written notice to
Lender.
ARTICLE 7
MISCELLANEOUS
7.1 Performance By Lender. If Borrowers shall default in
the payment, performance or observance of any covenant, term or condition of
this Agreement, which default is not cured within the applicable cure period,
then Lender may, at its option, pay, perform or observe the same, and all
payments made or costs or expenses incurred by Lender in connection therewith
(including but not limited to reasonable attorney's fees), with interest
thereon at the highest default rate provided in the Note (if none, then at the
maximum rate from time to time allowed by applicable law), shall be immediately
repaid to Lender by Borrowers and shall constitute a part of the Obligations.
Lender in its reasonable discretion shall be the sole judge of the necessity
for any such actions and of the amounts to be paid.
7.2 Successors and Assigns Included in Parties. Whenever
in this Agreement one of the parties hereto is named or referred to, the heirs,
legal representatives, successors, successors-in-title and assigns of such
parties shall be included, and all covenants and agreements contained in this
Agreement by or on behalf of Borrowers or by or on behalf of Lender shall bind
and inure to the
15
<PAGE> 16
benefit of their respective heirs, legal representatives, successors-in-title
and assigns, whether so expressed or not.
7.3 Costs and Expenses. Borrowers agree to pay all reasonable
costs and expenses incurred by Lender in connection with the making of the
Loan, including but not limited to filing fees, recording taxes and reasonable
attorneys' fees (not to exceed $15,000), promptly upon demand of Lender.
Borrowers further agree to pay all premiums for insurance required to be
maintained by Borrowers pursuant to the terms of the Loan Documents and all of
the out-of-pocket costs and expenses incurred by Lender in connection with the
collection of the Loan, amendment to the Loan Documents, or prepayment of the
Loan, including but not limited to reasonable attorneys' fees, promptly upon
demand of Lender.
7.4 Assignment. The Note, this Agreement and the other Loan
Documents may be endorsed, assigned and/or transferred in whole or in part by
Lender, and any such holder and/or assignee of the same shall succeed to and be
possessed of the rights and powers of Lender under all of the same to the
extent transferred and assigned. Lender may grant participations in all or any
portion of its interest in the indebtedness evidenced by the Note, and in such
event Borrowers shall continue to make payments due under the Loan Documents to
Lender and Lender shall have the sole responsibility of allocating and
forwarding such payments in the appropriate manner and amounts. Borrower,
shall not assign any of their rights nor delegate any of their duties hereunder
or under any of the other Loan Documents without the prior express written
consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to
each and every covenant, agreement and obligation of Borrowers hereunder and
under all of the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by
Law. Anything in this Agreement, the Note or any of the other Loan Documents
to the contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from
time to time. It is understood and agreed by the parties that, if for any
reason whatsoever the interest or loan charges paid or contracted to be paid by
Borrowers in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrowers so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
16
<PAGE> 17
7.8 Article and Section Headings; Defined Terms. Numbered and
titled article and section headings and defined terms are for convenience only
and shall not be construed as amplifying or limiting any of the provisions of
this Agreement.
7.9 Notices. Any and all notices, elections or demands permitted
or required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery, telecopy or telex or two (2) business days after the date of mailing
(or the next business day after delivery to such courier service), as the case
may be, shall be the date of such notice, election or demand. For the purposes
of this Agreement:
The Address of Lender is: Sirrom Capital Corporation
Nashville City Center
Suite 2310
511 Union Street
Nashville, TN 37219
Attention: George M. Miller, II
with a copy to: Bass, Berry & Sims
First American Center
Nashville, TN 37238
Attention: Maria-Lisa Caldwell, Esq.
The Address of Borrowers is: Educational Medical, Inc.
1327 North Meadow Parkway
Suite 132
Roswell, GA 30076
Attention: Vincent Pisano
with a copy to: Honigman Miller Schwartz and Cohn
222 Lakewood Avenue
Suite 800
West Palm Beach, FL 33401-6112
Attention: Morris Brown, Esq.
7.10 Entire Agreement. This Agreement and the other written
agreements between Borrowers and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein; provided, if there is a conflict between
this Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Borrowers were not based upon any fact or material provided by Lender, nor were
the Borrowers induced or influenced to enter into
17
<PAGE> 18
this Agreement or the other Loan Documents by any representation, statement,
analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement shall be
construed and enforced under the laws of the State of Tennessee applicable to
contracts to be wholly performed in such State. No amendment or modification
hereof shall be effective except in a writing executed by each of the parties
hereto.
7.12 Survival of Representations and Warranties. All
representations and warranties contained herein or made by or furnished on
behalf of the Borrowers in connection herewith shall survive the execution and
delivery of this Agreement and all other Loan Documents.
7.13 Jurisdiction and Venue. Borrowers hereby consent to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
their obligations arising under this Agreement or any other Loan Documents or
with respect to the transactions contemplated hereby, and expressly waives any
and all objections it may have as to venue in any of such courts.
7.14 Waiver of Trial by Jury. LENDER AND BORROWERS HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it being
agreed that the Borrowers, Lender and their respective agents have participated
in the preparation hereof.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be executed by their duly authorized officers,
as of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION, a Tennessee
corporation
By: /s/ Carolyn Peruone
-------------------------------------
Title: CFO
----------------------------------
BORROWERS:
EDUCATIONAL MEDICAL, INC., a Delaware
corporation, ANDON COLLEGES, INC.
d/b/a Andon College, DBS ACQUISITION
CORP. d/b/a Dominion Business School,
MARIC LEARNING SYSTEMS d/b/a Maric
College of Medical Careers, MTSX
ACQUISITION CORP. d/b/a Modern
Technology School of X-Ray, PALO VISTA
COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion
Merchandising, Art and Design, ICM
ACQUISITION CORP. d/b/a ICM School of
Business, MEADOWS ACQUISITION CORP.
d/b/a Meadows College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute
of Photography and Technology,
SCOTTSDALE EDUCATIONAL CENTER FOR
ALLIED HEALTH CAREERS, INC. d/b/a Long
Medical Institute, DEST EDUCATION
CORPORATION d/b/a Andon College
By: /s/ Gary D. Kerber
-------------------------------------
Title: President
----------------------------------
19
<PAGE> 20
SCHEDULE 2.1(A)
FINANCIAL STATEMENTS OF BORROWER
Consolidated Statement of Operations of Educational Medical, Inc. as of
December 31, 1994
Educational Medical, Inc. and Subsidiaries Consolidated Financial Statements
for years ended March 31, 1994 and 1993 with Report of Independent Auditors
COPIES OF EACH OF THE ABOVE-REFERENCED STATEMENTS ARE ATTACHED HERETO AND MADE
A PART HEREOF.
<PAGE> 21
<TABLE>
<CAPTION>
EDUCATIONAL MEDICAL, INC.
===================================================================================================================================
3 MONTHS 3 MONTHS 9 MONTHS 9 MONTHS
CONSOLIDATED STATEMENT OF OPERATIONS ENDED 12/31/94 ENDED 12/31/93 ENDED 12/31/94 ENDED 12/31/93
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUES $ 8,397,106 $ 6,992,174 $ 22,758,523 $ 19,177,234
COSTS AND EXPENSES
Training 2,676,118 2,226,384 7,317,470 5,986,989
Facilities 1,290,481 1,047,944 3,692,302 2,784,726
Selling and Promotion 1,582,617 1,141,617 4,007,818 2,979,661
General and Administrative 2,582,887 2,255,380 7,392,216 6,558,491
===================================================================================================================================
OPERATING INCOME (LOSS) 265,003 320,849 348,717 867,367
===================================================================================================================================
Amortization of Acquired Intangible Assets 417,238 432,072 914,612 1,085,860
Interest Expense 240,355 223,634 737,610 556,709
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE SCHOOL CLOSURE (392,590) (334,857) (1,303,505) (775,202)
School Closure - - - 1,086,493
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (392,590) (334,857) (1,303,505) (1,861,695)
Income Taxes (Benefit) 22,776 (172,922) 22,776 (628,022)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (415,366) $ (161,935) $ (1,326,281) $ (1,233,673)
===================================================================================================================================
CONDENSED CONSOLIDATED BALANCE SHEETS 12/31/94 3/31/94
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents $ 1,027,217 $ 2,745,288
Receivables - Net 3,050,007 2,972,275
Other Current Assets 586,558 676,664
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 4,663,782 6,394,227
- -----------------------------------------------------------------------------------------------------------------------------------
Land, Buildings, and Equipment - Net 4,092,245 2,830,689
Identifiable Intangibles and Goodwill 8,298,780 9,113,803
Other Assets 102,524 102,524
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 17,157,331 $ 18,441,243
===================================================================================================================================
Current Liabilities $ 4,217,641 $ 3,303,576
Deferred Tuition Income 1,998,302 2,411,298
Long-Term Debt 5,249,768 5,752,354
Other Non-Current Liabilities 507,544 463,652
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,973,255 11,930,880
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 5,184,076 6,510,363
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,157,331 $ 18,441,243
===================================================================================================================================
</TABLE>
<PAGE> 22
[LOGO] EDUCATIONAL MEDICAL, INC.
Revenue for the third quarter ended December 31, 1994 reached $8,397,000, a 20%
increase over the $6,992,000 for the third quarter of last year. Year-to-date
revenue of $22,759,000 is up 9% compared to last year's revenue of $19,177,000.
Revenue benefited from seven acquisitions which produced $7,499,000 in
year-to-date revenue compared to $5,256,000 for a partial period in the prior
year. EMI's existing schools or year-to-date same-school revenue of $15,260,000
was up 10% compared to the prior year to date.
The company had operating income for the third quarter of $265,000 compared to
$321,000 for the prior year. The decline was primarily a result of an increase
in overhead, as school contribution increased by $106,000. Year-to-date
operating income of $349,000 continued to lag the prior-year amount of $867,000
due to the decline incurred in the first quarter, a result of the seasonality
and underperformance of our seven new acquisitions. Full-year results of the
acquired operations are expected to positively impact our results of operations.
Year-to-date same-school operating income is up 17% compared to the prior year
to date.
Our new acquisitions have changed the seasonality of our business whereby new
student starts occur principally in the fall and winter, as is the case for
traditional colleges and universities. We look forward to the final quarter of
our fiscal year which is, by a substantial amount, our most profitable quarter.
/s/ Gary D. Kerber
Gary D. Kerber
Chairman & President
/s/ Vince Pisano
Educational Medical, Inc., headquartered in Atlanta, Georgia, operates fourteen
schools offering training in medical, business, photography, and fashion
curricula.
Maric College of Medical Careers Modern Technology School of X-ray
Vista, California North Hollywood, California
Maric College of Medical Careers Dominion Business School
San Diego, California Roanoke, Virginia
Maric College of Medical Careers Dominion Business School
San Marcos, California Harrisonburg, Virginia
Long Medical Institute Dominion Business School
Phoenix, Arizona Staunton, Virginia
Andon College ICM School of Business
Stockton, California Pittsburgh, Pennsylvania
Andon College Ohio Institute of Photography
Modesto, California & Technology
Dayton, Ohio
Bauder College
Atlanta, Georgia California Academy of Merchandising,
Art, & Design
Sacramento, California
Educational Medical, Inc. strives to provide each student with the knowledge and
practical job skills necessary for successful employment, and to facilitate
their development as competent self-directed individuals.
<PAGE> 23
Educational Medical, Inc.
and Subsidiaries
Consolidated Financial Statements
Years ended March 31, 1994 and 1993
with Report of Independent Auditors
<PAGE> 24
Educational Medical, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended March 31, 1994 and 1993
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors .......................................... 1
Consolidated Financial Statements
Consolidated Balance Sheets ............................................. 2
Consolidated Statements of Operations ................................... 4
Consolidated Statements of Shareholders' Equity ......................... 5
Consolidated Statements of Cash Flows ................................... 6
Notes to Consolidated Financial Statements .............................. 7
</TABLE>
<PAGE> 25
[ERNST & YOUNG LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Educational Medical, Inc.
We have audited the accompanying consolidated balance sheets of Educational
Medical, Inc. and subsidiaries as of March 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Educational
Medical, Inc. and subsidiaries at March 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1994, in conformity with the generally accepted
accounting principles.
/s/ ERNST & YOUNG
June 14, 1994
<PAGE> 26
Educational Medical, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31
1994 1993
------------------------------
<S> <C> <C>
ASSETS (Note 2)
Current assets:
Cash and cash equivalents $ 2,745,288 $ 6,533,006
Accounts receivable:
Trade, less allowance for doubtful accounts of
$780,000 and $875,000, respectively 2,292,275 1,614,438
Income taxes refundable 680,000 --
Prepaid expenses 676,664 458,875
Deferred income taxes (Note 7) -- 177,548
------------------------------
Total current assets 6,394,227 8,783,867
Property and equipment, net (Note 5) 2,830,689 1,146,364
Other assets:
Deferred debt issuance costs, net of accumulated
amortization of $173,000 and $97,000,
respectively 166,506 180,378
Covenants not to compete, net of accumulated
amortization of $312,000 and $50,000,
respectively 1,564,724 1,199,996
Goodwill and other intangible assets, net of
accumulated amortization of $4,155,000 and
$4,045,000, respectively 7,382,573 4,968,889
Other assets 102,524 20,237
------------------------------
Total assets $18,441,243 $16,299,731
==============================
</TABLE>
2
<PAGE> 27
<TABLE>
<CAPTION>
MARCH 31
1994 1993
----------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,236 $ 116,092
Refunds payable -- 57,204
Accrued expenses 1,673,906 856,272
Income taxes payable 292,476
Deferred tuition income 2,411,298 1,600,866
Current portion of long-term debt 1,549,434 1,023,078
-----------------------------
Total current liabilities 5,714,874 3,945,988
Long-term debt (Note 2) 5,752,354 4,119,118
Other liabilities 463,652 163,077
Shareholders' equity (Notes 2 and 3):
Convertible preferred stock, $.01 par value -
authorized 1,100,000 shares; issued and
outstanding 1,023,049 and 1,023,031 shares at
March 31, 1994 and 1993, respectively 10,230 10,230
Additional paid-in capital on preferred stock 5,502,862 5,502,777
Common stock, $.01 par value - authorized
3,500,000 shares; issued and outstanding
1,006,096 shares and 1,006,088 shares at
March 31, 1994 and 1993, respectively 10,061 10,061
Additional paid-in capital on common stock 1,236,040 1,236,005
Stock purchase warrants 1,724,400 1,441,124
Accumulated deficit (1,938,230) (93,649)
Less treasury stock, at cost (17,499 common
shares) (35,000) (35,000)
-----------------------------
Total shareholders' equity 6,510,363 8,071,548
-----------------------------
Total liabilities and shareholders' equity $18,441,243 $16,299,731
=============================
</TABLE>
See accompanying notes.
3
<PAGE> 28
Educational Medical, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1994 1993 1992
-------------------------------------------
<S> <C> <C> <C>
Net revenues $ 26,475,125 $ 19,112,640 $ 13,256,200
School operating costs:
Training 8,242,944 5,231,394 3,335,935
Facilities 4,073,460 2,365,090 1,288,436
5elling and promotional 4,059,217 2,592,726 1,764,440
Administrative 6,567,893 3,811,930 2,861,379
-------------------------------------------
22,943,514 14,001,140 9,250,190
-------------------------------------------
School contribution 3,531,611 5,111,500 4,006,010
General and administrative expenses 2,071,123 1,688,297 1,623,379
-------------------------------------------
1,460,488 3,423,203 2,382,631
Loss on closure of school (Note 10) 1,125,518 -- --
Consulting fees 33,331 -- 4,167
Amortization of goodwill and intangibles 1,235,362 1,071,737 820,915
Interest expense (net of interest income of
$150,000 in 1994, $207,000 in 1993 and
$163,000 in 1992) 797,548 574,093 388,503
-------------------------------------------
(Loss) income before income taxes and
extraordinary credit (1,731,271) 1,777,373 1,169,046
(Benefit) provision for income taxes (Note 7) (169,966) 748,891 519,448
-------------------------------------------
(Loss) income before extraordinary credit (1,561,305) 1,028,482 649,598
Extraordinary credit - utilization of net
operating loss carryforward (Note 7) -- -- 435,000
-------------------------------------------
Net (loss) income $ (1,561,305) $ 1,028,482 $ 1,084,598
===========================================
</TABLE>
See accompanying notes.
4
<PAGE> 29
Educational Medical, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL
CUMULATIVE CONVERTIBLE PAID-IN
PREFERRED STOCK CAPITAL ON
SHARES AMOUNT PREFERRED STOCK
----------------------------------------
<S> <C> <C> <C>
Balance at March 31, 1991 1,020,000 $ 10,200 $ 6,721,050
Repurchase and retirement of
common stock - - -
Issuance of common stock - - -
Issuance of stock purchase warrants - - -
Accretion of value of stock purchase
warrants - - -
Conversion of $1,232,498 of accrued
preferred dividends to common
stock - - (1,232,498)
Purchase of common stock for
treasury - - -
Net income - - -
----------------------------------------
Balance at March 31, 1992 1,020,000 10,200 5,488,552
Accretion of value of stock purchase
warrants - - -
Conversion of stock purchase
warrants 3,031 30 14,225
Net income - - -
----------------------------------------
Balance at March 31, 1993 1,023,031 10,230 5,502,777
Accretion of value of stock purchase
warrants - - -
Conversion of stock purchase
warrants 18 - 85
Net loss - - -
----------------------------------------
Balance at March 31, 1994 1,023,049 $ 10,230 $ 5,502,862
========================================
</TABLE>
See accompanying notes.
5
<PAGE> 30
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN STOCK RETAINED
----------------------------- CAPITAL ON PURCHASE EARNINGS
SHARES AMOUNT COMMON STOCK WARRANTS (DEFICIT)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1991 731,261 $ 7,313 $ 49 $ -- $ (1,815,605)
Repurchase and retirement of
common stock (78,973) (790) -- -- --
Issuance of common stock 106,041 1,060 -- -- --
Issuance of stock purchase warrants -- -- -- 1,050,000 --
Accretion of value of stock purchase
warrants -- -- -- 154,556 (154,556)
Conversion of $1,232,498 of accrued
preferred dividends to common
stock 246,500 2,465 1,230,033 -- --
Purchase of common stock for
treasury -- -- -- -- --
Net income -- -- -- -- 1,084,598
--------------------------------------------------------------------------------
Balance at March 31, 1992 1,004,829 10,048 1,230,082 1,204,556 (885,563)
Accretion of value of stock purchase
warrants -- -- -- 236,568 (236,568)
Conversion of stock purchase
warrants 1,259 13 5,923 -- --
Net income -- -- -- -- 1,028,482
--------------------------------------------------------------------------------
Balance at March 31, 1993 1,006,088 10,061 1,236,005 1,441,124 (93,649)
Accretion of value of stock purchase
warrants -- -- -- 283,276 (283,276)
Conversion of stock purchase
warrants 8 -- 35 -- --
Net loss -- -- -- -- (1,561,305)
--------------------------------------------------------------------------------
Balance at March 31, 1994 1,006,096 $10,061 $1,236,040 $ 1,724,400 $ (1,938,230)
================================================================================
</TABLE>
<PAGE> 31
SCHEDULE 2.1(b)
<TABLE>
<CAPTION>
EDUCATIONAL MEDICAL, INC.,
A DELAWARE CORPORATION BAUDER ACQUISITION CORP. MERGED INTO
DOI - 03/11/88 EDUCATIONAL MEDICAL, INC. ON 06/11/92
EIN - 65-0038445 D/B/A BAUDER COLLEGE
-------------------------- -------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*
DBS ACQUISITION CORP.,
A VIRGINIA CORPORATION
F/K/A A-DBS ACQ. CORP.
D/B/A DOMINION BUSINESS *
SCHOOL MTSX ACQUISITION
DOI - 04/13/93 CORP., A DELAWARE PALO VISTA COLLEGE OF
ANDON COLLEGES, INC. EIN - 68-2132496 MARIC LEARNING SYSTEMS, CORPORATION NURSING AND ALLIED HEALTH
A CALIFORNIA CORPORATION *ORIGINALLY A DELAWARE A CALIFORNIA CORPORATION D/B/A MODERN SCIENCES, INC., A CALIFORNIA
D/B/A ANDON COLLEGE CORPORATION KNOWN AS D/B/A MARIC COLLEGE OF TECHNOLOGY SCHOOL OF CORPORATION
DOI - 11/28/89 DBS ACQUISITION CORP. MEDICAL CAREERS X-RAY D/B/A MARIC COLLEGE OF
EIN - 68-0205914 WAS FORMED. DOI - 05/06/81 QUALIFIED - CALIFORNIA MEDICAL CAREERS
ON 09/07/94, THE EIN - 96-3633570 DOI - 03/10/93 DOI - 12/01/78
DELAWARE CORPORATION EIN - 58-2044179 EIN - 95-3302882
WAS MERGED INTO THE
VIRGINIA CORPORATION
AND THE VIRGINIA
CORPORATION WAS THE
SUCCESSOR CORPORATION
- ------------------------ ----------------------- ------------------------ ---------------------- ----------------------------
CALIFORNIA ACADEMY OF ICM ACQUISITION OIOPT ACQUSITION
MERCHANDISING, ART AND DESIGN, CORP., A DELAWARE MEADOWS ACQUISITION CORP., A DELAWARE SCOTTSDALE EDUCATIONAL
INC., A DELAWARE CORPORATION CORPORATION CORP., A DELAWARE CORPORATION CENTER FOR ALLIED HEALTH
F/K/A CAMAD ACQUISITION CORP. D/B/A ICM SCHOOL CORPORATION D/B/A OHIO CAREERS, INC., AN ARIZONA
D/B/A CALIFORNIA ACADEMY OF OF BUSINESS D/B/A MEADOWS INSTITUTE OF CORPORATION
FASHION MERCHANDISING, ART AND QUALIFIED - COLLEGE OF BUSINESS PHOTOGRAPHY AND D/B/A LONG MEDICAL
DESIGN PENNSYLVANIA QUALIFIED - GEORGIA TECHNOLOGY INSITUTE
QUALIFIED - CALIFORNIA DOI - 04/27/93 DOI - 11/06/99 QUALIFIED - OHIO DOI - 07/27/79
DOI - 06/14/93 EIN - 58-2049587 EIN - 58-1869721 DOI - 05/21/93 EIN - 86-0370806
EIN - 58-2056947 EIN - 68-2062766
------------------------------ ----------------- ------------------- ---------------- -------------------------
DEBT EDUCATION
CORPORATION,
A CALIFORNIA CORPORATION
D/B/A ANDON COLLEGE
DOI - 10/10/84
EIN - 86-0370806
- ------------------------
</TABLE>
DOI - DATE OF INCORPORATION
EIN - EMPLOYER IDENTIFICATION NUMBER
* - SUBJECT TO PRIOR PLEDGE SEE SCHEDULE 2.1(1)
<PAGE> 32
Educational Medical, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(1,561,305) $ 1,028,482 $ 1,084,598
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation 649,171 256,769 147,279
Amortization of intangibles and goodwill 1,255,106 1,071,737 816,746
Loss on closure of school 1,125,518 - -
Provision for losses on accounts receivable 1,144,361 878,581 742,305
Deferred income taxes 177,548 (84,548) (92,000)
Accretion of discount on long-term debt 212,445 212,444 146,674
Changes in operating assets and liabilities, net
of assets acquired and liabilities assumed:
Accounts receivable (2,520,951) (1,037,154) (1,187,401)
Prepaid expenses (141,327) (171,378) (27,189)
Other assets (79,332) - (50,188)
Accounts payable, refunds payable, and
accrued expenses 159,038 (120,327) 80,396
Deferred tuition income 202,707 73,075 (268,270)
Income taxes payable (972,476) 116,476 176,000
Other liabilities 255,528 58,421 (31,241)
----------------------------------------------------
Net cash (used in) provided by operating activities (93,969) 2,282,578 1,537,709
INVESTING ACTIVITIES
Purchase of businesses, net of cash acquired (490,650) - (1,045,065)
Purchases of property and equipment, net (678,125) (542,193) (282,507)
Additions to goodwill and intangibles (556,129) (77,384) -
----------------------------------------------------
Net cash used in investing activities (1,724,904) (619,577) (1,327,572)
FINANCING ACTIVITIES
Repurchase of common stock - - (790)
Issuance of common stock 35 5,936 1,060
Issuance of preferred stock 85 14,255 -
Proceeds from notes payable and long-term debt 178,979 - 2,950,000
Principal payments on acquisition notes payable (1,684,228) - -
Principal payments on senior subordinated debt (401,588) - (90,000)
Purchase of treasury stock - - (35,000)
Issuance of stock purchase warrants - - 1,050,000
Increase in deferred financing costs (62,128) - (277,879)
----------------------------------------------------
Net cash (used in) provided by financing activities (1,968,845) 20,191 3,597,391
----------------------------------------------------
(Decrease) increase in cash and cash equivalents (3,787,718) 1,683,192 3,807,528
Cash and cash equivalents at beginning of year 6,533,006 4,849,814 1,042,286
----------------------------------------------------
Cash and cash equivalents at end of year $2,745,288 $6,533,006 $4,849,814
====================================================
</TABLE>
See accompanying notes.
6
<PAGE> 33
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1994
1. ORGANIZATION AND ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Educational Medical, Inc. (the "Company") operates various vocational schools
primarily offering allied health, business, fashion and photography training.
The Company presently operates fourteen schools in the states of California,
Georgia, Virginia, Ohio, Pennsylvania, and Arizona.
Students attending the Company's schools generally finance the cost of their
education through government grants and guaranteed loans. Such financial
assistance generally covers a significant portion of the total cost of the
programs offered by the Company. The U.S. Department of Education has various
requirements for operators of vocational schools including certain financial
covenants. Recently issued government regulations also limit the percentage
of tuition revenue which individual schools can derive from these government
programs; violations could limit a school's ability to obtain governmental
financial assistance at the particular school. Presently the new regulations
are difficult to interpret, modifications have been proposed and the
regulations are being challenged in a lawsuit to be heard in July 1994. If the
regulations and related financial covenants are implemented in their present
form without modification, it is management's belief that the Company and
certain of their schools may be in violation and hence the Company could
experience a materially adverse effect on its future operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents includes overnight investments in a bank and an investment in
bond mutual funds. These investments are recorded at cost, which approximates
market. The Company considers investments with maturities of three months or
less at the date of purchase to be cash equivalents for purposes of the
statements of cash flows.
7
<PAGE> 34
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
calculated on the straight-line method over the estimated useful lives of the
related assets or the remaining lease term for leasehold improvements, if
shorter.
COVENANTS NOT TO COMPETE
Non-compete agreements obtained from the sellers of certain acquired schools
are being amortized on the straight-line basis over the life of the agreement,
generally from two to fifteen years.
GOODWILL AND OTHER INTANGIBLE ASSETS
In fiscal 1994, the Company changed its estimate of the life of goodwill to 15
years. Previously, goodwill was amortized over 40 years. The effect of the
change was not material.
Other intangible assets, which are similar in character to goodwill (acquired
student contracts, training curriculum, favorable leases assumed, non-compete
contracts, accreditation and acquired tradenames) are being amortized using the
straight-line method over periods ranging generally from two years to ten
years.
DEFERRED TUITION INCOME
Deferred tuition income represents the portion of student tuitions received in
advance of services being performed.
REFUNDS PAYABLE
Refunds payable are refunds due to terminated students. These funds are paid
in accordance with the prescribed policies of the regulatory and accrediting
organizations of the individual school and represent the refund due under the
terms of the enrollment contract based on the student's attendance through the
termination date.
8
<PAGE> 35
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Tuition revenue is recognized monthly on a straight-line basis over the term of
the course of study. Certain fees and charges are fully recognized as revenue
at the time a student begins classes.
NON CASH TRANSACTIONS
As discussed in Note 4, the Company has acquired certain assets and assumed
certain liabilities of various schools. In fiscal year 1994 and 1993, the
Company issued $3,873,000 and $1,483,000, respectively, in notes payable and
long-term debt in conjunction with these acquisitions. During 1994, the
Company also acquired certain equipment under capital lease. Such transactions
have been excluded from the statements of cash flows.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement No.
109, "Accounting for Income Taxes." The Company adopted the provisions of the
new standard in its financial statements for the year ended March 31, 1993.
The effect of adopting Statement 109 was immaterial. As permitted by the
Statement, prior year financial statements have not been restated to reflect
the change in accounting method.
Under Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of Statement 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the difference originated.
RECLASSIFICATIONS
Certain reclassifications were made to the 1993 financial statements to conform
with the 1994 presentation.
9
<PAGE> 36
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
March 31
1994 1993
---------------------------
<S> <C> <C>
8% to 11% unsecured promissory notes
payable to sellers of various schools
acquired, principal and interest payable
periodically through July 1999 $2,100,000 $1,300,000
Notes payable due for non-competition
agreements, payable periodically through
July 1999 1,242,500 500,000
13% senior subordinated debt, $4,000,000
principal, quarterly interest-only payments
through March 31, 1993, quarterly principal
payments of $100,000 plus interest
beginning June 30, 1993 with final payment
of $2,800,000 on June 30, 1996 3,121,563 3,309,118
6.67% mortgage payable due in monthly
installments of $6,881, secured by land and
building 707,487 -
12% capitalized lease, payable in installments
of $2,390; secured by equipment 130,238 -
Other - 33,078
----------------------------
7,301,788 5,142,196
Less current portion 1,549,434 1,023,078
----------------------------
$5,752,354 $4,119,118
============================
</TABLE>
10
<PAGE> 37
Educational Medical, Inc. Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. LONG-TERM DEBT (CONTINUED)
Included in promissory notes payable is a 10.91% promissory note payable for
$350,000, due October 31, 1994, secured by all the outstanding corrunon stock
of Meadows Acquisition Corp., a wholly-owned subsidiary formed solely to
acquire Meadows College of Business; subject to the occurrence of certain
future events as defined in the note, the unpaid balance is convertible into
Common Stock based on a predetermined formula; no amounts are convertible as of
March 31, 1994.
On July 23, 1991 the Company entered into a Securities Purchase Agreement,
("the Agreement") under which it issued $4,000,000 of 13% Senior Subordinated
Debt Notes ("the Notes") and warrants to purchase a total of 800,000 shares of
common stock to certain outside investors ("the Investors"). Pursuant to this
transaction, $1,050,000 was recorded as debt discount and warrants (see Note
3). The carrying value of the Notes represents the principal at maturity less
the unamortized discount. The discount amount of $1,050,000 attributable to
the notes is being amortized using the straight-line method through the
maturity date of the notes. Amortization of the discount of $212,000, $212,000
and $147,000 were included in interest expense for the years ended March 31,
1994, 1993 and 1992, respectively. The Notes are secured by substantially all
the assets of the Company. Such security is subordinate to all senior debt, as
defined.
Under the terms of the Agreement, the Company must meet certain restrictive
covenants. Under the most restrictive of such covenants, the Company must
maintain specified levels of net worth, total debt to shareholders' equity and
a fixed charge coverage ratio.
The Company is also restricted as to the incurrence of certain other debt and
restricted payments, as defined. In addition, without the approval of a
majority of Investors the Company is restricted as to: the consolidation,
merger or sale of the Company; the issuance of indebtedness subordinate to
senior debt and senior to the Notes; the amendment of its articles of
incorporation or bylaws; the increase in the number of authorized directors;
the redemption or repurchase of outstanding stock (except as in employment
contracts); and the payment of any dividends on Common Stock.
11
<PAGE> 38
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. LONG-TERM DEBT (CONTINUED)
The Company, the Preferred Shareholders, and the Investors have entered into a
Coinvestors Agreement which, among other things, entitles the Investors to
select one representative on the Company's Board of Directors as long as a
certain minimum investment amount is maintained by the Investors.
During the year ended March 31, 1994, the Company entered into a $2,000,000
revolving loan agreement (the "$2,000,000 loan") and a $1,000,000 revolving
loan agreement (the "$1,000,000 loan") with a bank. Borrowings under the
$2,000,000 loan bear interest at the rate of prime plus 1% and under the
$1,000,000 loan at the rate of prime plus 2%. The loans mature on September 1,
1994 and are secured by substantially all assets of the Company. No amounts
were outstanding under these agreements at March 31, 1994.
Aggregate maturities of long-term debt at March 31, 1994 are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
1995 $15,549,434
1996 1,178,513
1997 3,370,475
1998 575,350
1999 558,070
Thereafter 548,383
----------
7,780,225
Less discount on senior subordinated debt 478,437
----------
$7,301,788
==========
</TABLE>
Interest paid during the years ended March 31, 1994, 1993 and 1992 was
approximately $733,000, $520,000, and $363,000.
12
<PAGE> 39
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Prior to March 31, 1990, the Company issued 1,020,000 shares of Cumulative
Convertible Preferred Stock, $.01 par value. At the option of the holder, each
share of Preferred Stock may be converted into one share of Common Stock at
$6.66 per share, subject to certain antidilution adjustments (1,023,049 shares
at March 31, 1994).
Through July 22, 1991, the shares of Preferred Stock accrued dividends at an
annual rate of 8%. Effective July 23, 1991, pursuant to the Securities
Purchase Agreement dated July 23, 1991 (see Note 4), the terms of the Preferred
Stock were amended to eliminate the cumulative dividends feature and redemption
requirement until an Initial Public Offering of Stock is completed and certain
other requirements are met, and the Company issued 246,500 shares of Common
Stock in full payment of accrued dividends through July 22, 1991 totaling
$1,232,498. Under certain circumstances, the Company is obligated to redeem
for cash all the outstanding Preferred Stock at $6.66 per share.
Except for the election of directors, the holders of Preferred Stock and Common
Stock shall vote as one class, with each share of Preferred Stock entitled to
one vote for each share of Common Stock issuable upon conversion. The
Preferred Shareholders voting separately as a class may elect three of the five
members of the Board of Directors.
COMMON STOCK
Effective December 15, 1991, certain shares of Common Stock previously
purchased by two officers became subject to a Restricted Stock Purchase
Agreement, as amended December 15, 1991. Under the terms of the amended
Restricted Stock Purchase Agreement, the Company has the rights to repurchase
certain shares of previously issued Common Stock in the event of termination of
employment at the original issue price of $.01 per share. The rights expire
ratably over a scheduled four year vesting period. As of March 31, 1994, a
total of 20,409 shares are subject to this repurchase option.
13
<PAGE> 40
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SHAREHOLDERS' EQUITY (CONTINUED)
COMMON STOCK (CONTINUED)
The Company has reserved the following shares of Common Stock at March 31,
1994:
<TABLE>
<S> <C>
Convertible Preferred Stock 1,023,049
Common Stock purchase warrants 948,000
---------
1,971,031
=========
</TABLE>
STOCK PURCHASE WARRANTS
As described in Note 2, concurrent with the issuance of the Notes, the
Investors were granted stock purchase warrants allowing the purchase of up to
800,000 shares of Common Stock at $5 per share, for a total amount of
$4,000,000. The $5 exercise price of the warrants is subject to adjustment for
any future issuances of equity or equity related securities at a per share
price less than the exercise price.
The warrants were assigned a value of $1,050,000. The difference between the
$1,050,000 and the exercise price of $4,000,000 is being accreted through the
date of earliest exercise (50% through March 31, 1998 and 50% through March 31,
1999). Accretion of $283,276 and $236,568 was charged to retained earnings
during the year ended March 31, 1994 and 1993, respectively. The warrants
expire June 30, 2001.
At any time after March 31, 1998, but on or before March 31, 1999, the
Investors may "put" to the Company warrants representing 50% of total warrants
then outstanding. At any time after March 31, 1999, the Investors may "put" to
the Company all then outstanding warrants. The Company may "call" the warrants
at the later of 2 years from closing (July 23, 1991) or after the Company's
stock has been publicly traded for six months. The put/call price is $5 per
share.
14
<PAGE> 41
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK PURCHASE WARRANTS (CONTINUED)
The Coinvestors Agreement (Note 2) specifies that, upon a change in control of
the Company, all Investors and Preferred Shareholders "put" amounts will be
paid and distributed by the Company as follows:
i) 50% of the Investors' "put" amounts shall be paid and
distributed by the Company to the Investors immediately.
ii) immediately thereafter, all shareholders' "put" amounts shall
be paid and distributed by the Company to the Preferred
Shareholders.
iii) immediately thereafter, the remaining Investors' "put" amounts
shall be paid and distributed by the Company to the Investors.
In the event of a change in control of the Company, the Notes are to be repaid
at par and the related warrants may be "put" to the Company by the Investors at
a price between $1 to $2.50 per Common Share depending on the date of the
change in control. The Preferred Shareholders are to be paid in cash all the
outstanding Preferred Stock at $6.66 per share.
In connection with the Securities Purchase Agreement described in Note 2, a
third party was granted warrants to purchase 16,000 shares of Common Stock
exercisable at $6 per share. These warrants expire July 23, 1996.
The Company has agreed in the event of an Initial Public Offering to issue to a
third party, warrants to purchase 10,000 shares of Common Stock at the offering
price of such shares in an Initial Public Offering. These warrants will expire
5 years from the date of such Initial Public Offering.
15
<PAGE> 42
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
In fiscal year 1993 and 1994, the Company issued 102,000 and 20,000 stock
option grants, respectively, to certain management employees, which give the
holders rights to acquire the same number of shares of the Company's common
stock. The options vest incrementally over four years and are exercisable at
$4.00 per share for the 1993 options and $6.67 for the 1994 options. The
options expire on the fifth anniversary of the year in which such options
become vested. As of March 31, 1994, 48,000 options were exercisable.
4. ACQUISITIONS
On March 1, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Modern Technology School of
X-Ray ("Modern") for $1,550,000. The purchase price consisted of $950,000 of
notes payable to the seller (see Notes 2 and 3), a $500,000 non-compete
covenant payable over five years and $100,000 of cash. The acquisition was
accounted for as a purchase whereby the assets acquired and liabilities assumed
(net tangible assets of $140,000) were recorded at their estimated fair market
values. Approximately $500,000 was assigned to a covenant not to compete and
approximately $910,000 was assigned to goodwill. The results of operations of
Modern have been included in the Company's results of operations since March 1,
1993, the effective date for accounting purposes.
On May 29, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Dominion Business Schools,
Inc. (DBS) for up to $2,400,000. The purchase price consisted of promissory
notes totaling $1,650,000 to the seller, a $400,000 non-compete covenant
payable over five years and $350,000 of cash. The acquisition was accounted
for as a purchase whereby the assets acquired and the liabilities assumed (net
liabilities assumed of $725,000) were recorded at their estimated fair market
values. Approximately $400,000 was assigned to the covenant not to compete.
The results of operations of DBS have been included in the Company's results of
operations since June 1, 1993, the effective date of the acquisition for
accounting purposes.
16
<PAGE> 43
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS (CONTINUED)
On July 3, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of Computer Management of
Baltimore, Inc. dba ICM School of Business (ICM) for $600,000. The purchase
price consisted of $500,000 of notes payable and a $100,000 non-compete
covenant payable over two years. The acquisition was accounted for as a
purchase whereby the assets acquired and the liabilities assumed (net
liabilities assumed of $481,000) were recorded at their estimated fair market
values. The results of operations of ICM have been included in the Company's
results of operations since July 1, 1993, the effective date of the acquisition
for accounting purposes.
On July 14, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of the Ohio Institute of
Photography and Technology (OIPT) for $1,236,000. The purchase price consisted
of $200,000 of notes payable to the seller, a $325,000 non-compete covenant
payable over five years, the assumption of a $541,000 mortgage, and $170,000 of
cash. The acquisition was accounted for as a purchase whereby the assets
acquired and the liabilities assumed (net tangible assets of $1,127,000) were
recorded at their estimated fair market values. Approximately $62,000, net of
negative goodwill acquired, was assigned to the covenant not to compete. The
results of operations of OIPT have been included in the Company's results of
operations since July 1, 1993, the effective date of the acquisition for
accounting purposes. The Company entered into three year consulting agreements
with the former shareholders of OIPT for a total of $200,000, payable
semiannually. Consulting fees of $33,000 are included in the accompanying 1994
consolidated statement of operations.
On August 5, 1993, the Company, through a wholly-owned subsidiary, purchased
certain assets and assumed certain liabilities of California Academy of
Merchandising, Art & Design (CAMAD) for $50,000. The purchase price consisted
of $25,000 in cash and a $25,000 non-compete covenant payable over two years.
The acquisition was accounted for as a purchase whereby the assets acquired and
the liabilities assumed (net liabilities
17
<PAGE> 44
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS (CONTINUED)
assumed of $46,000) were recorded at their estimated fair market values. The
results of operations of CAMAD have been included in the Company's results of
operations since August 1, 1993, the effective date of the acquisition for
accounting purposes.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31
1994 1993
---------------------------
<S> <C> <C>
Equipment, furniture and fixtures $ 2,384,552 $1,250,969
Leasehold improvements 679,085 477,591
Land 208,100 -
Buildings 787,000 -
---------------------------
4,058,737 1,728,560
Less accumulated depreciation and
amortization (1,228,048) (582,196)
---------------------------
$ 2,830,689 $1,146,364
===========================
</TABLE>
6. LEASES
The Company leases its office, classroom and dormitory space under operating
lease agreements expiring through 1998. Rent expense totaled approximately
$2,330,000, $1,249,000, and $613,000 for the years ended March 31, 1994, 1993
and 1992, respectively.
18
<PAGE> 45
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases are as
follows for the years ended March 31:
<TABLE>
<S> <C>
1995 $1,829,502
1996 1,402,287
1997 1,300,038
1998 1,129,202
1999 715,815
Thereafter 3,258,204
----------
$9,635,048
==========
</TABLE>
7. INCOME TAXES
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1994 1993 1992
------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (584,479) $640,591 $483,448
State (166,618) 192,848 129,000
-------------------------------------------
(751,097) 833,439 612,448
Deferred:
Federal 580,868 (66,388) (75,000)
State 263 (18,160) (18,000)
-------------------------------------------
581,131 (84,548) (93,000)
-------------------------------------------
$ (169,966) $748,891 $519,448
===========================================
</TABLE>
The deferred tax provision in 1994 results primarily from the change in the
deferred tax asset valuation reserve. Deferred tax benefits result primarily
from the timing of deductions related to the allowance for doubtful accounts
receivable.
19
<PAGE> 46
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The income tax provision for fiscal year 1992 includes a charge in lieu of
federal and state income taxes of $435,000, which represents taxes that would
have been paid in the absence of net operating loss carryforwards from prior
years. The offsetting income tax benefit from the utilization of these
carryforwards has been reported as an extraordinary credit, in accordance with
the deferred method of accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at March 31 are as
follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------
<S> <C> <C>
Allowance for doubtful accounts $ 218,996 $ 257,470
Tradenames 379,000 433,000
Prepaid expenses (137,664) (41,615)
Intangibles 178,740 -
Depreciation 49,440 25,186
Deferred rent - 25,928
AMT credit carryforwards 1,929,420 -
Other, net (22,021) 21,742
---------------------------
858,911 721,711
Valuation allowance for deferred
tax assets (858,911) (544,163)
---------------------------
$ - $ 177,548
===========================
</TABLE>
The Company paid approximately $383,500 and $650,000 of income taxes in the
years ended March 31, 1994 and 1993 and none in the year ended March 31, 1992.
20
<PAGE> 47
Educational Medical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE BENEFIT PLAN
During 1992, the Company adopted a defined contribution plan covering
substantially all employees; the plan is qualified under Section 401(k) of the
Internal Revenue Code. Under the provisions of the plan, eligible
participating employees may elect to contribute up to the maximum amount of tax
deferred contribution allowed by the Internal Revenue Code. The Company
matches 25% of such contributions up to a maximum of 4% of the employees'
compensation. The Company's contributions to the plan were approximately
$45,600, $29,900 and $5,300 for the years ended March 31, 1994, 1993 and 1992
respectively.
9. CONTINGENCIES
The Company is involved in litigation in the normal course of business which in
the opinion of management will not have a material adverse effect on the
Company's financial condition.
10. LOSS ON CLOSURE OF SCHOOL
In September 1993, the Company decided to close its wholly-owned subsidiary,
Meadows College of Business in Albany, Georgia due to continued operating
losses and the anticipation that such losses would continue. A loss of
$1,125,518 is included as "Loss on Closure of School" in the accompanying 1994
consolidated statement of operations and relates primarily to the write-off of
the related goodwill and losses from September 1993 to September 1994 when the
school will close.
11. FUTURE TUITION INCOME (UNAUDITED)
Future tuition income on active student contracts is as follows as of March 31,
1994:
<TABLE>
<S> <C>
Deferred tuition income $ 2,456,345
Uncollected future tuition income 12,687,253
-----------
Future tuition income $15,143,598
===========
</TABLE>
Based upon prior experience, it is estimated that approximately 60% of the
future tuition income will be ultimately recognized and included in revenues in
fiscal year 1995 when the related services are rendered (see Note 1).
21
<PAGE> 48
SCHEDULE 2.1(i)(B)
MATERIAL ADVERSE CHANGES AND ADDITIONAL BORROWINGS
SINCE THE DATE OF FINANCIAL STATEMENTS
SEE EXHIBIT 2.1(h) WITH RESPECT TO EXISTING LITIGATION.
THE COMPANY IS CURRENTLY APPEALING A SUSPENSION OF CERTAIN FEDERAL FUNDING WITH
RESPECT TO ITS CAMPUS IN STOCKTON, CALIFORNIA, BASED ON DEFAULT RATES
PURPORTEDLY IN EXCESS OF 25% FOR LATEST LEAST THREE YEARS. SUSPENSION OF
FUNDING IS TOLLED PENDING THE RESOLUTION OF THESE APPEALS. UNDER CURRENT
REGULATION A SCHOOL MAY APPEAL SUSPENSION BASED ON SERVICING ERRORS OR
INACCURATE DATA. THE APPEAL ALLEGES BOTH FACTORS EXISTED AND, IF TAKEN INTO
ACCOUNT WOULD LOWER THE DEFAULT TO UNDER 25%. IN ADDITION, THE COMPANY HAS
APPEALED UNDER PROVISIONS PROVIDING FOR MITIGATING CIRCUMSTANCE RELIEF BASED
UPON ACCEPTABLE COMPLETION AND PLACEMENT RATES. THE APPEALS FILED ALLEGE THE
COMPLETION AND PLACEMENT RATES WERE WITHIN ACCEPTABLE LEVELS.
<PAGE> 49
SCHEDULE 2.1(e)
LIST OF OPTIONS
SEE FOOTNOTE 3 SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS
ENDED MARCH 31, 1994 AND 1993 WITH REPORT OF INDEPENDENT AUDITORS ATTACHED TO
EXHIBIT 2.1(i)(A)
<PAGE> 50
SCHEDULE 2.1(f)
LIST OF TRADEMARKS, PATENTS, TRADENAMES, ETC.
NONE
<PAGE> 51
SCHEDULE 2.1(h)
TO LOAN AGREEMENT
EDUCATIONAL MEDICAL, INC.
THREATENED OR PENDING LITIGATION
AS OF MARCH 28, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DATE OF
NAME AND DESCRIPTION FILING STATUS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lingaraj Bahinipaty vs. Educational Medical, Inc., March 11, 1994 Voluntary Dismissal filed by
Maric College of Medical Careers, United States Plaintiff on Sept. 8, 1994.
District Court of the Southern District of Sanctions awarded by the Court
California, re: claims of alleged wages due, against Plaintiff in the amount of
defamation and the failure of Maric to meet its $18,896.72 on March 1, 1995.
purported obligations.
- ----------------------------------------------------------------------------------------------------------------------------------
Michael Bond, John Davis, Nicole Tilema, Marcia July 29, 1994 Second Amended Complaint filed
Hay, Robert Palumbo, Sean Ruby, May Russel and Don Dec. 13, 1994
Walker et al vs. Educational Medical, Inc., Maric Class Certification
Learning Systems, Inc., et al, re: class action granted Jan. 20, 1995
claims that Maric and its agents allegedly failed
to meet its obligations and made oral
misrepresentions with respect to orthopaedic
assistant program allegedly violating the Maxine
Waters School Reform Act and California Consumer
Legal Remedies Act.
- ----------------------------------------------------------------------------------------------------------------------------------
David Selinger v. Educational Medical, Inc. re: December 28, Plaintiff has been previously
claims of wrongful termination, violation of 1994 adjudicated a vexatious litigator
public policy, breach of the covenant of good and sanctioned by the California
faith and fair dealing and statutory violations. courts. Motion to dismiss has
been filed by the school.
- ----------------------------------------------------------------------------------------------------------------------------------
Tina Trevino v. Educational Medical, Inc. re: None filed only Last communication with counsel
claims of wrongful termination. threatened in November 1994. Claimant
may have abandoned claims.
==================================================================================================================================
</TABLE>
<PAGE> 52
SCHEDULE 2.1(j)
OTHER AGREEMENTS
NONE
<PAGE> 53
SCHEDULE 2.1(l)
CREDIT AGREEMENTS, INDENTURES,
PURCHASE AGREEMENTS, PROMISSORY NOTES, ETC.
1. PLEDGE AGREEMENT DATED AS OF JULY 14, 1993 AMONG EDUCATIONAL MEDICAL,
INC., OHIO INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY, INC. AND OIOPT
ACQUISITION CORP.
2. BUSINESS PURPOSE PROMISSORY NOTE EXECUTED BY OIOPT ACQUISITION CORP.
IN FAVOR OF BANK ONE, DAYTON, N.A. IN THE PRINCIPAL SUM OF $720,000.00
DATED JULY 14, 1993.
3. BUSINESS LOAN AGREEMENT BETWEEN BANK ONE, DAYTON, N.A. AND OIOPT
ACQUISITION CORP.
4. OHIO OPEN END MORTGAGE EXECUTED BY OIOPT ACQUISITION CORP. IN FAVOR OF
BANK ONE, DAYTON, N.A. THIS MORTGAGE SECURED THE $720,000.00
PROMISSORY NOTE REFERENCED ABOVE.
5. FINANCING STATEMENT REFLECTING OIOPT ACQUISITION CORP. AS THE DEBTOR
AND BANK ONE, DAYTON, N.A. AS THE SECURED PARTY FILED WITH THE OHIO
SECRETARY OF STATE'S OFFICE ON JULY 20, 1993, FILE NUMBER
00502307209317001.
6. CONTINUING GUARANTY EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF
BANK ONE, DAYTON, N.A. IN CONJUNCTION WITH THE $720,000.00 LOAN
REFERENCED ABOVE.
7. PURCHASE MONEY PROMISSORY NOTE EXECUTED BY EDUCATIONAL MEDICAL, INC.
AND MTSX ACQUISITION CORP. IN FAVOR OF M.T. X-RAY, INC. IN THE
PRINCIPAL SUM OF $450,000.00 DATED JULY 23, 1993.
8. PLEDGE AGREEMENT DATED JULY 23, 1993 AMONG EDUCATIONAL MEDICAL, INC.,
M.T. X-RAY, INC. AND MTSX ACQUISITION CORP.
<PAGE> 54
9. LETTER ADDRESSED TO M.T. SCHOOL OF X-RAY, THE ESTATE OF MR. JEROME
KAPLAN AND MR. HARVEY KAPLAN FROM HONIGMAN MILLER SCHWARTZ AND COHN
DATED JULY 19, 1994 REGARDING DISCREPANCIES IN THE REPRESENTATION AND
WARRANTIES OF SELLER IN CONJUNCTION WITH THE CONVEYANCE TO MTSX
ACQUISITION CORP.
10. PURCHASE MONEY PROMISSORY NOTE EXECUTED BY DBS ACQUISITION CORP. AND
EDUCATIONAL MEDICAL, INC. IN FAVOR OF BETA SERVICES, INC. IN THE
PRINCIPAL SUM OF $900,000.00 DATED MAY 28, 1993.
11. PLEDGE AGREEMENT DATED AS OF MAY 28, 1993 AMONG EDUCATIONAL MEDICAL,
INC., BETA SERVICES, INC. AND DBS ACQUISITION CORP.
12. AMENDMENT ONE TO PLEDGE AGREEMENT DATED AS OF JULY 23, 1993 TO THE
PLEDGE AGREEMENT AMONG EDUCATIONAL MEDICAL, INC., BETA SERVICES, INC.,
AND DBS ACQUISITION CORP.
13. MASTER EQUIPMENT LEASE AGREEMENT BETWEEN BANK SOUTH LEASING, INC. AND
EDUCATIONAL MEDICAL, INC. DATED JULY 26, 1994.
14. FINANCING STATEMENTS REFLECTING EDUCATIONAL MEDICAL, INC. AS THE
DEBTOR AND BANK SOUTH LEASING, INC. AS THE SECURED PARTY FILED WITH
THE FOLLOWING STATES: OHIO, ARIZONA, VIRGINIA, CALIFORNIA AND
PENNSYLVANIA.
15. EQUIPMENT LEASE AGREEMENT BETWEEN BANK SOUTH LEASING, INC. AND MTSX
ACQUISITION CORP. FOR ULTRASOUND EQUIPMENT DATED DECEMBER 28, 1993.
16. GUARANTY EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF BANK SOUTH
LEASING, INC. IN CONJUNCTION WITH THE EQUIPMENT LEASE FOR THE
ULTRASOUND EQUIPMENT WITH MTSX ACQUISITION CORP.
17. FINANCING STATEMENT REFLECTING MTSX ACQUISITION CORP. AS THE DEBTOR
AND BANK SOUTH LEASING, INC. AS A SECURED PARTY FILED IN CALIFORNIA.
-2-
<PAGE> 55
18. 13% SENIOR SUBORDINATED NOTE R-003 IN THE ORIGINAL PRINCIPAL SUM OF
$603,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF FUELSHIP &
COMPANY DATED JULY 23,1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.
19. 13% SENIOR SUBORDINATED NOTE R-004 IN THE ORIGINAL PRINCIPAL SUM OF
$497,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF FUELSHIP &
COMPANY DATED JULY 23, 1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.
20. 13% SENIOR SUBORDINATED NOTE R-002 IN THE ORIGINAL PRINCIPAL SUM OF
$2,900,000 EXECUTED BY EDUCATIONAL MEDICAL, INC. IN FAVOR OF NAP AND
COMPANY DATED JULY 16, 1991, AS MODIFIED BY ALLONGE DATED MARCH __,
1995.
21. CONSULTING AND NON COMPETITION AGREEMENTS WITH VARIOUS INDIVIDUALS AS
DESCRIBED IN FOOTNOTES 2 AND 4 TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR YEARS ENDED MARCH 31, 1994 AND 1993 WITH REPORT OF
INDEPENDENT AUDITORS ATTACHED TO SCHEDULE 2.1(i)(A).
-3-
<PAGE> 56
SCHEDULE 2.1(o)
INDEBTEDNESS BETWEEN BORROWER AND
OFFICERS OR DIRECTORS OF BORROWER
$75,000 PROMISSORY NOTE DATED SEPTEMBER 20, 1991 EXECUTED BY VINCE PISANO AND
GAIL PISANO, HIS WIFE, IN FAVOR OF EDUCATIONAL MEDICAL, INC. SECURED BY A DEED
OF TRUST COVERING REAL PROPERTY LOCATED AT 33831 GRENADA DRIVE, DANA POINT,
CALIFORNIA AND A DEED TO SECURE DEBT COVERING PROPERTY LOCATED AT 13446
PROVIDENCE ROAD, ALPHARETTA, GEORGIA.
THE BORROWER HAS CROSS-GUARANTEED VARIOUS OBLIGATIONS OF ITS SUBSIDIARIES.
<PAGE> 57
SCHEDULE 2.1(r)
CONTRACTS, AGREEMENTS AND OTHER DOCUMENTS
PURSUANT TO WHICH BORROWER RECEIVES
REVENUES IN EXCESS OF $25,000
PARTICIPATION AGREEMENTS BETWEEN DEPARTMENT OF EDUCATION AND EACH OF THE
BORROWERS WHICH OPERATE A SCHOOL WITH RESPECT TO FEDERAL FUNDING AND SIMILAR
AGREEMENTS WITH STATES IN WHICH THE BORROWERS' SCHOOLS OPERATE.
<PAGE> 58
SCHEDULE 3.12
GUARANTIES, LOANS, ETC.
NONE
<PAGE> 59
SCHEDULE 3.13
DIVIDENDS, STOCK, ETC.
NONE
<PAGE> 1
EXHIBIT 10.13
EDUCATIONAL MEDICAL, INC.
1050 Cambridge Square
Suite C
Alpharetta, GA 30201
December 15, 1991
Mr. Gary D. Kerber
1050 Cambridge Square
Suite C
Alpharetta, GA 30201
Re: Repurchase Options
Dear Mr. Kerber:
Pursuant to a Restricted Stock Purchase Agreement dated November 7,
1989 between you and the Company (the "Restricted Stock Purchase Agreement"),
you purchased 117,267 shares of the Company's common stock, subject to certain
repurchase options. A copy of the Restricted Stock Purchase Agreement is
attached to this Agreement as Exhibit 3. Pursuant to an Incentive Compensation
Agreement dated November 7, 1989 (the "Incentive Agreement") the Company agreed
to issue to you up to 8,640 shares of common stock (the "Incentive Shares") if
certain conditions were fulfilled. This Agreement cancels any remaining
rights you may have pursuant to the Incentive Agreement.
1. Amendments to the Restricted Stock Purchase Agreement. Each of us
agrees that this letter amends the Restricted Stock Purchase Agreement by:
(i) Amending Section 4 of such agreement in its entirety to read as
follows:
"4. Release of Additional Founders' Stock. As of December 15,
1991, 112,782 shares of Additional Founders' Stock remain in
escrow. The repurchase rights provided for in Section 5 below
shall terminate and the remaining portion of the Additional
Founders' Stock shall be released to the Employee from escrow
in equal increments of 3,132 shares per month on the last day
of each calendar month
<PAGE> 2
Mr. Gary D. Kerber
December 15, 1991
Page 2
commencing, retroactively, from April 30, 1991, through April
30, 1994, at which time the remaining 3,162 shares shall be
released from escrow. Upon release of shares of Additional
Founders' Stock to the Employee, such shares shall remain
subject to the terms of Section 7 of this Agreement."
(ii) Amending the first paragraph of subsection 5(a) in its entirety
to read as follows:
"(a) Upon Termination of Employment the Company shall have the
right to repurchase from the Employee, at a purchase price of
$0.01 per share, up to that number of shares of Additional
Founder' Stock remaining in escrow."
2. Delivery of Certificates to implement the agreement. In order to
implement the amendments provided for in Section 1 of this Agreement, the
Company shall deliver to the Escrow agent a certificate for 8,640 shares of
common stock which shall be held as Additional Founders' Stock pursuant to the
Restricted Stock Agreement.
3. Governing Law. This Agreement shall be governed by, and construed
in accordance with (a) the laws of the State of New York applicable to
contracts made and to be performed wholly therein, and (b) the laws of the
State of Delaware applicable to corporations organized under the laws of such
state.
4. Entire Agreement. This Agreement and the agreements referred to
in it contain the entire agreement between the parties hereto with respect to
the transactions contemplated herein and supersedes all previously written or
oral negotiations, commitments, representations, and agreements.
5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
6. Amendments. This Agreement, or any provisions hereof, may not be
amended, changed or modified without the prior written consent of each of the
parties hereto.
<PAGE> 3
Mr. Gary D. Kerber
December 15, 1991
Page 3
If the foregoing confirms your understanding of our agreements, please so
indicate by signing in the space provided below and return a signed copy to us.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
By:
------------------------
Morris C. Brown,
Secretary
[SEAL]
Confirmed and Agreed to:
- ----------------------
Gary D. Kerber
Pursuant to an escrow agreement dated November 17, 1989, I am holding
certificates representing shares of common stock of the Company registered in
the name of Gary Kerber and subject to the terms of the Restricted Stock
Purchase Agreement amended by this Agreement. I acknowledge receipt of this
agreement and agree with each of you that such escrow agreement is amended as
of this date to give effect to the terms of this agreement.
-----------------------
Morris C. Brown,
Escrow Agent
<PAGE> 1
EXHIBIT 10.14
SECURED PROMISSORY NOTE
$2,200,000.00 March__, 1995
FOR VALUE RECEIVED, the undersigned, EDUCATIONAL MEDICAL, INC., a
Delaware corporation, ANDON COLLEGES, INC. d/b/a Andon College, DBS
ACQUISITION CORP. d/b/a Dominion Business School, MARIC LEARNING SYSTEMS d/b/a
Maric College of Medical Careers, MTSX ACQUISITION CORP. d/b/a Modem
Technology School of X-Ray, PALO VISTA COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a California Academy of Fashion
Merchandising, Art and Design, ICM ACQUISITION CORP. d/b/a ICM School of
Business, MEADOWS ACQUISITION CORP. d/b/a Meadows College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute of Photography and Technology,
SCOTTSDALE EDUCATIONAL CENTER FOR ALLIED HEALTH CAREERS, INC. d/b/a Long
Medical Institute, and DEST EDUCATION CORPORATION d/b/a Andon College
("Makers"), jointly and severally promise to pay to the order of SIRROM CAPITAL
CORPORATION, a Tennessee corporation ("Payee"; Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at First American Trust Company, Custody Department, 800 First
American Center, Nashville, Tennessee 37237, Attn: Jeff Eubanks, or at such
other place as Holder may designate to Makers in writing from time to time, the
principal sum of TWO MILLION TWO HUNDRED THOUSAND AND NO/100THS DOLLARS
($2,200,000.00), together with interest on the outstanding principal balance
hereof from the date hereof at the rate of fourteen percent (14%) per annum
(computed on the basis of a 360-day year).
Interest only on the outstanding principal balance hereof shall be due
and payable quarterly, in arrears, with the first installment being payable on
the first (1st) day of July, 1995, and subsequent installments being payable on
the first (1st) day of each October, January, April and July thereafter until
March _, 2000 (the "Maturity Date"), at which time the entire outstanding
principal balance, together with all accrued and unpaid interest, shall be
immediately due and payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part, at
any time and from time to time, without penalty. Any such prepayments shall be
credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest
as stipulated above, which default is not cured following the giving of any
applicable notice and within ten (10) days; or in the event that any default or
event of default shall occur under that certain Loan Agreement of even date
herewith, between Makers and Payee (the "Loan Agreement"), which default or
event of default is not cured following the giving of any applicable notice and
within any applicable cure period set forth in said Loan Agreement; or should
any default by Makers be made in the performance or observance of any covenants
or conditions contained in any other instrument or document now
<PAGE> 2
or hereafter evidencing, securing or otherwise relating to the indebtedness
evidenced hereby (subject to any applicable notice and cure period provisions
that may be set forth therein); then, and in such event, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any other
sums advanced hereunder, under the Loan Agreement and/or under any other
instrument or document now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall, at the option of Holder and without notice to
Makers, at once become due and payable and may be collected forthwith,
regardless of the stipulated date of maturity. Upon the occurrence of any
default as set forth herein, at the option of Holder and without notice to
Makers, all accrued and unpaid interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding principal
balance, as so adjusted, shall bear interest thereafter until paid at an annual
rate (the "Default Rate") equal to the lesser of (i) the rate that is seven
percentage points (7.0%) in excess of the above-specified interest rate, or
(ii) the maximum rate of interest allowed to be charged under applicable law
(the "Maximum Rate"), regardless of whether or not there has been an
acceleration of the payment of principal as set forth herein. All such
interest shall be paid at the time of and as a condition precedent to the
curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Makers and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Makers and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise
of such right of acceleration or any other right granted hereunder or by
applicable laws. No extension of the time for payment of the indebtedness
evidenced hereby or any installment due hereunder, made by agreement with any
person now or hereafter liable for payment of the indebtedness evidenced
hereby, shall operate to release, discharge, modify, change or affect the
original liability of Makers hereunder or that of any other person now or
hereafter liable for payment of the indebtedness evidenced hereby, either in
whole or in part, unless Holder agrees otherwise in writing. This Note may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Makers
and Holder as more specifically described in the Loan Agreement.
2
<PAGE> 3
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration
of maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby shall involve the payment of interest in excess
of the Maximum Rate, then, ipso facto, the obligation to pay interest hereunder
shall be reduced to the Maximum Rate; and if from any circumstance whatsoever,
Holder shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control
every other provision in any and all other agreements and instruments existing
or hereafter arising between Makers and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to
the extent that federal law may be applicable to the determination of the
Maximum Rate.
As used herein, the terms "Makers" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
MAKERS:
EDUCATIONAL MEDICAL, INC., a Delaware
corporation, ANDON COLLEGES, INC. d/b/a
Andon College, DBS ACQUISITION CORP. d/b/a
Dominion Business School, MARIC LEARNING
SYSTEMS d/b/a Maric College of Medical
Careers, MTSX ACQUISITION CORP. d/b/a Modern
Technology School of X-Ray, PALO VISTA
COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion
Merchandising, Art and Design, ICM
ACQUISITION CORP. dba ICM School of
Business, MEADOWS ACQUISITION CORP d/b/a
Meadows College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE
EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical
3
<PAGE> 4
Institute, DEST EDUCATION CORPORATION
d/b/a Andon College
By: /s/ Gary D. Kerber
----------------------------------
Title: President
4
<PAGE> 1
EXHIBIT 10.15
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is dated as of the ________ day of
March, 1995, by and between EDUCATIONAL MEDICAL, INC., a Delaware corporation,
ANDON COLLEGES, INC. d/b/a Andon College, DBS ACQUISITION CORP. d/b/a Dominion
Business School, MARIC LEARNING SYSTEMS d/b/a Maric College of Medical
Careers, MTSX ACQUISTION CORP. d/b/a Modern Technology School of X-Ray, PALO
VISTA COLLEGE OF NURSING AND ALLIED HEALTH SCIENCES, INC. d/b/a Maric College
of Medical Careers, CALIFORNIA ACADEMY OF MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion Merchandising, Art and Design, ICM ACQUISITION
CORP. d/b/a ICM School of Business, MEADOWS ACQUISITION CORP. d/b/a Meadows
College of Business, OIOPT ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical Institute, and Dest Education Corporation
d/b/a Andon College (individually, a "Borrower" and collectively, the
"Borrowers"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").
WITNESSETH:
WHEREAS, Lender is making a loan (the "Loan") in the amount of $2,200,000
to Borrowers, pursuant to that certain Loan Agreement of even date herewith by
and between Borrowers and Lender (the "Loan Agreement"); and
WHEREAS, in connection with the making of the Loan, Lender desires to
obtain from Borrowers and Borrowers desires to grant to Lender a security
interest in certain collateral more particularly described below.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Security Interest. Each Borrower hereby grants to Lender
a security interest in the following described property and any and all proceeds
and products thereof and accessions thereto (collectively the "Collateral"):
(a) Equipment. All equipment of Borrower of any kind and
description, whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all replacements
thereof and additions thereto;
<PAGE> 2
(b) Inventory, Accounts, Contract Rights, Chattel Paper and
General Intangibles. All of Borrower's inventory and any agreements for
lease of same and rentals therefrom, and all of Borrower's accounts,
accounts receivable, contract rights, chattel paper and general
intangibles and the proceeds therefrom, whether now in existence or owned
or hereafter arising or acquired, entered into or created, and wherever
located; and whether held for lease or sale, or furnished or to be
furnished under contracts of service;
(c) Trademarks, Etc. All trademarks and service marks now held or
hereafter acquired by Borrower, both those that are registered with the
United States Patent and Trademark Office and any unregistered marks used
by Borrower in the United States, and trade dress, including logos and
designs, in connection with which any such marks are used, together with
all registrations regarding such marks and the rights to renewals
thereof, and the goodwill of the business of Borrower symbolized by
such marks;
(d) Copyrights. All copyrights now held or hereafter acquired by
Borrower and any applications for U.S. copyrights hereafter made by
Borrower; and
(e) Proprietary Information, Computer Data, Etc. All proprietary
information and trade secrets of Borrower with respect to Borrower's
business and all of Borrower's computer programs and the information
contained therein and all intellectual property rights with respect
thereto.
2. Secured Indebtedness. The obligations secured hereby shall
include (a) loans to be made concurrently or in connection with this Agreement
or the Loan Agreement as evidenced by one or more promissory notes payable to
the order of Lender that shall be due and payable as set forth in such
promissory notes, and any renewals or extensions thereof, (b) the full and
prompt payment and performance of any and all other indebtednesses and other
obligations of Borrowers to Lender, direct or contingent (including but not
limited to obligations incurred as indorser, guarantor or surety), however
evidenced or denominated, and however and whenever incurred, including but not
limited to indebtednesses incurred pursuant to any present or future commitment
of Lender to Borrowers and (c) all future advances made by Lender for taxes,
levies, insurance and preservation of the Collateral and all attorney's fees,
court costs and expenses of whatever kind incident to the collection of any of
said indebtedness or other obligations and the enforcement and protection of
the security interest created hereby.
3. Representations. Warranties and Agreements of Borrower. Each
Borrower represents, warrants and agrees as follows:
(a) Borrower will promptly notify Lender, in writing, of any new
place or places of business if the Collateral is used in business, or of
any change in Borrower's residence if the Collateral is not used in
business, and regardless of use, of any change in the location of the
Collateral or any records pertaining thereto.
2
<PAGE> 3
(b) Except as set forth on Schedule 3(b) hereto, Borrower is the
owner of the Collateral free and clear of any liens and security
interests. Borrower will defend the Collateral against the claims and
demands of all persons.
(c) Borrower will pay to Lender all amounts secured hereby as and
when the same shall be due and payable, whether at maturity, by
acceleration or otherwise, and will promptly perform all terms of said
indebtedness and this or any other security or loan agreement between
Borrower and Lender, and will promptly discharge all said liabilities.
(d) Borrower will at all times keep the Collateral insured against
all insurable hazards in amounts equal to the full cash value of the
Collateral. Such insurance shall be in such companies as may be
acceptable to Lender, with provisions satisfactory to Lender for payment
of all losses thereunder to Lender as its interests may appear. If
required by Lender, Borrower shall deposit the policies with Lender. Any
money received by Lender under said policies may be applied to the
payment of any indebtedness secured hereby, whether or not due and
payable, or at Lender's option may be delivered by Lender to Borrower for
the purpose of repairing or restoring the Collateral. Borrower assigns to
Lender all right to receive proceeds of insurance not exceeding the
amounts secured hereby, directs any insurer to pay all proceeds directly
to Lender, and appoints Lender Borrower's attorney in fact to endorse any
draft or check made payable to Borrower in order to collect the benefits
of such insurance. If Borrower fails to keep the Collateral insured as
required by Lender, Lender shall have the right to obtain such insurance
at Borrower's expense and add the cost thereof to the other amounts
secured hereby.
(e) Borrower will pay all costs of filing of financing,
continuation and termination statements with respect to the security
interests created hereby, and Lender is authorized to do all things that
it deems necessary to perfect and continue perfection of the security
interests created hereby and to protect the Collateral.
(f) The address set forth after Borrower's signature on this
Agreement is Borrower's principal place of business and the location of
all tangible Collateral and the place where the records concerning all
intangible Collateral are kept and/or maintained.
4. Default. Borrower shall be in default upon failure to observe
or perform any of Borrower's agreements herein contained, or upon the
occurrence of a default or Event of Default under the Loan Agreement or any
other Loan Document (as defined in the Loan Agreement) that has not been cured
during the applicable grace period.
5. Remedies Upon Default. Upon default hereunder, all sums secured
hereby shall immediately become due and payable at Lender's option without
notice to Borrowers, and Lender may proceed to enforce payment of same and to
exercise any and all rights and remedies provided by the Uniform Commercial
Code (Tennessee) or other applicable law, as well as all other rights and
remedies possessed by Lender, all of which shall be cumulative. Whenever
Borrowers are in default hereunder, and upon demand by Lender, Borrowers shall
assemble the
3
<PAGE> 4
Collateral and make it available to Lender at a place reasonably convenient
to Lender and Borrowers. Any notice of sale, lease or other intended
disposition of the Collateral by Lender sent to Borrowers at the address
hereinafter set forth, or at such other address of Borrowers as may be shown
on Lender's records, at least five (5) days prior to such action, shall
constitute reasonable notice to Borrowers.
Lender may waive any default before or after the same has been declared
without impairing its right to declare a subsequent default hereunder, this
right being a continuing one.
6. Severability. If any provision of this Agreement is held invalid,
such invalidity shall not affect the validity or enforceability of the
remaining provisions of this Agreement.
7. Binding Effect. This Agreement shall inure to the benefit of
Lender's successors and assigns and shall bind Borrowers' heirs,
representatives, successors and assigns. If any Borrower is composed of more
than one person, firm and/or entity, their obligations hereunder shall be joint
and several.
8. Financial Reporting. No Borrower has undisclosed or contingent
liabilities that are not reflected in the financial statements on file with
Lender at the execution of this Agreement or disclosed in the Loan Agreement.
Lender shall have the right, at any time, by its own auditors, accountants or
other agents, to examine or audit any of the books and records of Borrowers, or
the Collateral, all of which will be made available upon request. Such
accountants or other representatives of Lender will be permitted to make any
verification of the existence of the Collateral or accuracy of the records that
Lender deems necessary or proper. Any reasonable expenses incurred by Lender
in making such examination, inspection, verification or audit shall be paid by
Borrower promptly on demand and shall be secured by the security interest
granted hereby.
9. Termination Statement. Borrowers agree that, notwithstanding the
payment in full of all indebtedness secured hereby and whether or not there is
any outstanding obligation of Lender to make future advances, Lender shall not
be required to send Borrowers a termination statement with respect to any
financing statement filed to perfect Lender's security interest(s) in any of
the Collateral, unless and until Borrowers shall have made written demand
therefor. Upon receipt of proper written demand, Lender may at its option, in
lieu of sending a termination statement to Borrowers, cause said termination
statement to be filed with the appropriate filing officer(s).
10. Protection of Collateral. Except as provided for in the Loan
Agreement, Borrowers will not permit any liens or security interests other than
those created by this Agreement to attach to any of the Collateral, nor permit
any of the Collateral to be levied upon under any legal process, nor permit
anything to be done that may impair the security intended to be afforded by
this Agreement, nor permit any tangible Collateral to become attached to or
commingled with other goods without the prior written consent of Lender.
4
<PAGE> 5
11. Special Agreements With Respect to Certain Tangible Collateral.
Each Borrower additionally agrees and warrants as follows:
(a) Borrower will not permit any of the Collateral to be removed
from the location specified herein, except for temporary periods in the
normal and customary use thereof, without the prior written consent of
Lender, and will permit Lender to inspect the Collateral at any time.
(b) If any of the Collateral is equipment or goods of a type
normally used in more than one state (whether or not actually so used),
Borrower will contemporaneously herewith furnish Lender a list of the
states wherein such equipment or goods are or will be used, and hereafter
will notify Lender in writing (i) of any other states in which such
equipment or goods are so used, and (ii) of any change in the location of
Borrower's chief place of business.
(c) Except in the ordinary course of business, Borrower will not
sell, exchange, lease or otherwise dispose of any of the Collateral or any
interest therein without the prior written consent of Lender.
(d) Borrower will keep the Collateral in good condition and repair
and will pay and discharge all taxes, levies and other impositions levied
thereon as well as the cost of repairs to or maintenance of same, and
will not permit anything to be done that may impair the value of the
Collateral in any material way. If Borrower fails to pay such sums,
Lender may do so for Borrower's account and add the amount thereof to the
other amounts secured hereby.
(e) Until default in any of the terms hereof, or the terms of any
indebtedness secured hereby, Borrower shall be entitled to possession of
the Collateral and to use the same in any lawful manner, provided that
such use does not cause excessive wear and tear to the Collateral, cause
it to decline in value at an excessive rate, or violate the terms of any
policy of insurance thereon.
12. Special Agreements With Respect to Intangible and Certain
Tangible Collateral. Each Borrower additionally warrants and agrees as
follows:
(a) So long as no Borrower is in default hereunder, Borrower
shall have the right to process and sell Borrower's inventory in the
regular course of business. Lender's security interest hereunder shall
attach to all proceeds of all sales or other dispositions of the
Collateral. If at any time any such proceeds shall be represented by any
instruments, chattel paper or documents of title, then such instruments,
chattel paper or documents of title shall be promptly delivered to
Lender and subject to the security interest granted hereby. If at any
time any of Borrower's inventory is represented by any document of title,
such document of title will be delivered promptly to Lender and subject
to the security interest granted hereby.
5
<PAGE> 6
(b) By the execution of this Agreement, Lender shall not be
obligated to do or perform any of the acts or things provided in any
contracts covered hereby that are to be done or performed by Borrower,
but if there is a default by Borrowers in the payment of any amount due
in respect of any indebtedness secured hereby, then Lender may, at its
election, perform some or all of the obligations provided in said
contracts to be performed by Borrower, and if Lender incurs any liability
or expenses by reason thereof, the same shall be payable by Borrower upon
demand and shall also be secured by this Agreement.
(c) At any time after any Borrower is in default hereunder or
under the Loan Agreement, Lender shall have the right to notify the
account debtors obligated on any or all of Borrower's accounts receivable
to make payment thereof directly to Lender, and to take control of all
proceeds of any such accounts receivable. Until such time as Lender
elects to exercise such right by mailing to Borrower written notice
thereof, Borrower is authorized, as agent of the Lender, to collect and
enforce said accounts receivable.
13. Power of Attorney. Each Borrower hereby constitutes the
Lender or its designee, as Borrower's attorney-in-fact with power, upon the
occurrence and during the continuance of an Event of Default, to endorse
Borrower name upon any notes, acceptances, checks, drafts, money orders, or
other evidences of payment or Collateral that may come into either its or the
Lender's possession; to sign the name of Borrower on any invoice or bill of
lading relating to any of the accounts receivable, drafts against customers,
assignments and verifications of accounts receivable and notices to customers;
to send verifications of accounts receivable; to notify the Post Office
authorities to change the address for delivery of mail addressed to Borrower to
such address as the Lender may designate; to execute any of the documents
referred to in Section 3(e) hereof in order to perfect and/or maintain the
security interests and liens granted herein by Borrower to the Lender; to do
all other acts and things necessary to carry out this Security Agreement. All
acts of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of commission or omission
(other than acts of gross negligence or willful misconduct), nor for any error
of judgment or mistake of fact or law; this power being coupled with an
interest is irrevocable until all of the obligations secured hereby are paid in
full and any and all promissory notes executed in connection therewith are
terminated and satisfied.
6
<PAGE> 7
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement; or
have caused this Agreement to be executed as of the date first above written
BORROWERS:
EDUCATINAL MEDICAL, INC., a Delaware
corporation, ANDON COLLEGES, INC. d/b/a
Andon College, DBS ACQUISITION CORP. d/b/a
Dominion Business School, MARIC LEARNING
SYSTEMS d/b/a Maric College of Medical
Careers, MTSX ACQUISITION CORP. d/b/a
Modern Technology School of X-Ray, PALO
VISTA COLLEGE OF NURSING AND ALLIED HEALTH
SCIENCES, INC. d/b/a Maric College of
Medical Careers, CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN d/b/a
California Academy of Fashion
Merchandising, Art and Design, ICM
ACQUISITION CORP. d/b/a California Academy
of Fashion Merchandising, Art and Design,
ICM ACQUISITION CORP. d/b/a ICM School of
Business, MEADOWS ACQUISITION CORP. d/b/a
Meadows College of Business, OIOPT
ACQUISITION CORP. d/b/a Ohio Institute of
Photography and Technology, SCOTTSDALE
EDUCATIONAL CENTER FOR ALLIED HEALTH
CAREERS, INC. d/b/a Long Medical Institute,
DEST EDUCATIN CORPORATION d/b/a Andon
College
By: /s/ Gary D. Kerber
----------------------------------------
Title: President
-------------------------------------
LENDER:
SIRROM CAPTIAL CORPORATION
By: /s/ Carolyn Perrone
----------------------------------------
Title: CFO
-------------------------------------
7
<PAGE> 8
ADDRESSES OF BORROWERS FOR NOTICE
PURPOSES:
EDUCATIONAL MEDICAL, INC.
1327 North Meadow Parkway
Suite 132
Roswell, GA 30076
ADDRESSES OF BORROWERS:
EDUCATIONAL MEDICAL, INC.
1327 North Meadow Parkway
Suite 132
Roswell, GA 30076
ANDON COLLEGE AT STOCKTON
1201 North El Dorado Street
Stockton, CA 95202
ANDON COLLEGE AT MODESTO
1314 H Street
Modesto, CA 95354
DOMINION BUSINESS SCHOOL
4142-1 Melrose Avenue
Roanoke, VA 24017
DOMINION BUSINESS SCHOOL
933 Reservoir Street
Harrisonburg, VA 22801
DOMINION BUSINESS SCHOOL
825 Richmond Road
Staunton, VA 24401
MARIC COLLEGE AT VISTA
1593-C East Vista Way
Vista, CA 92084
8
<PAGE> 9
MARIC COLLEGE AT SAN DIEGO
3666 Kearny Villa Road, Suite 100
San Diego, CA 92120
MARIC COLLEGE AT SAN MARCOS
1300 Rancheros Drive
San Marcos, CA 92069
MODERN TECHNOLOGY SCHOOL OF X-RAY
6180 Laurel Canyon Boulevard
Suite 101
North Hollywood, CA 91606
CALIFORNIA ACADEMY OF
MERCHANDISING, ART & DESIGN
1533 Howe Avenue
Suite 208
Sacramento, CA 95825
ICM SCHOOL OF BUSINESS
10-14 Wood Street
Pittsburgh, PA 15222
MEADOWS COLLEGE OF BUSINESS
832 South Slappey Boulevard
Albany, GA 31701
OHIO INSTITUTE OF PHOTOGRAPHY AND
TECHNOLOGY
2029 Edgefield Road
Dayton, OH 45439
LONG MEDICAL INSTITUTE
4126 North Black Canyon Highway
Phoenix, AZ 85017
9
<PAGE> 10
SCHEDULE 3(b)
(Liens)
10
<PAGE> 1
EXHIBIT 10.16
STOCK PURCHASE WARRANT
This Warrant is issued this 31st day of March, 1995, by EDUCATIONAL
MEDICAL, INC., a Delaware corporation (the "Company"), to SIRROM CAPITAL
CORPORATION, a Tennessee corporation (SIRROM CAPITAL CORPORATION and any
subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT: TERM. For and in consideration of SIRROM
CAPITAL CORPORATION making a loan to the Company in an amount of Two Million Two
Hundred Thousand and no/100ths Dollars ($2,200,000.00) pursuant to the terms of
a secured promissory note of even date herewith (the "Note") and related loan
agreement of even date herewith (the "Loan Agreement"), and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Holder the right to purchase 85,000
shares (the "Shares") of the Company's common stock (the "Common Stock"),
provided that in the event that the indebtedness evidenced by the Note is
outstanding on the following dates, the Base Amount shall be increased to the
corresponding number set forth below:
<TABLE>
<CAPTION>
Date Base Amount
--------------------------- ------------------------------------
<S> <C>
March __, 1999 135,000 shares
March __, 2000 185,000 shares
</TABLE>
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from the date hereof until April 30, 2000.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
share for which all or any of the Shares may be purchased pursuant to the terms
of this Warrant shall be One Cent ($.01).
3. EXERCISE. This Warrant may be exercised by the Holder hereof
(but only on the conditions hereinafter set forth) as to all or any increment
or increments of One Hundred (100) Shares (or the balance of the Shares if less
than such number), upon delivery of written notice of intent to exercise to the
Company at the following address: 1327 North Meadow Parkway, Suite 132, Roswell,
Georgia 30076 or such other address as the Company shall designate in a written
notice to the Holder hereof, together with this Warrant and payment to the
Company of the aggregate Exercise Price of the Shares so purchased. The
Exercise Price shall be payable, at the option of the Holder, (i) by certified
or bank check, (ii) by the surrender of the Note or portion thereof having an
outstanding principal balance equal to the aggregate Exercise Price or (iii) by
the surrender of a portion of this Warrant having a fair market value equal to
the aggregate Exercise Price. Upon exercise of this Warrant as aforesaid, the
Company shall as promptly as practicable, and in any event within fifteen (15)
days thereafter, execute and deliver to the Holder
<PAGE> 2
of this Warrant a certificate or certificates for the total number of whole
Shares for which this Warrant is being exercised in such names and denominations
as are requested by such Holder. If this Warrant shall be exercised with
respect to less than all of the Shares, the Holder shall be entitled to receive
a new Warrant covering the number of Shares in respect of which this Warrant
shall not have been exercised, which new Warrant shall in all other respects
be identical to this Warrant. The Company covenants and agrees that it will pay
when due any and all state and federal issue taxes which may be payable in
respect of the issuance of this Warrant or the issuance of any Shares upon
exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") or any
state securities laws. ("Blue Sky Laws"). This Warrant has been acquired
for investment purposes and not with a view to distribution or resale and
may not be pledged, hypothecated, sold, made subject to a security
interest, or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable
Blue Sky Laws, or (ii) an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any
applicable Blue Sky Laws (the Company hereby acknowledges that Bass,
Berry & Sims is acceptable counsel). Transfer of the shares issued upon
the exercise of this Warrant shall be restricted in the same manner and
to the same extent as the Warrant and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNTIL (1) A REGISTRATION
STATEMENT UNDER THE ACT OR SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE
WITH REGARD THERETO, OR (II) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER SUCH SECURITIES ACTS OR SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION
WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents
and instruments as counsel for the Company reasonably deems necessary to
effect the compliance of the issuance of this Warrant and any shares of
Common Stock issued upon exercise hereof with applicable federal and
state securities laws.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens,
2
<PAGE> 3
charges and preemptive rights, if any, with respect thereto or to the
issuance thereof. The Company shall at all times reserve and keep
available for issuance upon the exercise of this Warrant such number of
authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of this Warrant.
(c) The Company covenants and agrees that it shall not sell any
shares of the Company's capital stock at a price below the fair market
value of such shares, without the prior written consent of the Holder
hereof. In the event that the Company sells shares of the Company's
capital stock in violation of this Section 4(c), the number of shares
issuable upon exercise of this Warrant shall be equal to the product
obtained by multiplying the number of shares issuable pursuant to this
Warrant prior to such sale by the quotient obtained by dividing (i) the
fair market value of the shares issued in violation of this Section 4(c)
by (ii) the price at which such shares were sold.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4
hereof, this Warrant may be transferred, in whole or in part, to any person or
business entity, by presentation of the Warrant to the Company with written
instructions for such transfer. Upon such presentation for transfer, the
Company shall promptly execute and deliver a new Warrant or Warrants in the form
hereof in the name of the assignee or assignees and in the denominations
specified in such instructions. The Company shall pay all expenses incurred by
it in connection with the preparation, issuance and delivery of Warrants under
this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE
RIGHTS. Except as otherwise provided herein, this Warrant does not confer upon
the Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the holders
of the Company's common stock the right to purchase any securities of the
Company, then all shares of Common Stock that are subject to this Warrant shall
be deemed to be outstanding and owned by the Holder and the Holder shall be
entitled to participate in such rights offering. The Company shall not grant
any preemptive rights with respect to any of its capital stock without the prior
written consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive
notice of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity and shall receive a copy of all correspondence and information
delivered to the Company's Board of Directors, from the date hereof until such
time as the indebtedness evidenced by the Note has been paid in full.
3
<PAGE> 4
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization, combination
of shares of the Company, or other similar event, occurring after the date
hereof, then the Holder exercising this Warrant shall receive, for the
aggregate price paid upon such exercise, the aggregate number and class of
shares which such Holder would have received if this Warrant had been exercised
immediately prior to such stock split, stock dividend, recapitalization,
combination of shares, or other similar event. If any adjustment under this
Section 8(a), would create a fractional share of Common stock or a right to
acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares subject to this Warrant shall be the
next higher number of shares, rounding all fractions upward. Whenever there
shall be an adjustment pursuant to this Section 8(a), the Company shall
forthwith notify the Holder or Holders of this Warrant of such adjustment,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event, occurring
after the date hereof, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or another
class or classes of securities of the Company or another entity, then the
Holder exercising this Warrant shall receive, for the aggregate price paid upon
such exercise, the aggregate number and class of shares which such Holder would
have received if this Warrant had been exercised immediately prior to such
merger, consolidation, exchange of shares, separation, reorganization or
liquidation, or other similar event. If any adjustment under this Section 8(b)
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares subject to this Warrant shall be the next higher number
of shares, rounding all fractions upward. Whenever there shall be an
adjustment pursuant to this Section 8(b), the Company shall forthwith notify
the Holder or Holders of this Warrant of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated.
9. CERTAIN NOTICES. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock
or make any special dividend or other distribution to the holders of its Common
Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
4
<PAGE> 5
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell of all or substantially
all of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up of
the affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder of
the Warrant, by certified or registered mail, (i) at least twenty (20) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
EDUCATIONAL MEDICAL, INC.,
a Delaware corporation
By: /s/
--------------------------
Title: President
---------------------
SIRROM CAPITAL CORPORATION, a
Tennessee corporation
By: /s/
---------------------------
Title: CPO
----------------------
6
<PAGE> 1
EXHIBIT 10.17
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Agreement") given as of this day of March,
1995, by Educational Medical, Inc., a Delaware corporation (the "Pledgor"), in
favor of Sirrom Capital Corporation, a Tennessee corporation(the "Lender").
W I T N E S S E T H:
WHEREAS, the Lender has entered into that certain Loan Agreement (as
executed on the date hereof and as the same may be amended from time to time,
the "Loan Agreement") by and among Educational Medical, Inc., a Delaware
corporation, Palo Vista College of Nursing and Allied Health Sciences, Inc., a
California corporation, Maric Learning Systems, a California corporation, Andon
Colleges, Inc., a California corporation, Dest Education Corporation, a
California corporation, Meadows Acquisition Corp., a Delaware corporation,
Scottsdale Educational Center for Allied Health Careers, Incorporated, an
Arizona corporation, MTSX Acquisition Corp., a Delaware corporation, California
Academy of Merchandising, Art and Design, Inc., a Delaware corporation, DBS
Acquisition Corp., a Virginia corporation, ICM Acquisition Corp., a Delaware
corporation, and OIOPT Acquisition Corp., a Delaware corporation (collectively,
the "Borrowers") and the Lender, pursuant to which the Lender has agreed to make
a loan in an aggregate principal amount not to exceed $2,200,000 (the "Loan") to
the Borrowers, which Loan is evidenced by a promissory note given by the
Borrowers in favor of the Lender (as executed on the date hereof and as it may
be amended, modified, renewed, or extended from time to time, the "Note"); and
WHEREAS, the Pledgor is the owner of the shares of stock of those
Borrowers (collectively, the "Companies") described in Exhibit "A" attached
hereto and incorporated herein by this reference; and
WHEREAS, to secure the due and punctual payment and performance of all
obligations and indebtedness of the Borrowers under the Note, the Loan
Agreement, and the other Loan Documents, and any and all other obligations and
indebtedness of the Borrowers to the Lender, direct or contingent (including,
but not limited to, obligations incurred as endorser, guarantor or surety),
however evidenced or denominated, and however and whenever incurred, including,
but not limited to, indebtedness incurred pursuant to any present or future
commitment of Lender to Borrowers (collectively, "Obligations"), the Pledgor has
agreed to pledge and assign to the Lender all of the Pledgor's right, title, and
interest in and to said shares, together with the other collateral hereinafter
described (collectively, the "Stock");
NOW, THEREFORE, in consideration of the premises, the mutual covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Pledgor and the Lender
hereby agree that all capitalized terms used herein shall have the meanings
ascribed to such terms in the Loan Agreement to the extent not otherwise defined
or limited herein, and further agree as follows:
1. WARRANTY. The Pledgor hereby warrants to the Lender that except for
the securities interests (collectively, "Superior Interests") in the shares of
stock of OIOPT Acquisition Corp., a Delaware corporation, MTSX Acquisition
Corp., a Delaware corporation, and DBS Acquisition Corp., a Virginia corporation
(collectively, the "Previously Pledged Stock") created by the pledge agreements
described in Exhibit "B" attached hereto and incorporated herein (collectively,
the "Superior Pledge Agreements"), and the security interest created hereby, the
Pledgor owns the Stock free and clear of all liens, charges, and encumbrances,
that the Stock is duly issued, fully
<PAGE> 2
paid, and non-assessable, that the Pledgor has the unencumbered and unrestricted
right to pledge the Stock (except for the Previously Pledged Stock, any further
pledge of which may require the consent of the holder of the Superior Pledge
Agreements), and that no consent or approval of any governmental or regulatory
authority, or of any securities exchange, which has not been obtained was or is
necessary to the validity of this pledge.
2. SECURITY INTEREST. The Pledgor hereby grants, conveys, and pledges
to the Lender a security interest in and security title to all of its right,
title, and interest in and to the Stock, and has delivered to and deposited with
the Lender herewith, all of its right, title, and interest in and to, the Stock
presently held by the Pledgor, together with stock powers endorsed in blank by
the Pledgor, as security for (a) all obligations of the Pledgor to the Lender
hereunder; and (b) payment and performance of all other Obligations. The Pledgor
has this date notified each of the Companies of the execution of this Agreement
and the pledge of the Stock to the Lender. The Pledgor agrees that at any time
and from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action that may be necessary, or that the Lender may reasonably request, in
order to perfect and protect the security interest granted hereby or to enable
the Lender to exercise and enforce its rights and remedies hereunder with
respect to all or nay portion of the Stock. The Pledgor hereby irrevocably
appoints the Lender as its attorney-in-fact, with a power of attorney to execute
on behalf of the Pledgor such documents as the Lender may from time to time deem
necessary to protect or perfect the Lender's security interest in the Stock or
to exercise any rights or remedies available to the Lender hereunder. The
Lender's security interest in the Previously Pledged Stock shall be subject and
subordinate to the Superior Interests until the Superior Interests are released
by the holder of the Superior Pledge Agreements. Until the Superior Interests
are released, the respective holders of the Superior Pledge Agreements or their
agent shall be entitled to possess the Previously Pledged Stock as provided in
the Superior Pledge Agreements.
3. ADDITIONAL SHARES. In the event that, during the term of this
Agreement:
(a) any stock dividend, stock split, reclassification,
readjustment, or other change is declared or made in the capital
structure of any of the Companies, all new, substituted, and additional
shares, or other securities, issued by reason of any such change and
received by the Pledgor or to which the Pledgor shall be entitled shall
be immediately delivered to the Lender, together with stock powers
endorsed in blank by the Pledgor, and shall thereupon constitute Stock
to be held by the Lender under the terms of this Agreement; and
(b) any subscriptions, warrants, or any other rights or options
shall be issued in connection with the Stock, all new stock or other
securities acquired through such subscriptions, warrants, rights, or
options by the Pledgor shall be immediately delivered to the Lender and
shall thereupon constitute Stock to be held by the Lender under the
terms of this Agreement.
4. DEFAULT. Upon the occurrence of an Event of Default under the Loan
Agreement or under any other Loan Document, or a default by the Pledgor under
the terms of this Agreement (any of such occurrences being hereinafter referred
to as a "Default") the Lender may sell or otherwise dispose of the Stock or any
portion of the Stock at a public or private sale or make other commercially
reasonable disposition of the Stock or any portion thereof after five days'
notice to the Pledgor, and the Lender may purchase the Stock or any portion
thereof at any public or private sale. The proceeds of the public or private
sale or other disposition shall be applied to the costs incurred in connection
with the sale, expressly including, without limitation, any costs under Section
-2-
<PAGE> 3
6(a) hereof, and to the other Obligations, in such order as the Lender may
determine, and any remaining proceeds shall be paid over to the Pledgor or
others as by law provided. In the event the proceeds of the sale or other
disposition of the Stock are insufficient to pay such expenses, interest,
principal of the Obligations, and damages, the Pledgor shall remain liable to
the Lender for any such deficiency. All costs and expenses, including attorneys'
fees and expenses, incurred by the Lender' in obtaining performance of or in
collecting any payments due under this Agreement shall be deemed part of the
Obligations hereunder.
5. ADDITIONAL RIGHTS OF SECURED PARTY. In addition to its rights and
privileges under this Agreement, the Lender shall have all the rights, powers,
and privileges of secured parties under the Uniform Commercial Code of the State
of Tennessee and other applicable law. All rights of the Lender shall be
cumulative and not exclusive.
6. DISPOSITION OF STOCK BY THE LENDER. If the Stock or any portion
thereof is not registered under the various United States federal or state
securities acts, disposition thereof after Default may be restricted to one or
more private (instead of public) sales in view of the lack of such registration.
The Pledgor understands that upon such disposition, the Lender may approach only
a restricted number of potential purchasers and further understands that a sale
under such circumstances may yield a lower price for the Stock than if the Stock
were registered pursuant to federal and state securities legislation and sold on
the open market. The Pledgor, therefore, agrees that:
(a) if the Lender shall, pursuant to the terms of this Agreement,
sell or cause the Stock or any portion thereof to be sold at a private
sale, the Lender shall have the right to rely upon the advice and
opinion of any national brokerage or investment firm having recognized
expertise and experience in connection with shares of companies similar
to the Companies (but shall not be obligated to seek such advice and
the failure to do so shall not be considered in determining the
commercial reasonableness of the Lender's action) as to the best manner
in which to expose the Stock for sale and as to the best price
reasonably obtainable at the private sale thereof; and
(b) that such reliance shall be conclusive evidence that the
Lender has handled such disposition in a commercially reasonable
manner.
7. PLEDGOR'S OBLIGATIONS ABSOLUTE. The obligations of the Pledgor
under this Agreement shall be direct and immediate and not conditional or
contingent upon the pursuit of any remedies against any other Person, nor
against other security or liens or encumbrances available to the Lender or any
of its successors, assigns, or agents. The Pledgor hereby waives any right to
require that an action be brought against any other Person or to require that
resort be had to any security or to any balance of any deposit account or credit
on the books of the Lender in favor of any other Person prior to any exercise of
rights or remedies hereunder.
8. VOTING RIGHTS.
(a) After a Default and for so long as any of the Obligations
remain unpaid,(i) the Lender may, upon ten (10) days' prior written
notice to the Pledgor of its intention to do so, exercise all voting
rights, and all other ownership or consensual rights of the Stock, but
under no circumstances is the Lender obligated by the terms of this
Agreement to exercise such rights, and (ii) the Pledgor hereby appoints
the Lender the Pledgor's true and lawful attorney-in-fact and
IRREVOCABLE PROXY to vote the Stock in any manner the Lender deems
advisable for or against all matters submitted or which may be
submitted to a vote
-3-
<PAGE> 4
of shareholders. The power of attorney granted hereby is coupled with
an interest and shall be irrevocable for so long as any of the
Obligations remain unpaid.
(b) For so long as the Pledgor shall have the right to vote the
Stock, the Pledgor covenants and agrees that it will not, without the
prior written consent of the Lender, (i) vote or take any consensual
action with respect to the Stock which would constitute a Default under
this Agreement; (ii) cause, permit, or allow any assets of any of the
Companies to be leased, sold, conveyed, pledged, hypothecated,
transferred, or otherwise encumbered or disposed of except as permitted
under the Loan Agreement; or (iii) cause, permit, or allow any of the
Companies to issue any additional stock, to be dissolved or liquidated,
or to acquire, be acquired by, merged, or consolidated into or with any
other Person except as permitted under the Loan Agreement.
9. TERMINATION. This Agreement, and the security interest hereunder
granted to the Lender in the Stock, shall terminate on the date on which all
Obligations of the Borrowers to the Lender under the Loan Documents have been
fully satisfied. Thereafter, upon written demand from the Pledgor, the Lender,
by its acceptance hereof, agrees that it shall promptly deliver the Stock to the
Pledgor, unless and except to the extent the Stock has been liquidated or
otherwise disposed of pursuant to Section 6 hereof.
10. SECURITY AGREEMENT. This Agreement shall constitute a security
agreement under the Uniform Commercial Code as in effect in the State of
Tennessee.
11. GENERAL.
(a) Time is of the essence of this Agreement. No waiver by the
Lender of any power or right hereunder or of any Default by the Pledgor
hereunder shall be binding upon the Lender unless in writing signed by
the Lender. No failure or delay by the Lender to exercise any power or
right hereunder or binding waiver of any Default hereunder shall
operate as a waiver of any other or further exercise of such power or
any other Default. This Agreement, together with all documents referred
to herein, constitutes the entire agreement between the Pledgor and the
Lender and may not be modified except by a writing executed by the
Lender and delivered by the Lender to the Pledgor.
(b) If any paragraph or part thereof shall for any reason be
held or adjudged to be invalid, illegal, or unenforceable by any court
of competent jurisdiction, such paragraph or part thereof so
adjudicated invalid, illegal, or unenforceable shall be deemed
separate, distinct, and independent, and the remainder of this
Agreement shall remain in full force and effect and shall not be
affected by such holding or adjudication.
(c) All representations and warranties made and given herein
by the Pledgor shall survive the execution and delivery of this
Agreement and shall remain in full force and effect until such time as
this Agreement is terminated as provided in Section 9 hereof.
(d) The rights and obligations of the parties hereunder shall
inure to the benefit of and bind their respective heirs, executors,
administrators, legal representatives, successors, and assigns.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
-4-
<PAGE> 5
(f) All notices and demands required or permitted hereunder or
by law shall be given in the manner prescribed, and shall be effective
as stated in the Loan Agreement.
(g) The pronouns used in this Agreement shall be construed as
masculine, feminine, or neuter as the occasion may require.
(h) Captions are for reference only and in no way limit the
terms of this Agreement.
(i) All references herein to any document, instrument, or
agreement shall be deemed to refer to such document, instrument, or
agreement as the same may be amended, modified, restated, supplemented,
or replaced from time to time.
IN WITNESS WHEREOF, the Pledgor has executed this Agreement by and
through its duly authorized officers and has caused its corporate seal to be
hereunto affixed, as of the day and year first above written.
PLEDGOR:
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------
Title:
---------------------------
Attest:
-----------------------------
Title:
-----------------------
[CORPORATE SEAL]
-5-
<PAGE> 6
EXHIBIT "A"
Stock
Companies Stock
<PAGE> 7
EXHIBIT "B"
Superior Pledge Agreements
1. Pledge Agreement dated as of July 14, 1993, among Educational Medical,
Inc., a Delaware corporation, as Pledgor, Ohio Institute of Photography
and Technology, Inc., an Ohio corporation, as Pledgee, and OIOPT
Acquisition Corp., a Delaware corporation, as Issuer.
2. Pledge Agreement dated as of July 22, 1993, among Educational Medical,
Inc., a Delaware corporation, as Pledgor, M.T. X-Ray, Inc., as Pledgee,
and MTSX Acquisition Corp., a Delaware corporation, as Issuer.
3. Pledge Agreement, dated as of May 28, 1993, among Educational Medical,
Inc., a Delaware corporation, as Pledgor, Beta Services, Inc., a
Virginia corporation, as Pledgee, and DBS Acquisition Corp., a Virginia
corporation (formerly a Delaware corporation), as Issuer, as amended by
Amendment One to the Pledge Agreement dated as of July 23, 1993, among
said parties.
<PAGE> 1
EXHIBIT 10.18
AGREEMENT IN RESPECT OF WARRANT
THIS AGREEMENT is made by STATE EMPLOYEES' RETIREMENT FUND OF THE STATE
OF DELAWARE and NAP & COMPANY, ITS REGISTERED NOMINEE (the "Holder") in favor of
EDUCATIONAL MEDICAL, INC. (the "Company") and SIRROM CAPITAL CORPORATION
("Lender").
WHEREAS, the Holder is the holder of the Company's Warrant No. R-002
dated July 16, 1991, entitled "Warrant to Purchase Common Stock of Educational
Medical, Inc. Exercisable Commencing July 16, 1991 Void After June 30, 2001"
(the "Warrant");
WHEREAS, the Company desires to obtain a loan ("Loan") from the Lender
in the principal amount of Two Million Two Hundred Thousand and 00/100 Dollars
($2,200,000.00), which Loan will benefit both the Company and, therefore, the
holder of the Warrant;
WHEREAS, the Lender has required, as a condition to making the Loan,
that the Holder execute and deliver this Agreement, and the Holder has agreed to
do so;
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Holder does hereby agree as follows:
1. The foregoing recitals are true and constitute a part of this
Agreement.
2. Notwithstanding anything to the contrary, including, without
limitation, anything to the contrary set forth in the Warrant, the Holder hereby
agrees that the Warrant shall not be puttable in accordance with its terms and
the Purchase Agreement therein described until all indebtedness (including,
without limitation, all principal and interest) due to Lender in connection with
the Loan has been paid in full, and any and all right of the Holder to put the
Warrant to the Company in accordance with its terms and said Purchase Agreement
is hereby waived and released for so long as any such indebtedness remains
unpaid.
3. Except as amended hereby, the Warrant remains unchanged and in
full force and effect.
4. This Agreement may not be modified or terminated without the
Lender's prior written consent.
IN WITNESS WHEREOF, Holder has duly executed and delivered this
Agreement as of the day of , 1995.
Signed, sealed and delivered
in the presence of: STATE EMPLOYEES' RETIREMENT FUND OF
THE STATE OF DELAWARE and NAP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
- ----------------------------------- -------------------------------------
Witness Robert J. Cresci
Name: Managing Director
------------------------------
(SEAL)
- -----------------------------------
Witness
Name:
------------------------------
<PAGE> 1
EXHIBIT 10.19
AGREEMENT IN RESPECT OF WARRANT
THIS AGREEMENT is made by TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. and FUELSHIP & COMPANY, ITS REGISTERED NOMINEE (the
"Holder") in favor of EDUCATIONAL MEDICAL, INC. (the "Company") and SIRROM
CAPITAL CORPORATION ("Lender").
WHEREAS, the Holder is the holder of the Company's Warrant No. R-001
dated July 16, 1991, entitled "Warrant to Purchase Common Stock of Educational
Medical, Inc. Exercisable Commencing July 16, 1991 Void After June 30, 2001"
(the "Warrant");
WHEREAS, the Company desires to obtain a loan ("Loan") from the Lender
in the principal amount of Two Million Two Hundred Thousand and 00/100 Dollars
($2,200,000.00), which Loan will benefit both the Company and, therefore, the
holder of the Warrant;
WHEREAS, the Lender has required, as a condition to making the Loan,
that the Holder execute and deliver this Agreement, and the Holder has agreed to
do so;
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Holder does hereby agree as follows:
1. The foregoing recitals are true and constitute a part of this
Agreement.
2. Notwithstanding anything to the contrary, including, without
limitation, anything to the contrary set forth in the Warrant, the Holder hereby
agrees that the Warrant shall not be puttable in accordance with its terms and
the Purchase Agreement therein described until all indebtedness (including,
without limitation, all principal and interest) due to Lender in connection with
the Loan has been paid in full, and any and all right of the Holder to put the
Warrant to the Company in accordance with its terms and said Purchase Agreement
is hereby waived and released for so long as any such indebtedness remains
unpaid.
3. Except as amended hereby, the Warrant remains unchanged and in
full force and effect.
4. This Agreement may not be modified or terminated without the
Lender's prior written consent.
IN WITNESS WHEREOF, Holder has duly executed and delivered this
Agreement as of the day of , 1995.
Signed, sealed and delivered
in the presence of: TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS, INC. and FUELSHIP &
COMPANY, ITS REGISTERED NOMINEE
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
- ----------------------------------- -------------------------------------
Witness Robert J. Cresci
Name: Managing Director
------------------------------
(SEAL)
- -----------------------------------
Witness
Name:
------------------------------
<PAGE> 1
EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of July 23,
1991, between Educational Medical, Inc., a Delaware corporation (the "Company")
and the persons named on Schedules I and II attached to this Agreement (each of
such persons being referred to individually as an "Investor" and collectively
referred to as the "Investors").
PRELIMINARY STATEMENT
The Company and the Investors named on Schedule I (the "Preferred
Stock Investors") are parties to the Stock Purchase Agreement dated March 31,
1988, the Warrant Purchase Agreement dated March 31, 1988, the Note and Warrant
Purchase Agreement dated March 31, 1988 and the Letter Agreements dated
November 14, 1989 (collectively the "Preferred Stock Agreements") Pursuant to
the Preferred Stock Agreements, the Company has issued Preferred Stock,
Warrants to purchase Preferred Stock, Common Stock, and Warrants to purchase
Common Stock (collectively the "Preferred Stock Investors' Securities") to the
Preferred Stock Investors in the amounts set forth opposite each of their names
on Schedule I.
The Company and the Investors "named on Schedule II (the "Warrant
Investors') are parties to the Securities Purchase Agreement dated as of July
23, 1991 (the "Purchase Agreement"), pursuant to which the Company has agreed,
among other things, to issue to the Investors an aggregate of 4,000 units (the
"Units"), each Unit comprising (i) $1,000 principal amount of 12.5% Senior
Subordinated Promissory Notes of the Company in the aggregate principal amounts
set forth on the respective Purchaser Schedule attached to the Purchase
Agreement (the "Notes") and (ii) warrants (the "Warrants") to purchase 200
shares of common stock (the "Warrant Shares") all in the amounts set forth
opposite of their names on Schedule II.
The Preferred Stock Investors have been granted certain registration
rights with respect to the Preferred Stock Investors' Securities pursuant to
the Preferred Stock Agreements. The Company has agreed to grant certain
registration rights to the warrant Investors with respect to the Warrants. The
Investors have agreed to enter into this single Agreement with the Company
setting forth their respective registration rights, replacing the related
provisions of the Preferred Stock Agreements.
In connection with the acquisition of Meadows College of Business, the
Company issued a single parent fixed rate secured promissory note dated October
13, 1989 (the "Meadows Note") which provides for the contingent issuance of
Common Stock (the "Meadows Common Stock") in connection with an Initial Public
Offering. The Meadows Note contains certain registration rights relating to
the Meadows Common Stock, and the Investors have agreed to accommodate the
exercise of such rights in this Agreement.
<PAGE> 2
EXECUTION A
1. Definitions.
For purposes of this Agreement, the capitalized terms used in the
Preliminary Statement shall have the meanings given to them in such statement;
in addition, as used in this Agreement the following terms shall have the
following meanings, in all cases unless the context otherwise requires:
(a) Commission: The Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) Common Stock: The Common Stock of the Company.
(c) Company: As defined in the recital paragraph hereof.
(d) Exchange Act: The Securities Exchange Act of 1934.
(e) Person: An individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated association or a government or any
department or agency thereof.
(f) Registrable Common Stock: The shares of the Company's Common
Stock included in the Restricted Securities or issuable with respect to the
Restricted Securities.
(g) Restricted Securities: The Preferred Stock Investors'
Securities, the Warrants, and any shares of capital stock received in respect
of them, whether by reason of their exercise, a stock split or share
reclassification, a stock dividend, or otherwise. As to any particular
Restricted Securities, once issued such securities shall cease to be Restricted
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (c) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, or (d)
they shall have ceased to be outstanding. The term "holder of Restricted
Securities" shall mean a holder of Warrants, a holder of the Preferred Stock
Investors Securities, a holder of shares of Common Stock issued pursuant to the
exercise or otherwise issued as described in the first sentence of this
definition. Wherever in this Agreement reference is made to a percentage or a
majority (by number of shares) of Registrable Common Stock or Restricted
Securities, the term "number of shares" shall mean and include both issued and
issuable shares.
(h) Registration Expenses: All expenses incident to the Company's
performance of or compliance with this Agreement, including, without
limitation, all registration, filing and National Association of Securities
Dealers, Inc. fees, all fees and expenses of complying with securities or blue
sky laws, all word processing, duplicating and printing expenses, messenger and
<PAGE> 3
EXECUTION A
delivery expenses, the reasonable fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses of
any special audits or "cold comfort" letters required by or incident to such
performance and compliance, reasonable fees and disbursements of not more than
one counsel for the holders of Restricted Securities requesting registration
hereunder, premiums and other costs of policies of insurance obtained by the
Company against liabilities arising out of the public offering of the
Registrable Common Stock being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but
excluding underwriting discounts and commissions and transfer taxes applicable
to Registrable Common Stock sold by Investors, which costs shall be borne in
each case by such Investors.
(i) Securities Act: The Securities Act of 1933, as amended.
2. Restrictions on Transfer.
(a) Not Transferable. The Preferred Stock Investors and the
Warrant Investors each agree that the Restricted Securities shall not be
transferable except upon the conditions specified in this Agreement, which
conditions are intended to insure compliance with the provisions of the
Securities Act in respect of their transfer.
(b) Legends. In addition to any other legends such certificates
may bear, each certificate for the Restricted Securities, and each certificate
for any such securities issued to subsequent transferees of any such
certificate shall (unless otherwise permitted by the provisions of Section 2
(c) be stamped or otherwise imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT AND SUCH LAWS AND RESPECTIVE RULES AND REGULATIONS THEREUNDER.
THE SECURITIES ARE ALSO SUBJECT TO COMPLIANCE WITH CONDITIONS OF A
REGISTRATION RIGHTS AGREEMENT DATED AS OF JULY 23, 1991 AMONG THE
COMPANY AND CERTAIN OTHER PARTIES. NO TRANSFER OF THESE SECURITIES
SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
THE COMPANY."
(c) Notice of Transfer. The holder of any Restricted Securities,
by acceptance thereof agrees, that prior to any transfer of any Restricted
Securities, such holder will give written notice
<PAGE> 4
EXECUTION A
to the Company of such holder's intention to effect such transfer and to comply
in all other respects with the provisions of this Section 2. Each such notice
shall describe the manner and circumstances of the proposed transfer and shall
be accompanied by (a) the written opinion, addressed to the Company, of counsel
for the holder of Restricted Securities (which counsel shall be reasonably
satisfactory to the Company), as to whether in the opinion of such counsel
(which opinion shall be reasonably satisfactory to counsel to the Company) such
proposed transfer involves a transaction requiring registration of such
Restricted Securities under the Securities Act, and (b) in the case of
Registrable Common Stock, if in the opinion of such counsel such registration
is required, a written request addressed to the Company by the holder of such
Registrable Common Stock or Restricted Securities convertible or exercisable
into Registrable Common Stock, describing in detail the proposed method of
disposition and requesting the Company to effect the registration of the
offering of such Registrable Common Stock pursuant to the terms and provisions
of Sections 3 or 4 hereof, as the case may be; provided, however, that in the
case of any holder of Restricted Securities which is a partnership or
corporation, no such opinion of counsel shall be necessary for a transfer by
such holder to a partner of such holder, or a retired partner of such holder
who retires after the date hereof, or the estate of any such partner or retired
partner, or by such corporation to another corporation controlling, controlled
by, or under common control with, such corporation, or in the case of any
individual holder, upon his death for a transfer to any of his beneficiaries or
estate, if the transferee agrees in writing to be subject to the terms of this
Section 2 to the same extent as if such transferee were originally a signatory
to this Agreement; provided further, however, that no such opinion shall be
required in connection with a transaction complying with the requirements of
Rule 144 (as amended from time to time) promulgated under the Securities Act
(or successor Rule thereto), subject to confirmation by counsel to the Company
that such transaction complies with the requirements of Rule 144. If in the
opinion of such counsel (if such opinion is required hereunder) the proposed
transfer of Restricted Securities may be effected without registration under
the Securities Act, the holder of Restricted Securities shall thereupon be
entitled to transfer Restricted Securities in accordance with the terms of the
notice delivered by it to the Company. Each certificate or other instrument
evidencing the securities issued upon the transfer of any Restricted Securities
(and each certificate or other instrument evidencing any untransferred balance
of such securities) shall bear the legend set forth in Section 2 (b) hereof
unless (a) in the opinion of counsel to the Company registration of future
transfer is not required by the applicable provisions of the Securities Act or
(b) the Company shall have waived the requirement of such legend; provided,
however, that such legend shall not be required (i) on any certificate or other
instrument evidencing the securities issued upon such transfer in the event
such transfer shall be made in compliance with the requirements of Rule 144 (as
amended from time to time) promulgated under the Securities Act (or successor
Rule thereto) or (ii) on any certificate or other instrument which is
immediately resaleable under Rule 144(k) (or any successor rule thereto). The
holder of Restricted Securities shall not transfer such Restricted Securities
until such opinion of counsel has been given to the Company, unless waived by
the Company or unless such opinion is not required in accordance with the
provisions of this Section or until registration of sale of the Registrable
Common Stock involved in the above-mentioned request has become effective under
the Securities Act.
<PAGE> 5
EXECUTION A
3. Required Registration. If at any time the Company shall be
requested by any holder or holders of not less than (x) 25% (by voting power)
of the outstanding Restricted Securities issued to the Preferred Stock
Investors (each such request called a "Preferred Stock Investors Section 3
Request") or (y) 50% (by voting power) of the outstanding Restricted Securities
issued to the Warrant Investors (each such request called a "Warrant Investors
Section 3 Request") (in each case assuming all of the related outstanding
securities that are convertible into or exercisable for Registrable Common
Stock have been converted into or exercised for the maximum number of shares of
Common Stock into or for which such securities are then convertible or
exercisable) to effect the registration under the Securities Act of the sale of
Registrable Common Stock, the Company shall promptly give written notice of
such proposed registration to all holders of outstanding Restricted Securities,
and thereupon the Company shall promptly use its best efforts to effect the
registration under the Securities Act of the Registrable Common Stock that the
Company has been requested to register for disposition described (i) in the
request of said holder or holders of Restricted Securities and (ii) in any
response, which response is received from the holders of Restricted Securities
within 30 days after the giving of the written notice to the other holders of
Registrable Common Stock by the Company; provided, however, that the Company
shall not be obligated to effect any registration under the Securities Act
except in accordance with the following provisions:
(a) the Company shall not be obligated to file and cause to become
effective more than (x) up to two registration statements in which Registrable
Common Stock is registered under the Securities Act pursuant to this Section 3
and effectively sold thereunder pursuant to a Preferred Stock Investors Section
3 Request and (y) up to two registration statements in which Registrable Common
Stock is registered under the Securities Act pursuant to this Section 3 and
effectively sold thereunder pursuant to a Warrant Investors Section 3 Request,
nor any registration statement within a period of six months after a prior
registration statement under this Section 3 or under Section 4 in which
Registrable Common Stock was included or with respect to which the holders of
Restricted Securities did not request inclusion.
(b) anything contained herein to the contrary notwithstanding,
with respect to each registration requested pursuant to this Section 3, the
Company may include in such registration any authorized but unissued shares of
Common Stock for sale by the Company or any issued and outstanding shares of
Common Stock for sale by others; provided, however, that if the number of
shares of Common Stock so included pursuant to this clause (b) exceeds the
number of Registrable Common Stock registered by the holder or holders of
outstanding Restricted Securities requesting such registration, then such
registration shall be deemed to be a registration in accordance with and
pursuant to Section 4; provided further, however, that the inclusion of such
previously authorized but unissued shares by the Company or issued and
outstanding shares of Common Stock by others in such registration shall not
prevent the holder or holders of outstanding Restricted Securities requesting
such registration from registering the entire number of Registrable Common
Stock requested by them and, in the event the registration is, in whole or in
part, an underwritten public offering and the managing underwriter determines
and advises in writing that the inclusion of all Registrable Common Stock
proposed to be included in such registration and such previously authorized but
unissued shares of Common Stock by the
<PAGE> 6
EXECUTION A
Company and/or issued and outstanding shares of Common Stock by persons other
than the holders of Restricted Securities proposed to be included in such
registration would interfere with the successful marketing (including pricing)
of such securities, then the number of shares of Registrable Common Stock and
such other previously authorized but unissued shares of Common Stock proposed
to be included by the Company and issued and outstanding shares of Common Stock
proposed to be included by persons other than the holders of Restricted
Securities shall be reduced, first, rata among the Company and the holders of
shares of Common Stock other than the holders of Restricted Securities and the
holders of "the Meadows Common Stock, if included, and thereafter, if
necessary, rata among the holders of Restricted Securities and the Meadows
Common Stock, (based upon the number of shares of Common Stock which each such
person proposes to include in such offering).
4. Incidental Registration. If the Company at any time proposes
for any reason to register any of its securities under the Securities Act
(other than pursuant to a registration statement on Form 5-4 or 5-8 or similar
or successor form or another form which is not available for registering
Registrable Common Stock for sale to the public), it shall each such time
promptly give written notice to all holders of outstanding Restricted
Securities of its intention so to do, and, upon the written request, given
within 30 days after receipt of any such notice, of the holder of any such
Restricted Securities to register any Registrable Common Stock (which request
shall specify the Registrable Common Stock intended to be sold or disposed of
by such holders and shall state the intended method of disposition of such
Registrable Common Stock by the prospective seller), the Company shall use its
best efforts to cause all such Registrable Common Stock to be registered under
the Securities Act promptly upon receipt of the written request of such holders
for such registration, all to the extent required to permit the sale or other
disposition (in accordance with the intended methods thereof, as aforesaid) by
the prospective seller or sellers of the Registrable Common Stock so
registered. In the event that the proposed registration by the Company is, in
whole or in part, an underwritten public offering of securities of the Company,
any request pursuant to this Section 4 to register Registrable Common Stock
must specify that such shares are to be included in the underwriting (a) on the
same terms and conditions as the shares of Common Stock, if any, otherwise
being sold through underwriters under such registration or (b) on terms and
conditions comparable to those normally applicable to offerings of common stock
in reasonably similar circumstances in the event that no shares of Common Stock
other than Registrable Common Stock are being sold through underwriters under
such registration; provided, however, that (i) if the managing underwriter
determines and advises in writing that the inclusion in the underwritten public
offering of (x) all Registrable Common Stock and any Meadows Common Stock
proposed to be included in the underwritten public offering, (y) authorized but
unissued shares of Common Stock to be offered by the Company other than shares
to be issued pursuant to the exercise of options, rights, or warrants to
purchase Common Stock or the conversion of other securities convertible into
Common Stock, and (z) other shares of Common Stock proposed to be included
therein by Persons other than holders of Restricted Securities or the Meadows
Common Stock (shares of Common Stock included in preceding clauses (y) and (z)
are called the "Other Shares"), would interfere with the successful marketing
(including pricing) of such securities, then the number of shares of
Registrable Common Stock, Meadows Common Stock and Other Shares to be included
in such underwritten
<PAGE> 7
EXECUTION A
public offering shall be reduced, first, rata among the holders of Other
Shares, and secondly if necessary, rata among the holders of Registrable Common
Stock and the Meadows Common Stock, based upon the number of shares of
Registrable Common Stock and Meadows Common Stock requested by the holders
thereof to be registered in such underwritten public offering and (ii) in each
case those shares of Common Stock which are excluded from the underwritten
public offering and all shares of Common Stock held by the Investors shall be
withheld from the market by the holders thereof for a period, not to exceed 90
days, which the managing underwriter reasonably determines as necessary in
order to effect the underwritten public offering.
If, at any time after giving written notice of its intention to
register any securities pursuant to this Section 4, and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination to each holder of Registrable Common Stock and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Common Stock in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without prejudice, however, to
the rights of any holder or holders of Registrable Common Stock entitled to do
so to request that such registration be effected as a registration under
Section 3, and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Common Stock, for the same
period as the delay in registering such other securities. The Company will pay
all Registration Expenses in connection with each registration of Registrable
Common Stock requested pursuant to this Section 4.
5. Registrations on Forms 5-2 and 5-3. The Company shall use its
best efforts to qualify for registration under the Securities Act on Forms 5-2
and/or 5-3. At such time as the Company shall have qualified for the use of
Forms 5-2 and/or 5-3 (or any similar form or forms promulgated under the
Securities Act), the holders of Restricted Securities shall each have the right
to request registrations on Form 5-2 or 5-3 (which request or requests shall be
in writing, shall specify the Registrable Common Stock intended to be sold or
disposed of by the holders thereof, shall state the intended method of
disposition of such Registrable Common Stock by the holder(s) requesting such
registration and shall relate to Registrable Common Stock having a proposed
aggregate gross offering price (before "deduction of underwriting discounts and
expenses of sale) of at least $500,000), and the Company shall be obligated to
use its best efforts to effect such registration or registrations on Forms 5-2
and/or 5-3 (as the case may be).
6. Granting of Registration Rights. The Company shall not,
without the prior written consent of persons holding a majority (by number of
shares) of the Restricted Securities then outstanding and held by the Preferred
Stock Investors and the Warrant Investors, respectively, grant any rights to
any persons to register any shares of capital stock or other securities of the
Company if such rights could reasonably be expected to conflict with, or be on
parity with, the rights of the holders of Restricted Securities granted
pursuant to this Agreement.
<PAGE> 8
EXECUTION A
7. Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Common Stock pursuant to the Securities Act as provided in Sections 3 and 4,
the Company will as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event no
later than 60 days after the end of the period within which requests for
registration may be given to the Company or such longer period, not to exceed
90 days, as the Company shall in good faith require to produce the financial
statements required in connection with such registration) file with the
Commission the requisite registration statement to effect such registration and
thereafter use its best efforts to cause such registration statement to become
effective, provided that the Company may discontinue any registration of its
securities which are not Registrable Common Stock and, under the circumstances
specified in Section 4, its securities which are Registrable Common Stock at
any time prior to the effective date of the registration statement relating
thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period ending the earlier of: (a) one year from the effective
date; and (b) such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until the end of such period;
(iii) furnish to each seller of Registrable Common Stock covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto, such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any
other prospectus filed under Rule 424 or Rule 430A under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Common Stock and other securities covered by such registration statement under
such other securities or blue sky laws or such jurisdictions as each seller
thereof shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and take
any other action which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the securities
owned by such seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foregoing corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(iv) be obligated to be so qualified or to consent to general service of
process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Common Stock
covered by such registration statement to be registered with or approved by
such other governmental agencies or
<PAGE> 9
EXECUTION A
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Common Stock;
(vi) if an underwritten offering, furnish to each seller of
Registrable Common Stock a signed counterpart, addressed to such seller (and
the underwriters, if any) of
(a) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), of such matters that are customarily covered in an
opinion of counsel including that the registration is valid and effective and
which, if such registration includes an underwritten public offering, will be
deemed satisfactory if in the same form and of the same substance as the
opinion addressed to the underwriter, all of which is reasonably satisfactory
in form and substance to such seller, and
(b) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified the
Company's financial statements included in such registration statement,
addressed to each seller, to the extent the same can be reasonably obtained,
and addressed to the underwriters, if any, covering substantially the same
matters with respect to such registration statement (and the prospectus
included therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in accountants' letters delivered to the underwriters in underwritten
public offerings of securities and such other financial matters as such seller
or such holder (or the underwriters, if any) may reasonably request;
(vii) notify each seller of Registrable Common Stock covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and at the request of any such
seller or holder promptly prepare to furnish to such seller or holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first full calendar month after the effective date of such
registration statement, which earning statement shall satisfy the provisions of
Section 11 (a) of the Securities
<PAGE> 10
EXECUTION A
Act, and will furnish to each such seller at least two business days prior to
the filing thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any thereof to which any such seller
shall have reasonably objected on the grounds that such amendment or supplement
does not comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder;
(ix) provide and cause to be maintained a transfer agent, and (if
required by the applicable rules of any national securities exchange or NASDAQ)
a registrar, for all Registrable Common Stock covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(x) use its best efforts to list all Registrable Common Stock
covered by such registration statement on any securities exchange on which any
of the Registrable Common Stock is then listed.
The Company may require each proposed seller of Registrable Common Stock as to
which any registration is being effected to promptly furnish the Company, as a
condition precedent to including such holder's Registrable Common Stock in any
registration, such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing.
Each holder of Restricted Securities agrees by acquisition of such
Restricted Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 7, such holder will forthwith discontinue such holder's disposition of
Registrable Common Stock pursuant to the registration statement relating to
such Registrable Common Stock until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 7 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable Common
Stock current at the time of receipt of such notice.
8. Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters, if any, for any offering by holders of Registrable Common Stock
pursuant to a registration requested under Section 3, the Company will enter
into an underwriting agreement with such underwriters for such offering, such
agreement to be satisfactory in substance and form to the Company, to holders
of more than 50% (by number of shares) of the Registrable Common Stock held by
the Preferred Stock Investors and 50% (by number of shares) of the Registrable
Common Stock held by the Warrant Investors, included in such registration and
the underwriters and to contain such representations and warranties by the
Company and such other terms as are generally prevailing in agreements of this
type, including, without limitation, indemnities to the effect and to the
extent provided in Section 10. The holders of the Registrable Common Stock
will cooperate with the Company in the negotiation of the underwriting
agreement and will give consideration to the
<PAGE> 11
EXECUTION A
reasonable requests of the Company regarding the form thereof, provided that
nothing herein contained shall diminish the foregoing obligations of the
Company. The holders of Registrable Common Stock to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Common Stock and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable Common
Stock. Any such holder of Registrable Common Stock shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
such holder, such holder's Registrable Common Stock and such holder's intended
method of distribution, any other information supplied by such holder to the
Company for use in the Registration Statement and any other representation
required by law.
(b) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 4 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Common Stock as provided in Section 4 and subject to the
provisions of Section 4, arrange for such underwriters to include all the
Registrable Common Stock to be offered and sold by such holder among the
securities to be distributed by such underwriters. The holders of Registrable
Common Stock to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders of
Registrable Common Stock and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable Common
Stock. Any such holder of Registrable Common Stock shall not be required to
make any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties, or agreements regarding
such holder, such holder's Registrable Common Stock and such holders intended
method of distribution, any other information supplied by such holder to the
Company for use in the Registration Statement and any other representation
required by law.
(c) Holdback Agreements.
(i) Each holder of Restricted Securities agrees, if so
required by the managing underwriter, not to effect any sale or distribution of
any equity securities of the Company during the seven days prior to and the
90-day period beginning on the effective date of any underwritten registration
pursuant to Section 3 or 4 hereof in which Registrable Common Stock are
included (except as part of such underwritten registration)
(ii) The Company agrees (x) not to effect any sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities,
<PAGE> 12
EXECUTION A
during the seven days prior to and during the 90-day period beginning on the
effective date of any underwritten registration pursuant to Section 3 hereof
(except as part of such underwritten registration or pursuant to registrations
on Form 5-8 or any successor form), and (y) to use its best efforts to cause
each holder of at least 5% of the Common Stock to agree not to effect any sale
or distribution of any such securities during such period (except as part of
such underwritten registration, if otherwise permitted).
9. Expenses. All Registration Expenses shall be paid by the
Company.
10. Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless the seller of any
Registrable Common Stock covered by such registration statement, its directors
and officers, each other Person who participates as an underwriter in the
offering or sale of such securities and such other Person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
such seller or any such director or officer or underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement pursuant to which such securities were registered
under the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
or any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and the Company will reimburse such seller and each such director,
officer, underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided that the Company
shall only be required to reimburse such seller, its directors and officers and
such other Person, if any, who controls such seller, for one counsel and firm
of accountants unless a conflict of interest exists between such Persons; and
provided further that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such seller specifically
for use in the preparation thereof and, provided further that the Company shall
not be liable to any Person who participates as an underwriter, in the offering
or sale of Registrable Common Stock or any other Person, if any, who controls
such underwriters within the meaning of the Securities Act, in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's failure
to send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement
<PAGE> 13
EXECUTION A
or omission or alleged omission at or prior to the written confirmation of the
sale of Registrable Common Stock to such Person if such statement or omission
was corrected in such final prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
seller or any such director, officer, underwriter or controlling person and
shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. In the event of any
registration of any securities of an Investor (or any subsequent holder
exercising the rights of an Investor pursuant to this Agreement, which person,
is specifically called an "Investor" for purposes of the obligations contained
in this Section) pursuant to Section 3 or 4 hereof, such Investor will, and
hereby does, indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 10) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or meaning alleged statement in or omission or alleged
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement hereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such seller specifically for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 10,
such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 10, except to
the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified party and indemnifying parties may exist in
respect of such claim, the indemnifying party shall be entitled to participate
in and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation, provided that if any indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to such
indemnified party which are different from or additional to and are
inconsistent with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 10, the indemnifying party
shall not have the right to assume the defense
<PAGE> 14
EXECUTION A
of such action on behalf of such indemnified party and such indemnifying party
shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which are reasonably related to the matters
covered by the indemnity agreement provided in this Section 10. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 10 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Common Stock with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 10 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred, subject to repayment in the
event indemnification was not required by this Section 10.
(f) Contribution. If the indemnification provided for in this
Agreement shall for any reason be unavailable or insufficient to an indemnified
party under Section 10(a), 10(b) or 10(d) hereof in respect to any loss, claim,
damage or liability, or any action in respect thereof, or referred to therein,
then each indemnifying party shall, in lieu of indemnifying such party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect (i) the relative benefits
received by the Company on the one hand and the holders of the Registrable
Common Stock included in the offering on the other hand, from the offering of
the Registrable Common Stock, and (ii) the relative fault of the Company on the
one hand and the holders of the Registrable Common Stock included in the
offering on the other, with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the holders of the
Registrable Common Stock on the other with respect to such offering shall be
deemed to be in the same proportion as the sum of the total subscription price
paid to the Company in respect of the Registrable Common Stock plus the total
net proceeds from the offering of the securities (before deducting expenses)
received by the Company bears to the amount by which the total net proceeds
from the offering of the securities (before deducting expenses) received by the
holders of the Registrable Common Stock with respect to such offering exceeds
the subscription price paid to the Company in respect of the Registrable Common
Stock, and in each case the net proceeds received from such offering shall be
determined as set forth on the table of the cover page of the prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
the Company or the holders of the Registrable Common Stock, the
<PAGE> 15
EXECUTION A
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the holders of the Registrable Common Stock agree that it would not be just and
equitable if contribution pursuant to this Section 10 were to be determined by
pro rata allocation or by any other method of allocation which does not take
into account the equitable consideration referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to in this Section 10 shall
be deemed to include, for purposes of this Section 10, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
11. Removal of Legends, Etc. Notwithstanding the foregoing
provisions of this Agreement, the restrictions imposed by this Agreement upon
the transferability of any Restricted Securities shall cease and terminate when
(a) such Restricted Securities are sold or otherwise disposed of in accordance
with the intended method of disposition by the seller or sellers thereof set
forth in the registration statement or as otherwise contemplated by Section 2
hereof which does not require that the securities transferred bear any
restrictive legend making reference to the Securities Act of 1933 hereof or (b)
the holder of Restricted Securities has met the requirements for transfer of
such Restricted Securities pursuant to subparagraph (k) of Rule 144 (as amended
from time to time) promulgated by the Commission under the Securities Act.
Whenever the restrictions imposed by this Agreement shall terminate, as herein
provided, the holder of any Restricted Securities as to which such restrictions
have terminated shall be entitled to receive from the Company, without expense,
a new certificate not bearing a restrictive legend making reference to the
Securities Act.
12. Rule 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company will file the reports required to be filed by it under the Securities
Act and the Exchange Act (or, if the Company is not required to file such
reports, will, upon the request of any holder of Registrable Common Stock, make
publicly available other information) and will take such further action as any
holder of Registrable Common Stock may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Common
Stock without registration under the Securities Act within the limitation of
the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule
may be amended from time to time or (b) any similar rule or regulation
hereafter adopted by the Commission ("Rule 144"), Upon the request of any
holder of Restricted Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
13. Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of 50% or more (by number of shares) of Registrable
<PAGE> 16
EXECUTION A
Common Stock held by (x) the Preferred Stock Investors and (y) the Warrant
Investors, voting as separate classes. Any consent provided for in the
previous sentence may be made by only the Preferred Stock Investors or Warrant
Investors if, and only to the extent, such holders are the sole holders
affected by such action. Each holder of any Restricted Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 13, whether or not such Registrable Common Stock shall have been marked
to indicate such consent.
14. Nominees for Beneficial Owners. In the event that any
Registrable Common Stock are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election, be treated as the
holder of such Registrable Common Stock for purposes of any request or other
action by any holder or holders of Registrable Common Stock pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Common Stock held by any holder or holders of Registrable Common
Stock contemplated by this Agreement. If the beneficial owner of any
Registrable Common Stock so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Common Stock.
15. Notices. All communications provided for hereunder shall be
sent by first-class mail, overnight courier or by telecopier provided that
within a reasonable time a permanent copy is transmitted by any of the other
methods described above and (a) if addressed to a party other than the Company,
addressed to such party at such address as such party shall have furnished to
the Company in writing, or (b) if addressed to any other holder of Registrable
Common Stock at the address that such holder shall have furnished to the
Company in writing, or, until any such other holder so furnishes to the Company
an address, then to and at the address of the last holder of such Registrable
Common Stock who has furnished an address to the Company, or (c) if addressed
to the Company, at 1050 Cambridge Square, Suite C, Alpharetta, Georgia 30201 to
the attention of the President, or at such other address, or to the attention
of such other officer, as the Company shall have furnished to each holder of
Registrable Common Stock at the time outstanding.
16. Assignment. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the
benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent holder of any Restricted
Securities, subject to the provisions respecting the minimum numbers or
percentages of shares of Restricted Securities or Registrable Common Stock
required in order to be entitled to certain rights, or take certain actions,
contained herein.
17. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
<PAGE> 17
EXECUTION A
18. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of New York.
19. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
STATE EMPLOYEES' RETIREMENT FUND
OF THE STATE OF DELAWARE
By: Pecks Management Partners, Ltd.,
its Investment Adviser
By:
-------------------------------------
Robert J. Cresci
Managing Director
TRUST FOR DEFINED BENEFIT PLAN OF
ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners, Ltd.,
its Investment Adviser
By:
-------------------------------------
Robert J. Cresci
Managing Director
SPROUT CAPITAL V
By:
------------------------------------------
<PAGE> 18
EXECUTION A
SPROUT TECHNOLOGY FUND, L.P.
By:
------------------------------------------
DLJ VENTURE CAPITAL FUND II, L.P.
By:
------------------------------------------
INVESTECH, L.P.
By:
------------------------------------------
LAWRENCE, TYRRELL, ORTALE & SMITH
By:
------------------------------------------
<PAGE> 19
EXECUTION A
SCHEDULE I
TO REGISTRATION RIGHTS AGREEMENT
<TABLE>
<CAPTION>
Common Stock(1):
============================================================================================================
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Sprout Capital V: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,483
Sprout Technology Fund, L.P.: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,041
DLJ Venture Capital Fund II, L.P.: . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,860
LTOS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,383
Investech: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,256
- ------------------------------------------------------------------------------------------------------------
Preferred Stock:
- ------------------------------------------------------------------------------------------------------------
Sprout Capital V: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353,942
Sprout Technology Fund, L.P.: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,297
DLJ Venture Capital Fund II, L.P.: . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,261
LTOS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,500
Investech: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,000
- ------------------------------------------------------------------------------------------------------------
Warrants, dated March 31, 1988, to purchase:
- ------------------------------------------------------------------------------------------------------------
Sprout Capital V: 1,221 shares of Common Stock
2,929 shares of Preferred Stock
Investech, L.P.: 813 shares of Common Stock
1,952 shares of Preferred Stock
- ------------------------------------------------------------------------------------------------------------
Warrants, dated November 14, 1989, to purchase:
- ------------------------------------------------------------------------------------------------------------
Sprout Capital V: 7,376 shares of Common Stock
17,704 shares of Preferred Stock
DLJ Capital Fund II, L.P.: 444 shares of Common Stock
1,064 shares of Preferred Stock
LTOS: 7,820 shares of Common Stock
18,768 shares of Preferred Stock
Investech, L.P.: 5,214 shares of Common Stock
12,514 shares of Preferred Stock
============================================================================================================
</TABLE>
(1) Plus up to 250,000 shares of Common Stock to be issued on account of
accrued dividends in connection with the transactions provided for in the
Purchase Agreement.
<PAGE> 20
EXECUTION A
SCHEDULE II
TO REGISTRATION RIGHTS AGREEMENT
<TABLE>
<CAPTION>
===========================================================================================================
Aggregate Warrants
Principal To
Amount Of Purchase
Notes To Of Shares
Note Be Of Common
Warrant Investors Denominations Purchased Stock
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
The Notes and Warrants shall be 220,000
registered in the name of: $1,100,000 $1,100,000 Shares
Fuelship & Company
- -----------------------------------------------------------------------------------------------------------
STATE EMPLOYEES' RETIREMENT FUND OF
THE STATE OF DELAWARE
The Notes and Warrants shall be 580,000
registered in the name of: $2,900,000 $2,900,000 Shares
NAP & Company
===========================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.21
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Registration
Agreement') dated as of March __, 1995, between EDUCATIONAL MEDICAL, INC., a
Delaware corporation (the "Company") and the persons named in Schedule I and II
attached to this Agreement (each of such persons being referred to individually
and as "Investor" and collectively referred to as the "Investors").
PRELIMINARY STATEMENT
The undersigned parties desire to amend the Registration Agreement
pursuant to Section 13 of the Registration Agreement to provide that Sirrom
Capital Corporation ("Sirrom"), a Tennessee corporation, shall become a party
to the Registration Agreement.
NOW, THEREFORE, for good and valuable consideration, and intending to
be legally bound, the parties agree as follows:
1. Sirrom shall have the same rights as a Warrant Investor
pursuant to the terms of the Registration Agreement as such term is defined in
the Registration Agreement.
2. Sirrom agrees to be bound by all of the terms and conditions
of the Registration Agreement applicable to a Warrant Investor effective the
date of the execution of this First Amendment.
3. Schedule II of the Registration Agreement is amended to
reflect Sirrom as a Warrant Holder with the right to purchase up to 185,000
shares of common stock of the Company as set forth in Exhibit "A" attached
hereto and made a part hereof.
4. The definition of Restricted Securities in Section 1 of the
Registration Rights Agreement is amended to add the clause "the Stock Purchase
Warrant issued to Sirrom Capital Corporation dated March 31, 1995," after the
clause "The Preferred Stock Investors' Securities, the Warrants,".
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
EDUCATIONAL MEDICAL, INC.
By: /s/ Morris C. Brown
-----------------------------
Name: Morris C. Brown
--------------------------
Title: Secretary
--------------------------
<PAGE> 2
STATE EMPLOYEES' RETIREMENT FUND OF THE
STATE OF DELAWARE
By: Pecks Management Partners,
Ltd., its Investment Adviser
By:
-----------------------
Robert J. Cresci
Managing Director
TRUST FOR DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
By: Pecks Management Partners,
Ltd., its Investment Adviser
By:
-----------------------
Robert J. Cresci
Managing Director
SPROUT CAPITAL V
By:
---------------------------
Name:
Title:
SPROUT TECHNOLOGY FUND, L.P.
By:
---------------------------
Name:
Title:
DLJ VENTURE CAPITAL FUND II, L.P.
By:
---------------------------
Name:
-2-
<PAGE> 3
Title:
LAWRENCE, TYRRELL, ORTALE & SMITH
By:
---------------------------
Name:
Title:
SIRROM CAPITAL CORPORATION
By:
---------------------------
Name:
Title:
-3-
<PAGE> 1
EXHIBIT 10.22
COINVESTORS AGREEMENT
In order to induce State Employees Retirement Fund of the State of
Delaware and Trust for Defined Benefit Plan of ICI American Holdings Inc.
(collectively, the "Investors") to enter into a Securities Purchase Agreement
(the "Purchase Agreement") dated July 23, 1991 with Educational Medical, Inc.
(the "Company"), the undersigned (collectively, the "Shareholders") and the
Company hereby agree with the Investors, and in order to induce the
Shareholders to consent to certain matters relating to the investment by the
Investors, the Investors and the Company hereby agree with the Shareholders,
all as follows:
1. Capitalized terms used herein and not otherwise defined shall
have the meaning ascribed thereto in the Purchase Agreement. The term
"beneficially own" (or variations thereof) shall have the meaning ascribed
thereto in Rule 13d-3 under the Exchange Act.
2. So long as the Investors collectively hold or beneficially own
(a) $750,000 aggregate principal amount of Notes (the "Minimum Principal
Amount") or (b) if the Minimum Principal Amount is not outstanding, 150,000
shares of Common Stock issued or issuable upon exercise of the Warrants (the
"Warrant Common Stock"), such Investors shall be entitled to select one
representative (the "Representative") on the Company's Board of Directors, and
the Shareholders agree to vote all voting securities of the Company held or
beneficially owned by them in favor of such representative. Such
Representative shall be designated by Investors beneficially owning or holding
a majority of (a) the outstanding aggregate principal amount of the Notes, or
(b) the Warrant Common Stock, if the Minimum Principal Amount is not
outstanding ("Majority Holders"), by written notice given to the Company's
Secretary, which
<PAGE> 2
notice shall be effective until revoked or modified in writing by the Majority
Holders or the provisions of this section are no longer effective because of
the repayment or disposition of the relevant Securities. In connection with
this Section, the Shareholders shall be entitled to rely on any notice given by
Pecks Management Partners Ltd. on account of any Investor.
3. (a) Until the earlier to occur of (x) consummation of an
Initial Public Offering of equity securities of the Company (and expiration of
any lock-up periods imposed by underwriters in connection therewith) or (y) a
Private Parallel Exit Opportunity (as defined below), the Shareholders shall
not sell) contract to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock, or options, rights or warrants to purchase any shares
of Common Stock or any securities convertible into or exchangeable for Common
Stock except (i) by gift, devise or transfer to a custodian, liquidating
trustee or other entity empowered to liquidate, dissolve or wind up any of the
Shareholders ("a Liquidator"), provided the donee or beneficiary thereof or
(except as provided in clause (iv) below) Liquidator agrees to be bound by this
Coinvestors Agreement, (ii) pursuant to repurchase agreements with employees of
the Company which give the Company the right, but not the obligation, to
repurchase Common Stock upon termination of the employees employment with the
Company, (iii) if one Shareholder purchases shares held or beneficially owned
by another Shareholder, provided that such shares in the hands of such
purchasing Shareholder shall continue to be subject to this Section 3(a) or
(iv) in the event of dissolution, liquidation and wind-up of Investech, L.P.
("Investech"), the general partner or Liquidator of Investech may, in its
discretion, (x) distribute the equity securities held by Investech to
Investech's general and limited partners free and clear of the terms and
provisions hereof or (y) sell all equity securities held by Investech to a
third-party buyer who shall be reasonably acceptable to the Company's Board of
Directors and the Representative
<PAGE> 3
individually, provided that any such buyer shall continue to be bound by this
Coinvestors Agreement.
(b) "Private Parallel Exit Opportunity" means a sale or
disposition of Common Stock held or beneficially owned by a Shareholder or
Shareholders in which the Investors are offered the opportunity to sell or
dispose of a Pro Rata Amount (as defined below) of Common Stock held or
beneficially owned by the Investors.
(c) "Pro Rata Amount" shall be determined for each
Investor with respect to a proposed sale or disposition of Common Stock held or
beneficially owned by a Shareholder, by multiplying (i) the aggregate amount of
Common Stock held or beneficially owned and being sold or disposed of by such
Shareholder by (ii) a fraction of which (x) the numerator is the aggregate
amount of Common Stock held or beneficially owned by such Investor and (y) the
denominator is the aggregate amount of Common Stock held or beneficially owned
by all Investors and the Shareholder or Shareholders contemplating making such
sale or disposition. In making such computation, each amount shall be
determined as of the time immediately before such sale or disposition.
4. Shareholders' Put and Distribution of Put Amounts.
(a) (i) The Company agrees that, if and when an
Investor exercises its right to payment under subparagraph 6B(iii) of the
Purchase Agreement, each Shareholder (including, for purposes of this Section
4, the constituent partners of Investech, L.P. or any Liquidator of a
Shareholder or any donee of beneficiary under Section 3 (a) (i) hereof) shall
have, subject to compliance with paragraph (ii) below, the right to require the
Company to purchase from such shareholder all of the following securities, if
held or beneficially owned by such Shareholder at the time of such exercise, at
the following respective prices: (x) shares of Cumulative Convertible
<PAGE> 4
Preferred Stock at $6.66 per share; and (y) shares of Common Stock into which
shares of Cumulative Convertible Preferred Stock have been converted, at the
conversion price paid when such shares of Cumulative Convertible Preferred
Stock were converted. Any such purchase amounts are hereinafter referred to as
"Shareholders Put Amounts." The aggregate Shareholders Put Amounts payable
hereunder to all Shareholders shall not exceed $6,793,200. If, prior to the
payment or distribution of any Shareholders Put Amounts under Section 4(b)
below, any Shareholder sells or otherwise disposes of (A) any shares of
Cumulative Convertible Preferred Stock at a price greater than $6.66 per share
or (B) any shares of Common Stock into which Cumulative Convertible Preferred
Stock has been converted at a price greater than the conversion price paid when
such Cumulative Convertible Preferred Stock was converted, then the aggregate
amounts in excess of such $6.66 price or conversion price shall be credited to
such Shareholder's Put Amount and shall be deemed paid and distributed to such
Shareholder for purposes of this Section 4.
(ii) The Company agrees to give each Shareholder
reasonably prompt notice of an exercise pursuant to subparagraph 6B(iii) of the
Purchase Agreement. Upon receipt of such notice, each Shareholder shall have 5
days to advise the Company in writing of its desire to require a purchase under
the foregoing paragraph (i).
(b) The parties hereto agree that any amounts due and
payable to the Investors pursuant to subparagraph 6B(iii) of the Purchase
Agreement ("Investors Put Amounts") and any Shareholders Put Amounts shall be
paid and distributed by the Company in the following order and priority:
(i) 50% of the Investors Put Amounts shall be
paid and distributed by the Company to the Investors immediately;
<PAGE> 5
(ii) immediately thereafter, all Shareholders Put
Amounts shall be paid and distributed by the Company to the Shareholders; and
(iii) immediately thereafter, the remaining
Investors Put Amounts shall be paid and distributed by the Company to the
Investors.
5. Successors and Assigns. This Agreement shall be binding on
the Investors successors and assigns, and the Investors agree not to sell,
transfer, or assign the Warrants unless the successor or assign specifically
agrees to be bound by the provisions of this Agreement.
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed and delivered, or
caused their authorized officer to execute and deliver, this Coinvestors
Agreement as of July 1991. SPROUT CAPITAL V
SPROUT TECHNOLOGY FUND, L.P.
By: By:
------------------------------- --------------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
------------------------------- ---------------------------------
LAWRENCE, TYRRELL, ORTALE
& SMITH
By:
------------------------------- ------------------------------------
Gary D. Kerber Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
-------------------------------
Name:
Title:
STATE EMPLOYEES' RETIREMENT FUND
OF THE STATE OF DELAWARE
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
--------------------------
Robert J. Cresci
Managing Director
TRUST FOR DEFINED BENEFIT PLAN
OF ICI AMERICAN HOLDINGS, INC.
By: Pecks Management Partners Ltd.,
its Investment Adviser
By:
--------------------------
Robert J. Cresci
Managing Director
<PAGE> 1
EXHIBIT 10.23
Letter Agreement
EXECUTION D
July 23, 1991
Trust for Defined Benefit Plan of
ICI American Holdings Inc.
State Employees' Retirement Fund
of the State of Delaware
c/o Pecks Management Partners Ltd.,
their Investment Adviser
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci,
Managing Director
Educational Medical, Inc.
1050 Cambridge Square
Alpharetta, Georgia 30201
Attention: Gary D. Kerber,
President
Re: Rights of Preferred Stockholders of
Educational Medical, Inc.
Dear Mr. Cresci and Mr. Kerber:
In connection with the Securities Purchase Agreement, dated as of July
23, 1991, among Educational Medical, Inc., a Delaware corporation (the
"Company"), Trust for Defined Benefit Plan of ICI American Holdings Inc. and
State Employees' Retirement Fund of the State of Delaware (the "Securities
Purchase Agreement"), attached to this agreement as Exhibit A, the undersigned
preferred stockholders of the Company (the "Preferred Stockholders"), being all
of the holders of preferred stock of the Company, have agreed to waive or
relinquish, as applicable, certain rights they have pursuant to the Company's
Amended and Restated Certificate of Incorporation (the "Certificate") and the
Stock Purchase Agreement, dated as of March 31, 1988, between the Company and
the Preferred Stockholders (the "1988 Agreement"), in consideration for, among
other things, your purchase of 13% Senior Subordinated Notes due July 23, 1996
(the "Notes") and Warrants to Purchase Common Stock (the "Warrants") pursuant
to the Securities Purchase Agreement. Capitalized terms not otherwise defined
in this letter agreement shall have the respective meanings set forth in the
Certificate.
<PAGE> 2
Trust for Defined Benefit Plan of LETTER AGREEMENT
ICI American Holdings Inc.
State Employees' Retirement Fund EXECUTION D
of the State of Delaware
Educational Medical, Inc.
Page 2
July 23, 1991
1. The Preferred Stockholders hereby agree to the exchange into
common stock, par value $.01 per share, of the Company (the "Common Stock"), as
of the date hereof, of all Accrued Dividends due to the Preferred Stockholders
pursuant to Article Fourth, Section A.1 of the Certificate through July _____,
1991. The exchange rate of the Accrued Dividends shall be one share for each
$5.00 of Accrued Dividend. The number of shares of Common Stock to be issued
by the Company to each Preferred Stockholder upon exchange of the Accrued
Dividends (the "Dividend Shares") is set forth on Exhibit B attached to this
agreement. The Dividend Shares are being issued simultaneously with the
execution of this Agreement, and upon issuance shall be duly issued, fully
paid, nonassessable and shall not be subject to any preemptive rights.
2. Pursuant to Article Fourth, Sections A.3(h) and A.4(h) of the
Certificate as set forth in the Fifth Amendment to the Certificate, the
Preferred Stockholders hereby agree that the provisions of Article Fourth,
Sections A.3 and A.4 of the Certificate regarding mandatory and special
redemption shall be subject to the restrictions set forth in the Securities
Purchase Agreement so long as, and to the extent that, such restrictions in the
Securities Purchase Agreement as in effect on this date remain effective.
Consequently, no redemption payments to which Preferred Stockholders would
otherwise be due pursuant to Article Fourth, Sections A.3 or A.4 of the
Certificate shall be made in violation of such restrictions. This Agreement
constitutes an agreement which makes specific reference to Article Fourth of
the Certificate as referred to in Article Fourth, Sections A.3(h) and A.4(h) of
the Certificate.
3. Each undersigned holder of a warrant to purchase Common Stock,
dated March 31, 1988, hereby waives the provisions regarding adjustment of
number of shares and warrant price, set forth in Section 3 of such warrant,
arising solely out of the issuance of the Warrants, the shares of Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares") the Dividend
Shares, the Warrant for 16,000 shares issued to Equitable Securities
Corporation dated July ____, 1991 (the "Equitable Warrant") and the shares
issuable upon its exercise (the "Equitable Shares"), and the Heidric Warrant
(as defined in Schedule 11C to the Securities Purchase Agreement) and the
shares issuable upon its exercise (the "Heidric Shares").
4. Each undersigned holder of a warrant to purchase Common Stock,
dated November 14, 1989, hereby waives provisions regarding adjustment of
number of shares and warrant price, set forth in Section 3 of such warrant,
arising solely out of the issuance of the Warrants, the Warrant Shares and the
Dividend Shares, or the Equitable Warrant, the Equitable
<PAGE> 3
Trust for Defined Benefit Plan of LETTER AGREEMENT
ICI American Holdings Inc.
State Employees' Retirement Fund EXECUTION D
of the State of Delaware
Educational Medical, Inc.
Page 3
July 23, 1991
Shares, the Heidric Warrant or the Heidric Shares.
5. The Preferred Stockholders hereby (a) waive all preemptive
rights with respect to the issuance of the Warrant, the Warrant Shares and the
Dividend Shares, and the Equitable Warrant, the Equitable Shares, the Heidric
Warrant and the Heidric Shares, pursuant to (x) Section 9.2 of the 1988
Agreement and (y) Section 9 of each Letter Agreement, dated November 14, 1989,
executed in connection with the financing of the acquisition of Meadows College
of Business; (b) consent pursuant to Section 9.3 (ii) of the 1988 Agreement, to
the Fifth Amendment to the Certificate; and
(c) consent to the issuance of the Notes, the Warrants,
the Warrant Shares and the Dividend Shares, Equitable Warrant and the Equitable
Shares, pursuant to Sections 9.3(viii) and (ix) of the 1988 Agreement and
Article Fourth, Sections A.5(c)(iii), (iv) and (v) of the Certificate.
6. Such undersigned Preferred Stockholder receiving Dividend
Shares hereby represents and warrants to the Company, severally, and not
jointly and severally, as follows:
(a) Such Preferred Stockholder is acquiring the Dividend
Shares for its own account, for investment and not with a view to the
distribution thereof, nor with any present intention of distributing the same;
(b) Such Preferred Stockholder understands that the
Dividend Shares have not been, nor will they be, registered under the
Securities Act, by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act and that they must be held
indefinitely unless a subsequent disposition of them is registered under the
Securities Act or is exempt from registration;
(c) Such Preferred Stockholder understands that the
exemption from registration afforded by Rule 144 (the provisions of which are
known to it) promulgated under the Securities Act depends on the satisfaction
of various conditions and that, if applicable, Rule 144 may only afford the
basis for sales under certain circumstances and in limited amounts; and
(d) Such Preferred Stockholder is an "accredited
investor" (as such term is defined in Rule 501 (a) of Regulation D promulgated
under the Securities Act).
<PAGE> 4
Trust for Defined Benefit Plan of LETTER AGREEMENT
ICI American Holdings Inc.
State Employees' Retirement Fund EXECUTION D
of the State of Delaware
Educational Medical, Inc.
Page 4
July 23, 1991
7. Each Preferred Stockholder agrees that the certificates
representing the preferred stock held by such Stockholder will forthwith be
surrendered to the Company and stamped with a legend making reference to this
Letter Agreement and indicating that the shares represented by such certificate
are subject to the terms of this Agreement.
8. This agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute
one and the same instrument.
If the foregoing correctly sets forth your understanding, please so indicate by
signing and returning the enclosed counterpart of this letter agreement.
Very truly yours,
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
BY: BY:
-------------------------- ----------------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II, L.P.
BY: BY:
-------------------------- ----------------------------------
LAWRENCE, TYRRELL, ORTALE
& SMITH
BY:
--------------------------
<PAGE> 5
Trust for Defined Benefit Plan of LETTER AGREEMENT
ICI American Holdings Inc.
State Employees' Retirement Fund EXECUTION D
of the State of Delaware
Educational Medical, Inc.
Page 5
July 23, 1991
The undersigned hereby agrees
to and accepts the foregoing
agreement.
TRUST FOR DEFINED BENEFIT PLAN OF
ICI AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.
its Investment Adviser
By:
---------------------------------------
Robert J. Cresci
Managing Director
STATE EMPLOYEES' RETIREMENT
FUND OF THE STATE OF DELAWARE
By: Pecks Management Partners Ltd.
its Investment Adviser
By:
---------------------------------------
Robert J. Cresci
Managing Director
EDUCATIONAL MEDICAL, INC.
By:
---------------------------------------
Gary D. Kerber, President
<PAGE> 6
Letter Agreement
EXHIBIT "A"
SECURITIES PURCHASE AGREEMENT
<PAGE> 7
Letter Agreement
COINVESTORS AGREEMENT
In order to induce State Employees' Retirement Fund of the State of
Delaware and Trust for Defined Benefit Plan of ICI American Holdings Inc.
(collectively, the "Investors") to enter into a Securities Purchase Agreement
(the 'Purchase Agreement') dated ________ 1993 with Educational Medical,
Inc. (the "Company"), the undersigned (collectively, the "Shareholders") and
the Company hereby agree with the Investors, and in order to induce the
Shareholders to consent to certain matters relating to the investment by the
Investors, the Investors and the Company hereby agree with the Shareholders,
all as follows;
1. Capitalized terms used herein and not otherwise defined shall have
the meaning ascribed thereto in the Purchase Agreement. The term
'beneficially own" (or variations thereof) shall have the meaning ascribed
thereto in Rule 13d-3 under the Exchange Act.
2. So long as the Investors collectively hold or beneficially own (a)
$750,000 aggregate principal amount of Notes (the "Minimum Principal Amount")
or (b) if the Minimum Principal Amount is not outstanding, 150,000 shares
of Common Stock issued or issuable upon exercise of the Warrants (the
"Warrant Common Stock"), such Investors shall be entitled to select one
representative (the "Representative") on the Company's Board of Directors, and
the Shareholders agree to vote all voting securities of the Company held or
beneficially owned by them in favor of such representative. Such
Representative shall be designated by Investors beneficially owning or holding
a majority of (a) the outstanding aggregate principal amount of the Notes, or
(b) the Warrant Common Stock, if the Minimum Principal Amount is not
outstanding ("Majority Holders"), by written notice given to the Company's
Secretary, which notice shall be effective until revoked or modified in
writing by the Majority Holders or the provisions of this section are no
longer effective because of the repayment or disposition of the relevant
Securities. In connection with this Section, the shareholders shall be
entitled to rely on any notice given by Pecks Management Partners Ltd., on
account of any Investor.
3. (a) Until the earlier to occur of (x) consummation of an Initial
Public Offering of
<PAGE> 8
equity securities of the Company (and expiration of any lock-up periods imposed
by underwriters in connection therewith) or (y) a Private Parallel Exit
Opportunity (as defined below), the Shareholders shall not sell, contract to
sell or, otherwise dispose of, directly or indirectly, any shares of
Common Stock, or options, rights or warrants to purchase any shares of
Common Stock or any securities convertible into or exchangeable for Common
Stock except (i) by gift, devise or transfer to a custodian, liquidating
trustee or other entity empowered to liquidate, dissolve or wind up any
of the Shareholders ('a Liquidator"), provided the donee or beneficiary
thereof or (except as provided in clause (iv) below) Liquidator agrees to be
bound by this Coinvestors Agreement, (ii) pursuant to repurchase agreements
with employees of the Company which give the Company the right, but not the
obligation, to repurchase Common Stock upon termination of the employee's
employment with the Company, (iii) if one Shareholder purchases shares held
or beneficially owned by another Shareholder, provided that such shares in the
hands of such purchasing Shareholder shall continue to be subject to this
Section 3(a) or (iv) in the event of dissolution, liquidation and wind-up of
Investech, L.P. ("Investech"), the general partner or Liquidator of Investech
may, in its discretion, (x) distribute the equity securities held by Investech
to Investech's general and limited partners free and clear of the terms and
provisions hereof or (y) sell all equity securities held by Investech to
a third-party buyer who shall be reasonably acceptable to the Company's Board
of Directors and the Representative individually, provided, that any such
buyer shall continue to be bound by this Coinvestors Agreement.
(b) "Private Parallel Exit Opportunity" means a sale or disposition
of Common Stock held or beneficially owned by a Shareholder or Shareholders in
which the Investors are offered the opportunity to sell or dispose of a Pro
Rata Amount (as defined below) of Common Stock held or beneficially owned by
the Investors.
(c) "Pro Rata Amount" shall be determined for each Investor with
respect to a proposed sale or disposition of Common Stock held or beneficially
owned by a Shareholder, by multiplying (i) the aggregate amount of Common
Stock held or beneficially owned and being sold or
<PAGE> 9
disposed of by such Shareholder by (ii) a fraction of which (x) the numerator
is the aggregate amount of Common Stock held or beneficially owned by such
Investor and (y) the denominator is the aggregate amount of Common Stock held
or beneficially owned by all Investors and the Shareholder or Shareholders
contemplating making such sale or disposition. In making such computation,
each amount shall be determined as of the time immediately before such sale or
disposition.
4. Shareholders' Put and Distribution of Put Amounts.
(a) (i) The Company agrees that, if and when an Investor exercises
its right to payment under subparagraph 6B(iii) of the Purchase Agreement,
each Shareholder (including, for purposes of this Section 4, the constituent
partners of Investech, L.P. or any Liquidator of a Shareholder or any donee of
beneficiary under Section 3(a)(i) hereof) shall have, subject to compliance
with paragraph (ii) below, the right to require the Company to purchase from
such Shareholder all of the following securities, if held or beneficially
owned by such Shareholder at the time of such exercise, at the following
respective prices: (x) shares of Cumulative Convertible Preferred Stock at
$6.66 per share; and (y) shares of Common Stock into which shares of
Cumulative Convertible Preferred Stock have been converted, at the conversion
price paid when such shares of Cumulative Convertible Preferred Stock were
converted. Any such purchase amounts are hereinafter refeffed to as
"Shareholders Put Amounts." The aggregate Shareholders Put Amounts payable
hereunder to all Shareholders shall not exceed $6,793,200. If, prior to the
payment or distribution of any Shareholders Put Amounts under Section 4(b)
below, any Shareholder sells or otherwise disposes of (A) any shares of
Cumulative Convertible Preferred Stock at a price greater than $6.66 per share
or (B) any shares of Common Stock into which Cumulative Convertible Prefeffed
Stock has been converted at a price greater than the conversion price paid
when such Cumulative Convertible Prefeffed Stock was converted, then the
aggregate arnounts in excess of such $6.66 price or conversion price shall be
credited to such Shareholder's Shareholders Put Amount and shall be deemed
paid and distributed to such Shareholder for purposes of this Section 4.
(ii) The Company agrees to give each Shareholder reasonably
prompt notice
<PAGE> 10
of an exercise pursuant to subparagraph 6B(iii) of the Purchase Agreement.
Upon receipt of such notice, each Shareholder shall have 5 days to advise the
Company in writing of its desire to require a purchase under the following
paragraph (i).
(b) The parties hereto agree that any amounts due and payable
to the Investors pursuant to subparagraph 6B(iii) of the Purchase Agreement
('Investors Put Amounts") and any Shareholders Put Amounts shall be paid and
distributed by the Company in the following order and priority:
(i) 50% of the Investors Put Amounts shall be paid and
distributed by the Company to the Investors immediately;
(ii) immediately thereafter, all Shareholders Put Amounts
shall be paid and distributed by the Company to the Shareholders;
and
(iii) immediately thereafter, the remaining Investors Put
Amounts shall be paid and distributed by the Company to the Investors.
5. Successors and Assigns. This Agreement shall be binding on the
Investors successors and assigns, and the Investors agree not to sell,
transfer, or assign the Warrants unless the successor or assign specifically
agrees to be bound by the provisions of this Agreement.
<PAGE> 11
6. IN WITNESS WHEREOF, the undersigned have executed and delivered, or
caused their authorized officer to execute and deliver, this Coinvestors
Agreement as of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 12
IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused
their authorized officer to execute and deliver, this Coinvestors Agreement as
of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 13
IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused
their authorized officer to execute and deliver, this Coinvestors Agreement as
of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused
their authorized officer to execute and deliver, this Coinvestors Agreement as
of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have executed and delivered, or caused
their authorized officer to execute and deliver, this Coinvestors Agreement as
of _______, 1993.
SPROUT CAPITAL V SPROUT TECHNOLOGY FUND, L.P.
By: By:
---------------------- ---------------------------
INVESTECH, L.P. DLJ VENTURE CAPITAL FUND II
By: By:
---------------------- ---------------------------
LAWRENCE, TYRELL, ORTALE
& SMITH
By:
---------------------- ------------------------------
Gary D. Kerber
EDUCATIONAL MEDICAL, INC.
By:
----------------------
Name:
Title:
Agreed and Accepted:
<PAGE> 1
EXHIBIT 10.24
BUSINESS LOAN AGREEMENT
Agreement by and between Bank One, Dayton. NA ("Bank One"), located at
Kettering Tower, Dayton, OH 45401, and OIOPT Acquisition Corp., a Delaware
corporation ("Borrower"), located at 2029 Edgefield Rd., Moraine, Ohio.
Borrower has requested that a certain extension of credit be provided by Bank
One, same evidenced by a term loan in the amount of $720,000.00 dated July 14,
1993 and executed by Borrower and guaranteed by Educational Medical, Inc. and
any and all renewals, modifications, extensions or substitutions therefor
("Obligation").
In consideration of the mutual promises set forth below and the extension of
credit as described above and subject to Borrower's satisfactory fulfillment of
all conditions incident to the borrowing, Bank One and Borrower agree as
follows:
ARTICLE 1 - DEFINITIONS
The following terms shall have the following meanings in this Agreement or in
any document made or delivered pursuant to or in conjunction with this
Agreement:
1.1 All computations and determinations as to accounting or financial matters
shall be made in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and all accounting or financial terms shall have
the meanings ascribed to such terms by GAAP.
1.2 "Indebtedness" shall mean:
(a) All indebtedness and liabilities of whatsoever kind, nature and
description owed to Bank One by Borrower, whether direct or indirect, absolute
or contingent, due or to become due or whether now existing or hereafter
arising, and howsoever evidenced or acquired, and whether joint and several;
(b) All future advances which Bank One at any time may, but shall not be
required to, make for the protection or preservation of Bank One's rights and
interests arising hereunder, including, without limitation, advances for taxes,
levies, assessments. insurance, and reasonable attorneys' fees, if allowable
by law; and
(c) All costs and expenses incurred by Bank One in the protection and
preparation for sale of any of its collateral including, without limitation,
attorneys' fees, if allowable by law, and court costs.
1.3 "Obligation" shall mean the above referenced extension of credit
including any Promissory Note, Guaranty, Letter of Credit or other instrument of
Borrower evidencing any loan, advance, credit or extension or renewal thereof
made or committed by Bank One to Borrower under this Agreement.
1.4 "Obligor(s)" shall mean all those parties, excluding Borrower, liable for
the Obligation.
1.5 "Person" shall mean and include an individual, partnership,
corporation, trust, unincorporated association or organization. government or
any department or agency thereof.
1
<PAGE> 2
1.6 "Related Person" shall include, but shall not be confined to, any Person
related to Borrower by common control or ownership.
1.7. "Subordinated Debt" shall mean indebtedness of Borrower which is
subordinated to all Indebtedness of Borrower to Bank One under the terms and
conditions approved in writing by Bank One.
1.8. The aforestated definitions, and all other definitions which may be set
forth herein, shall be applicable to the singular and plurals of said defined
term.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
2.1 It is a duly organized, legally existing corporation in good standing
under the laws of the State of Delaware, is qualified to do business in and is
in good standing under the laws of any other state in which it conducts its
business.
2.2 It has the power and is duly authorized to enter into this Agreement and
to execute and deliver to Bank One, now and from time to time hereafter,
additional instruments, resolutions, agreements and other instruments or
documents relating to the Obligation owed to Bank One. It has, by proper
action, authorized and empowered those persons whose signatures appear in this
Agreement and any instruments, documents and exhibits that have been delivered
in connection herewith, to execute the same for and on its behalf.
2.3 The execution by it of this Agreement or any other agreements,
instruments, or documents which may, from time to time hereafter, be executed in
respect hereto and delivered to Bank One, shall not constitute a breach of any
provisions contained in its articles of incorporation or bylaws, or if
applicable, partnership agreement, or any agreements to which it is now a party,
does not violate any law, statute, or ordinance or rule or regulation
promulgated pursuant thereto, and that the performance by it of its obligations
hereunder or any agreements executed by it and delivered hereunder shall not
constitute an event of default under any other agreement to which it is now a
party.
2.4 All financial statements and information relating to it which have been or
may hereafter be delivered by it, its agents or accountants to Bank One are
true and correct and in the case of Education Medical, Inc. ("Guarantor") have
been prepared in accordance with GAAP and that there have been no material
adverse changes in its financial or business condition or operations since the
submission of any financial information to Bank One, and no material adverse
changes in its financial or business condition or operations are imminent or
threatened.
2.5 All of its Federal, State and other tax returns and reports, including
reports to any governmental authority, for the proper maintenance and operation
of its properties, assets and business, as may be required by law to be filed
or paid, have been filed, and all Federal, State and other taxes, assessments,
fees and other governmental charges (other than those presently payable,
without penalty) imposed upon it or its properties or assets, which are due and
payable, have been fully paid unless being contested by it in the ordinary
course of business and for which it has provided adequate reserves.
2
<PAGE> 3
2.6 There is no litigation or legal or administrative proceedings,
investigations or other action of any nature, pending or, to its knowledge,
threatened against or affecting it, which have not been disclosed to Bank One
and involve the possibility of any judgment or liability not covered by
insurance which may materially or adversely affect any of its properties or
assets or its right to carry on its business as now conducted.
2.7 It has good, valid and marketable title to all of its property and assets
free of any adverse lien, security interest or encumbrance, except liens,
security interests, pledges and encumbrances disclosed to Bank One by Borrower
in writing prior to the date hereof.
2.8 All of the funds loaned to it pursuant to this Agreement have been or will
be used exclusively for the acquisition of real property by the Borrower, and
will not be diverted to or used in any other manner, and will not be used for
the purchasing or carrying of any "Margin Stock" as defined in regulations
promulgated by the Federal Reserve Board or the Securities and Exchange
Commission.
2.9 It possesses and will continue to possess all permits, licenses,
trademarks, patents and rights thereto to conduct its business and that its
business does not conflict or violate any valid rights of others with respect to
the foregoing.
2.10 It is in compliance in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations and published interpretations thereof
("ERISA"). Neither a Reportable Event nor a Prohibited Transaction, as defined
per ERISA, has occurred and is continuing with respect to any Plan, nor has
there been a notice of intent to terminate a Plan or appoint a trustee to
administrate a Plan.
2.11 It is in material compliance with all Federal, State and local laws,
statutes, ordinances, regulations, rulings and interpretations relating to
industrial hygiene, public health or safety, environmental conditions, the
protection of the environment, the release, discharge, emission or disposal to
air, water, land or ground water, the withdrawal or use of ground water or the
use, handling, disposal, treatment, storage or management of or exposure to
Hazardous Materials ("Hazardous Materials Laws"), the violation of which would
have a material effect on its business, its financial condition or its assets.
The tern "Hazardous Materials" means any flammable materials, explosives,
radioactive materials, pollutants, toxic substances, hazardous water, hazardous
materials, hazardous substances, polychlorinated biphenyls, asbestos, urea
formaldehyde, petroleum (including its derivatives, by-products or other
hydrocarbons) or related materials or other controlled, prohibited or regulated
substances or materials, including, without limitation, any substances defined
or listed as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "pollutants" or "toxic substances" under any
Hazardous Materials Laws. It has not received any written or oral communication
or notice from any judicial or governmental entity nor is it aware of any
investigation by any agency for any violation of any Hazardous Materials Law.
2.12 Details of all litigation, legal or administrative proceedings,
investigation or other action of similar nature, pending or threatened against
it, at any time during the tern of this Agreement, which in part or in whole
may or will render any of these Representations and Warranties no longer true,
accurate and correct in each and every respect, will be brought to the attention
of Bank One, in writing, within thirty (30) days from the date Borrower acquires
knowledge of same.
3
<PAGE> 4
ARTICLE III - SECURITY
3.1 As security for the Indebtedness, regardless of whether the principal sum
evidenced by an Obligation is reduced to zero and thereafter increased/decreased
an unlimited number of times, Borrower hereby grants to Bank One or has
previously caused to be granted to Bank One a mortgage on certain real estate
located at 2029 Edgefield Rd., Moraine, Ohio.
3.2 It is further agreed that the security described above shall secure
repayment of all Indebtedness and that a default in the terms of any note,
security agreement, mortgage, or other agreement from Borrower to Bank One shall
constitute a default of all notes, security agreements, mortgages, and other
agreements, and that Bank One may proceed in exercising its rights thereunder in
any order or manner it may choose. The purpose of this section being to
cross-collateralize and cross-default all Indebtedness. Additionally, the
security interest described above, if any, may be modified, added to or deleted
from time to time without modification to this Agreement.
ARTICLE IV - AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as any Indebtedness is outstanding
or so long as this Agreement is in effect, Borrower shall:
4.1 Maintain insurance against fire, business interruption, public liability,
theft and other casualty on its insurable real and personal property to their
full replacement costs with companies acceptable to Bank One and against
liability on account of damage to persons or property and as required under all
applicable Workers' Compensation Laws. Furthermore, Borrower shall maintain any
other insurance as may from time to time be reasonably requested by Bank One,
shall insert a joint loss payee clause naming Bank One in all fire and extended
coverage policies and shall deliver certified copies of all such insurance
policies to Bank One upon demand.
4.2 Maintain, keep, and preserve its buildings and properties and every part
thereof in good repair, working order, and condition and from time to time make
all needful and proper repairs, renewals, replacements, additions, betterments,
and improvements thereto, so that at all times the efficiency thereof shall be
fully preserved and maintained.
4.3 Duly pay and discharge or cause to be paid and discharged all taxes,
assessments, and other governmental charges imposed upon it and its properties
or any part thereof or upon the income or profits therefrom, as well as all
claims for labor, materials, or supplies, which if unpaid might by law become a
lien or charge upon its property, except such items as are being in good faith
appropriately contested and for which it has provided adequate reserves.
4.4 Carry on and conduct its business in substantially the same manner and in
substantially the same fields as such business is now and has heretofore been
carried on, maintain management with the same expertise and experience, and if
management is to be changed, immediately notify Bank One of said change, and
maintain its legal existence, and comply with all valid and applicable statutes,
rules and regulations.
4
<PAGE> 5
4.5 Maintain, keep, and preserve a system of accounting for the Guarantor in
accordance with GAAP, deliver to Bank One financial reports in a form
satisfactory to Bank One as Bank One may request from time to time, permit the
duly authorized representative of Bank One at all reasonable times to examine
and inspect the books and records of it or any related business entity of it,
to make abstracts and copies thereof, and to visit and inspect any of its
property wherever same may be located.
4.6 Comply with all laws and regulations which it is required to comply with
including all Hazardous Materials Laws and regulations, and permit Bank One to
make environmental audits from time to time if requested by Bank One with costs
of same to be borne by Borrower.
ARTICLE V - NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any Indebtedness is outstanding
or so long as this Agreement is in effect, except for that previously disclosed
in writing to and consented to by Bank One, Borrower shall not without prior
written consent of Bank One:
5.1 Create, incur or assume any indebtedness for borrowed money, other than to
Bank One or Bank South (or any replacement lender) and other than that certain
promissory note in the original amount of $200,000.00 dated from Borrower
to K. Terry Guthrie, Richard L. Cretcher, Stephen T.McLain, Gerald D. Guthrie
and Mr. James R. Madden, or act as guarantor for any indebtedness of others.
For the purpose hereof, sale of accounts receivable and (or) entering into
capital leases of personal property shall be deemed the incurring of
indebtedness for borrowed money.
5.2 Mortgage, pledge, assign, hypothecate, encumber, create or grant a
security interest in any of its assets except to Bank One or Bank South (or any
replacement lender), nor sell, lease, transfer, assign or otherwise dispose of
any of its assets, properties or business outside of the ordinary course of
business, except secured purchase money or lease indebtedness up to the amount
permitted by Section 5.1, if any.
5.3 Invest in, loan or advance money to other than to Guarantor or an
affiliate of Borrower or Guarantor, organize or participate in the organization
or in the creation of any other business entity.
5.4 Merge, transfer, acquire or consolidate with or into any other entity,
change ownership, dissolve, and/or transfer or sell any assets outside of the
ordinary course of business without the prior written consent of Bank One.
5.5 Release, redeem, retire, purchase, or otherwise acquire directly or
indirectly any of its capital stock, or make any changes in its capital
structure.
ARTICLE VI - ADDITIONAL COVENANTS
6.1 GUARANTY. Prior to or contemporaneous with the execution of this
Agreement, Borrower shall deliver to Bank One the Guaranty of Educational
Medical, Inc. in form and content acceptable to Bank One which Guaranty shall
provide for liability of the Guarantor for payment of the Indebtedness.
5
<PAGE> 6
6.2 FINANCIAL REPORTS. Borrower covenants in accordance with paragraph 4.5
that it will deliver to Bank One:
(a) Within one hundred twenty (120) days after the end of each fiscal year of
Guarantor, audited financial statements of Guarantor prepared in accordance
with GAAP which shall include a balance sheet, statement of income, statement
of reconciliation of net worth, statement of changes in financial position and
notes to financial statements.
(b) Within one hundred twenty (120) days after the end of each fiscal year of
Borrower, compiled financial statements of Borrower prepared in accordance with
GAAP which shall include a balance sheet, and a statement of income.
(c) Within sixty (60) days after the end of each respective fiscal quarter of
Borrower and Guarantor, direct financial statements of Borrower (prepared in
accordance with its current standards) and Guarantor (prepared in accordance
with GMP) for the period from the beginning of the current fiscal year to the
end of such period. The accuracy of the statements (subject to audit and
year-end adjustments) shall be certified by the chief financial officer or
president of Borrower or Guarantor, as the case may be.
(d) Current letters of accreditation from the Accrediting Commission for Trade
and Technical Schools (ACTTS) of the Career College Association.
6.3 NET WORTH. Guarantor agrees to maintain a Net Worth of not less than TEN
MILLION AND NO/100 DOLLARS ($10,000,000.00) and a ratio of Debt, exclusive of
Subordinated Debt, if any, to Net Worth of not more than 1.0 to 1.0.
"Net Worth" shall be determined in accordance with GAAP and shall be deemed to
include the amount of total assets of Guarantor, exclusive of the principal
amount of all loans or advances to shareholders, directors, executive officers,
of Guarantor or Affiliates of Guarantor, minus the amount of total liabilities
of Guarantor, exclusive of Subordinated Debt, if any.
"Debt" shall be determined in accordance with GAAP and shall be deemed to
include all liabilities of Guarantor including but not limited to accruals,
deferrals, and capitalized leases, less Subordinated Debt, if any.
6.4 BANK DEBT TO CASH FLOW RATIO. Guarantor agrees to maintain a Bank Debt
(defined as the amount outstanding under the Bank South Note, as that term is
defined in Section 7.1(d), below, or any replacement thereof) to Cash Flow
(defined as consolidated Cash Flow (net income plus non cash expenses) for the
most recently completed four (4) fiscal quarter period) Ratio of not greater
than 1.75 to 1.00 at any time.
6.5 CASH ON DEPOSIT. Guarantor must maintain on deposit cash or cash
equivalents in the minimum amount of $500,000.00 as of the end of each fiscal
quarter.
6
<PAGE> 7
6.6 TANGIBLE NET WORTH. Borrower agrees to maintain a Tangible Net Worth of
not less than the amounts set forth for the following periods:
<TABLE>
<CAPTION>
Periods Amounts
<S> <C>
Closing date - 12/30/93 $215,000
12/31/93 - 12/30/94 250,000
12/31/94 - 12/30/95 285,000
12/31/95 - 12/30/96 320,000
12/31/96 - 12/30/97 355,000
12/31/97 and all times thereafter 390,000
</TABLE>
and a ratio of Debt to Tangible Net Worth of not more than the ratios set forth
for the following periods:
<TABLE>
<CAPTION>
Periods Ratios
<S> <C>
Closing date - 12/30/93 6.0 to 1.0
12/31/93 - 12/30/94 5.0 to 1.0
12/31/94 - 12/30/95 4.5 to 1.0
12/31/95 - 12/30/96 4.0 to 1.0
12/31/96 - 12/30/91 3.5 to 1.0
12/31/97 and all times thereafter 3.0 to 1.0
</TABLE>
"Tangible Net Worth" shall be determined in accordance with GAAP and shall be
deemed to include the amount of total assets of Borrower excluding the amount
of Intangible Assets of Borrower minus the amount of total liabilities of
Borrower, exclusive of Subordinated Debt, if any.
"Intangible Assets" shall be determined in accordance with GAAP and be deemed
to include at book value, without limitation, leasehold improvements,
goodwill, patents, copyrights, secret processes, deferred expenses relating to
sales, general administrative, research and development expense, and all
amounts due from any officer, employee, director, shareholder or Related
Person.
"Debt" shall be determined in accordance with GAAP and shall be deemed to
include all liabilities of Borrower including but not limited to accruals,
deferrals, and capitalized leases, less Subordinated Debt, if any.
6.7 OPERATING INCOME RATIO. Borrower agrees to maintain an Operating Income
Ratio (operating income before interest and taxes) divided by debt service
(principal plus interest)) of not less than 1.5 to 1.0, tested each fiscal
quarter for the most recently completed four (4) fiscal quarter period.
6.8 COHORT DEFAULT RATE. Borrower agrees that its Cohort Default Rate as
published by the United States Department of Education shall not exceed 25%
for any two consecutive years.
6.9 DEPOSIT ACCOUNTS. Borrower shall establish and maintain its principal
deposit accounts at Bank One as long as any Indebtedness remains outstanding or
so long as this Agreement remains in effect.
7
<PAGE> 8
6.10 MODIFICATION AND DELETION OF FINANCIAL COVENANTS. In the event Bank
South, NA modifies the financial covenants with respect to the Guarantor set
forth in the loan agreement (the "Bank South Loan Agreement") relating to the
Bank South Note, as hereinafter defined, the parties will amend Section 6.3,
6.4 and 6.5 to conform the financial covenants set forth in such Sections to
the corresponding financial covenants set forth in the Bank South Loan
Agreement. In the event Borrower delivers to Bank One an appraisal of the
real estate described in Section 3.1, in form and substance and from an
appraiser in all respects satisfactory to Bank One, which shows the value of
such property exceeds two (2) times the outstanding principal balances of the
$720,000.00 promissory note dated July 14, 1993 from Borrower to Bank One, Bank
One will delete the financial covenants set forth in Sections 6.3 through 6.7.
8
<PAGE> 9
ARTICLE VII - DEFAULT AND REMEDIES
7.1 Borrower shall be in default hereunder upon the happening of any of the
following ("Event of Default"):
(a) The occurrence of an event of default under the terms of any Obligation,
security agreement, mortgage and other agreement executed in connection
therewith or herewith, including any renewal, extension or modification thereof
or hereof or in any other obligation or agreement with Bank One, whether now or
hereafter existing;
(b) Non-performance of any covenant, warranty or liability contained or
referred to herein;
(c) If any warranty, representation or statement made or furnished to Bank One
or by or on behalf of Borrower or any Obligor, in connection with this
Agreement, or to induce Bank One to make a loan to Borrower, proves to have
been false in any material respect when made or furnished; or
(d) The occurrence of any event of default under that certain Promissory Note
dated April 16, 1993 from Education Medical, Inc., Palo Vista College of
Nursing and Allied Health Sciences, Inc., Maric Learning Systems, Andon
Colleges. Inc., Dest Education Corporation, Meadows Acquisition Corp.,
Scottsdale Educational Center for Allied Health Careers, Incorporated, MTSX
Acquisition Corp. and DBS Acquisition Corp. to Bank South, N.A. in the original
principal amount of $2,000,000.00 (the "Bank South Note"), and any loan
agreement, security agreement, mortgage or other agreement executed in
connection therewith, including any renewal, extension or modification thereof.
7.2 Upon the occurrence of an Event of Default, Bank One may, at its option,
declare principal and accrued interest of all Indebtedness to be immediately
due and payable forthwith, without presentation, demand, protest or notice of
any kind, all of which are hereby expressly waived. Bank One shall have all
the rights and remedies of a Secured Party under the Uniform Commercial Code,
as enacted in the state where Bank One's principal office is located, said
rights and remedies being cumulative in nature. Bank One may set off any of
the Borrower's deposits or accounts, and any other indebtedness of Bank One to
Borrower against the Indebtedness before or after an Event of Default, without
first looking to any property securing payment thereof.
7.3 Acceptance of payment, in full or part, or waiver of any Event of Default
shall not operate as a waiver of any current or later Event of Default, nor of
any other right of Bank One.
7.4 The provisions of this Agreement concerning any Event of Default are not
intended in any way to affect any rights of Bank One with respect to any
Indebtedness of Borrower to Bank One which may or hereafter be payable on
demand.
7.5 No delay or failure of Bank One in exercising any right, power, remedy or
privilege hereunder shall affect such right, power or privilege or be construed
as a waiver against Bank One.
9
<PAGE> 10
7.6 Any waiver, permit, consent or approval by Bank One of any breach or
default hereunder must be in writing and shall be effective only to the extent
set forth in such writing.
ARTICLE VIII - MISCELLANEOUS
8.1 Borrower and Bank One acknowledge and agree that the financial covenants
set forth in Article VI and the other terms and conditions contained in this
Agreement were arrived at based on accounting rules, methods and principles,
federal and state tax laws, rules and regulations, and other government or
government agency laws, rules and regulations (together, "Rules") in effect
and adopted by Borrower as of the date of this Agreement. If, at any time
during which this Agreement is in effect, a change occurs or is instituted with
respect to any of the Rules or the application or interpretation thereof, a new
Rule is instituted, or a new or previously enacted Rule is adopted by Borrower,
the result of which materially affects, directly or indirectly, beneficially or
detrimentally, the financial position of Borrower, the calculation of any one
or more of the financial covenants, or any other term or condition of this
Agreement, Bank One and Borrower agree that some or all of the financial
covenants or other terms and conditions of this Agreement shall be amended in
whole or in part at the sole discretion of Bank One. In the event Borrower
fails or refuses to execute a written amendment to this Agreement evidencing
its consent to and agreement with amendments acceptable to Bank One to such
financial covenants and/or other terms and conditions of this Agreement
promptly upon request by Bank One, such failure or refusal shall constitute a
default hereunder and under each of the Obligations, and Bank One shall
thereupon be entitled to exercise any or all of its rights and remedies
hereunder or thereunder.
8.2 All notices required to be given under any tern of this Agreement shall be
sufficient if mailed, via registered or certified mail, return receipt
requested, or sent via overnight or hand courier, to the parties at their
respective addresses as previously set forth.
8.3 All documents referred to in this Agreement shall for all purposes be
considered a part of this Agreement, and all terms used in this Agreement shall
have the meaning set forth in said documents, and this Agreement shall include
all of the provisions stated in said documents.
8.4 This Agreement is a continuing agreement and shall continue in effect
notwithstanding that from time to time. no Indebtedness may exist. This
Agreement shall continue as to any Indebtedness and as to any and all renewals,
extensions or modifications thereof.
8.5 This Agreement may be executed in several counter-parts, each of which
shall be an original and all of which shall constitute the same instrument.
8.6 This Agreement, together with all other documents executed concurrently
herewith or attached hereto, constitutes the full and complete Agreement of the
parties and may not be modified except by written instrument signed by all
parties hereto.
8.7 This Agreement shall be binding upon and inure to the benefit of Borrower
and Bank One and their respective successors and assigns.
10
<PAGE> 11
8.8 Borrower agrees to pay on demand all costS and expenses in
connection with the negotiation, preparation, execution, delivery,
filing. recording, administration, enforcement, litigation, collection, or
filing of any legal action on or for any Obligation, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for Bank
One, with respect thereto. Time is of the essence of all requirements of
Borrower hereunder. The obligations of Borrower under this paragraph shall
survive payment of any Obligation.
8.9 This Agreement shall be governed and construed in accordance with the laws
of the state where Bank One's principal office is located.
8.10 Any provision contained in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
8.11 Borrower shall fully and promptly pay, perform, discharge, defend,
indemnify and hold harmless Bank One from any and all claims, orders, demands,
causes of action, proceedings, judgments, or suits and all liabilities, losses,
costs or expenses (including, without limitation, technical consultant fees,
court costs, expenses paid to third parties and reasonable legal fees) and
damages arising out of, or as a result of (i) any release, discharge, deposit,
dump, spill, leak or placement of any Hazardous Material into or on any
collateral or property owned, leased, rented or used by Borrower (the
"property") at any time; (ii) any contamination of the soil or ground water of
the Property or damage to the environment and natural resources of the Property
or the result of actions whether arising under any Hazardous Material Law, or
common law; or (iii) any toxic, explosive or otherwise dangerous Material which
have been buried beneath or concealed within the Property. This indemnity
shall survive termination of this Agreement.
8.12 This Agreement contains the entire agreement of the parties and supersedes
all prior agreements and understandings, oral or written, with respect to the
subject matter hereof. Executed this day of July, 1993.
OIOPT Acquisition Corp., as Borrower
By:
-----------------------------------
Its:
----------------------------------
EDUCATIONAL MEDICAL, INC., as Guarantor
By:
------------------------------------
Its:
-----------------------------------
Bank One, Dayton, NA
By:
------------------------------------
Its:
-----------------------------------
11
<PAGE> 1
EXHIBIT 10.25
Business Purpose
Promissory Note
Date: July 14, 1993 Amount: $720,000.00
Executed at Dayton, Ohio
For value received, receipt of which is hereby acknowledged, the undersigned
promises to pay to the order of Bank One, Dayton, NA ("Bank One") at its
principal office located at Kettering Tower, Dayton, Ohio 45401 or at such
other place as Bank One may designate from time to time, in lawful money of the
United States of America, the principal sum of SEVEN HUNDRED TWENTY THOUSAND
AND NO/100 DOLLARS ($720,000.00) or such lesser portion thereof as may have
from time to time been disbursed to, or for the benefit of the undersigned, and
remaining unpaid pursuant to the books or records of Bank One, together with
interest on the unpaid balance of principal advanced from the date(s) of
disbursement until paid in full as set forth below. Principal sum(s)
disbursed and repaid will not be available for redisbursement.
Rate of Interest and Its Calculation
Beginning on the Date of this Note, the outstanding principal sum shall bear
interest at an interest rate per annum equal to three percent (3.00%) plus the
Five Year Index (as hereinafter defined), the sum of which as of the Date of
this Note is 8.0%.
On each five (5) year anniversary of the Date of this Note (an "Adjustment
Date") the interest rate payable shall be changed to an interest rate per annum
equal to three percent (3.00%) plus the Five Year Index in effect on the
Adjustment Date.
The Five Year Index equals the weekly average yield on United States Treasury
Securities adjusted to a constant maturity of five (5) years and is available
in Federal Reserve Board Statistical Release H.15(519). The Five Year Index
shall be the most recently available as of the Adjustment Date.
If the Five Year Index is no longer published or otherwise made available by
the Federal Reserve Board, Bank One shall choose an alternative interest rate
index which is based on comparable information. Bank One shall promptly
notify the undersigned in writing of such alternative interest rate index.
Interest shall be calculated on a 360 day year basis and shall be calculated by
dividing the actual number of days which elapsed during the period interest
accrued by a year of 360 days times the interest rate in effect.
After this Note becomes due and payable, whether at maturity, by acceleration
or otherwise, the interest rate on the outstanding principal sum and accrued
interest will be the rate stated above plus five percent (5%) per annum.
Time and Method of Payment
Commencing on September 1, 1993, and on the first day of each calendar month
thereafter until and including the first Adjustment Date, the monthly payments
shall be in an amount equal to the amount necessary to amortize the outstanding
principal
<PAGE> 2
sum and accrued interest thereon at the initial interest rate in 180 equal
monthly instalments of principal and interest. Commencing with the payment of
principal and interest due on the first day of the month next succeeding each
Adjustment Date, the monthly payment shall be adjusted to an amount equal to
the amount necessary to amortize the then outstanding principal sum and accrued
interest thereon at the adjusted interest rate in equal monthly instalments of
principal and interest over a period of months equal to 180 months less the
number of months which have expired since the date of this Note.
Notwithstanding anything in the foregoing to the contrary, the outstanding
principal sum of this Note, together with all accrued and unpaid interest under
this Note, shall be due and payable on August 1, 2000 (the "Maturity Date").
Bank One shall have the right to assess a late payment processing fee in the
amount of the greater of $50.00 or four percent (4%) of the scheduled payment
in the event of a default in payment that remains uncured for a period of at
least ten (10) days.
Additional Terms and Conditions of Promissory Note
1. This Note is issued in conjunction with a Business Loan Agreement dated
July 14, 1993, to which reference is made, and is supported by other security
documents.
2. In the event of a default under this Note as hereinafter defined, Bank One
shall have the right, to the extent permitted by law, to setoff against all
credits, deposits, accounts, securities or moneys of the undersigned
("Obligor") now or hereafter in the possession or control of Bank One at any
time without prior notice to Obligor. All other property or rights belonging
to or in which Obligor has any interest, now or hereafter pledged or
hypothecated to Bank One ("Collateral") shall be held by Bank One as security
for the payment of the Note, and of every other liability now or hereafter
existing of Obligor, absolute or contingent, due or to become due, and in
whatsoever manner acquired by or accruing to Bank One ("Obligations").
3. At the option of Bank One, all Obligations shall become immediately due and
payable without prior notice or demand upon the occurrence of any of the
following events of default: (a) failure of Obligor to make payment when due
of the principal or interest of this Note and/or any of the Obligations; (b)
failure of Obligor to furnish satisfactory collateral or additional collateral,
as the case may be, as hereinafter agreed; (c) failure of Obligor to comply
with any of the terms and conditions of this Note and/or any of the Obligations
contained in any security agreement or instrument securing this Note and/or any
of the Obligations; (d) death of Obligor; (e) dissolution of, termination of
existence of, insolvency of, business failure of, appointment of a receiver
for, or assignment for the benefit of creditors or a commencement of any
proceeding under any bankruptcy, reorganization, arrangement or liquidation law
by or against Obligor or any property of Obligor; (f) failure of Obligor to pay
when due any premium on any policy of life or other insurance pledged
hereunder, or held in connection with any Collateral; (g) Bank One deeming
itself insecure and in good faith believing that the prospect of payment or
performance is impaired; (h) the institution of any garnishment proceedings by
attachment, levy or otherwise against any deposit balance or Collateral
maintained or deposited with Bank One by Obligor; (i) failure of Obligor to
either furnish Bank One within thirty (30) days after written request by Bank
One, current financial statements, including income tax returns, in form
satisfactory to Bank One or to permit inspection of any of Obligor's books or
records; (j) any representation, warranty, statement, report, or application
made, or furnished, by Obligor proving
<PAGE> 3
to have been false, erroneous or misleading in any material respect at the time
of the making thereof; (k) the issuance of any tax levy or lien against Obligor
or Obligor's failure to pay, withhold, collect or remit any tax when assessed
or due; (l) sale or transfer of Collateral out of Obligor's ordinary course of
business; (m) a bulk sale of Obligor's assets; (n) suspension or liquidation
of Obligor's business; or the occurrence of an event of default under that
certain Business Loan Agreement between the undersigned and. Bank One of even
date herewith.
4. No delay or omission on the part of Bank One in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note. A waiver on any one occasion shall not be construed as a bar to or
waiver of any such right and/or remedy on any future occasion.
5. Obligor waives presentment, demand, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default
or enforcement of this Note; and assents to any extension or postponement of
the time of payment, modification or waiver of any payment amount or any other
indulgence, and/or to the addition or release of any other party or person
liable hereon or of any Collateral herefor.
6. This Note shall be governed by and construed in accordance with the laws of
the State of Ohio in all respects.
7. Obligor will pay on demand all costs of collection and attorneys' fees
incurred or paid by Bank One in enforcing this Note when the same has become
due, whether by acceleration or otherwise, if allowable by law.
8. Bank One shall have the right to charge interest on the amount of any
interest payment not paid as provided in this Note at the same rate as
applicable to the principal sum.
9. Payments shall be allocated between principal, interest and fees, if any,
in the discretion of Bank One, and, when applicable, any prepayments will be
applied to principal in the inverse order of scheduled maturity. Any
prepayments shall be in minimum increments of $5,000.00 and shall be accompanied
by prepayment premiums in the amount of (a) five percent (5%) of the outstanding
principal balance of this Note immediately prior to such prepayment if made in
the first twelve (12) months of the term of this Note, (b) three percent (3%) of
the outstanding principal balance of this Note immediately prior to such
prepayment if made in the second twelve (12) months of the term of this Note, or
(c) two percent (2%) of the outstanding principal balance of this Note
immediately prior to such prepayment if made in the third twelve (12) months of
the term of this Note.
10. All rights, powers, privileges and immunities herein granted to Bank One
shall extend to its successors and assigns and any other legal holder of this
Note. All rights, powers, privileges and immunities of Obligor hereunder may
not in any way be assigned, transferred or sold. Bank One at any time is
authorized to correct patent errors and fill in any blanks herein.
11. Obligor acknowledges that this Note evidences a loan made primarily for
business, commercial or agricultural purposes and not primarily for personal,
family or household purposes.
<PAGE> 4
12. When any Obligation becomes due, whether by acceleration or otherwise, and
at any time thereafter, Bank One shall have all of the remedies provided in the
fixture filing security documents including the remedies of a secured party
under the Uniform Commercial Code. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Bank One will give the Obligor reasonable notice of the time
and place of any public sale thereof or of the time after which any private
sale or other intended disposition is to be made. The requirement of
reasonable notice shall be met if such notice is mailed, postage prepaid, to
the last known address of the Obligor at least ten (10) days before the time of
the sale or disposition.
13. When any Obligation becomes due, whether by acceleration or otherwise, and
at any time thereafter, Bank One is empowered to collect, sell, assign,
transfer, set over and deliver the whole or any part of any Collateral through
any stock exchange, broker or agent or at any public or private sale, either
for cash or credit or for future delivery, without assumption of credit risk,
and at any such sale Bank One may become the purchaser of any part of the
Collateral discharged from right of redemption. Upon any such sale, after
deducting all costs and expenses of every kind related to retaking, storing and
selling the Collateral, the residue of the proceeds thereof may be applied as
Bank One may determine toward the payment of any or all of the Obligations,
whether due or not, returning the overage, if any, to Obligor and Obligor shall
be and remain liable to Bank One for every and any deficiency after application
of such proceeds.
14. Right is expressly granted to Bank One at its option to transfer at any
time to itself or to its nominee any securities pledged hereunder, to receive
and retain the income thereon, all splits, substitutions and divisions, and
hold the same as security herefor, or apply it on the principal or interest
which has become due on any Obligation, whether by acceleration or otherwise,
and, in the case of voting shares or interests pledged, to vote the same when
Bank One deems the exercise of such power necessary to maintain or protect such
Collateral.
15. When any Obligation becomes due, whether by acceleration or otherwise, and
at any time thereafter, Bank One may, at its option, demand, sue for, collect,
or make any compromise or settlement it deems desirable with reference to the
Collateral. Bank One shall not be bound to take any steps necessary to
preserve any rights in the Collateral against prior parties, inasmuch as
Obligor agrees to assume such responsibility. Bank One shall have no duty
with respect to collection or protection of the Collateral or of any income
on the Collateral as to the preservation of any rights pertaining to the
Collateral beyond safe custody.
16. Obligor will deliver to Bank One satisfactory collateral or
additional collateral, as the case may be, should Bank One so require.
17. Obligor agrees that Bank One may take possession of any Collateral without
prior judicial hearing or process, hereby expressly waives any right to such
judicial hearing or process, and hereby assents to any substitution, exchange
or release of Collateral.
18. When any Obligation becomes due, by acceleration or otherwise, Bank One
shall have the right, without notice to Obligor, any party claiming under
Obligor, or any other party, such notice being hereby expressly waived, and
without regard to the adequacy of value of the Collateral or the solvency or
insolvency of Obligor, to the
<PAGE> 5
appointment of a receiver by a court of competent jurisdiction chosen solely by
Bank One, upon application at any time, whether prior to or after a judgment
has been obtained against Obligor, to take possession of the assets and/or
business of Obligor together with its books and records, to maintain or to
liquidate said assets and/or business, to collect the proceeds of the
Collateral and apply the net proceeds to any Obligation. Obligor consents to
jurisdiction and venue for the appointment of such receiver by such court and
agrees that any receiver so appointed may take possession of the assets and/or
business of the Obligor, together with the Collateral in any other jurisdiction
in which the Collateral may be located.
19. Obligor authorizes Bank One to exchange Bank One deposit, credit and
borrowing information about Obligor with third parties.
20. Obligor jointly and severally hereby authorizes any attorney at law to
appear in an action on this Note at any time after the same becomes due.
whether by acceleration or otherwise, in any court of record in or of the State
of Ohio, or of elsewhere, and to waive the issuing and service of process
against any or all of said parties, enter an appearance and to confess judgment
in favor of Bank One against any or all of said parties for the amount that may
be due, together with costs of suit, and to release all errors and waive all
rights of appeal and stay of execution from the judgment rendered. After the
judgment entered against one or more of said parties, the powers herein
conferred may be exercised as to one or more of the others. The death of
Obligor shall not impair the authority herein granted as to the survivor or
survivors of Obligor.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
OIOPT ACQUISITION CORP.
By:
---------------------------
Its:
---------------------------
<PAGE> 1
EXHIBIT 10.26
OHIO OPEN END MORTGAGE
[BANK ONE LOGO] AMOUNT $720,000.00
---------------
The undersigned, OIOPT Acquisition Corp. ("Mortgagor"), for the
following purposes and in consideration of --Seven Hundred Twenty Thousand and
00/100-------Dollars ($720,000.00) paid by BANK ONE, Dayton, NA, having an
office at Kettering Tower Dayton, Ohio 45401 ("Mortgagee") does grant and
convey unto Mortgagee, its successors and assigns, all right, title and interest
Mortgagor now has or hereafter may have in and to all the premises located in
Moraine, Montgomery County, Ohio more specifically described in Exhibit A
attached hereto and made a part hereof, including such real property, all
buildings now or hereafter attached to or used in connection therewith, all
hereditaments privileges and appurtenances thereunto belonging, all fixtures
and articles annexed thereto as permanent accessions now or hereafter used in
connection therewith, and all leases, rents, issues and profits which may
arise therefrom, be the same more or less, but subject to all legal highways
("Mortgaged Property").
1. USE AND PURPOSE. To have and to hold the Mortgaged Property to
Mortgagee, its successors and assigns, for the use and purpose of
securing the following (collectively "Indebtedness" or "Obligations"):
(a) DEBT SECURED. Payment of the Indebtedness evidenced by the
following instruments, including any amendments, extensions or
renewals thereof in the aggregate sum of the consideration
expressed above with interest, and the performance and
observance of each term thereof by the parties obligated thereon
and any guarantor thereof (singularly and collectively
"Obligor"):
<TABLE>
<S> <C> <C> <C>
(i) Promissory Note $720,00.00 OIOPT Acquisition Corp.
-------------------- ----------- ------------- -------------------------
Instrument Amount Date Obligor
Educational Medical, Inc.
------------------------- ------------------------ ---------------------
Guarantor Obligor Obligor
</TABLE>
(b) ADVANCES FOR TAXES, INSURANCE, ETC. Upon request of Mortgagee,
Mortgagor also hereby agrees to pay to Mortgagee monthly a sum
equal to 1/12 of the annual taxes, assessments and reassessments
levied against the Mortgaged Property and of the annual
premium of insurance insuring the Mortgaged Property as
estimated or computed in each instance by Mortgagee, which
payments Mortgagee is hereby authorized to accumulate and
commingle with other funds of Mortgagee without any obligation
to pay interest thereon and use for the payment of taxes,
assessments, reassessments and insurance premiums, as they
become due and payable, provided the amount deposited with
Mortgagee for such purposes including any amount of additional
deposit requested by Mortgagee is sufficient with which to pay
the same. In addition to the right herein granted and in
addition to the Indebtedness and Obligations secured hereby,
this Mortgage will also secure unpaid balances of advances made
by Mortgagee with respect to the Mortgaged Property for the
payment of taxes, assessments, insurance premiums or costs
incurred for the protection of the Mortgaged Property;
(c) OTHER ADVANCES. Payment by Mortgagor to Mortgagee of all sums
expended or advanced by Mortgagee pursuant to any term or
provision of this Mortgage;
(d) PERFORMANCE. Performance and observance of each covenant and
agreement herein, in the Indebtedness and Obligations secured
and in any other agreement relating to such, as construction
loan agreements and contracts;
(e) FUTURE ADVANCES. Unpaid balances of loan advances made after
this Mortgage will be delivered to the recorder for recording to
the extent that the total unpaid indebtedness, exclusive of
interest thereon, does not exceed the consideration set forth
above which will be the maximum amount of indebtedness that may
be outstanding at any time; and
(f) OTHER DEBTS. Payment by Mortgagor to Mortgagee of all other
liabilities and indebtedness, direct or contingent, now or
hereafter owing by Mortgagor to Mortgagee.
2. COVENANTS OF MORTGAGOR. Mortgagor covenants and agrees with Mortgagee
as follows:
(a) TITLE AN USE. At the time hereof Mortgagor is well seized of
the Mortgaged Property, has title with a good and indefeasible
estate in fee simple and has good right to bargain, sell
convey, and encumber as set forth herein; that Mortgagor will
warrant and defend title to the Mortgaged Property forever
against the claims and demands of all persons whomsoever, that
the Mortgaged Property is free and clear of all easements,
reservations, conditions, restrictions and encumbrances
whatsoever, except liens for taxes and assessments not yet due
and payable, building and use restrictions of record, zoning
ordinances, if any, and the exceptions which may be set forth
on Exhibit B attached hereto and made a part hereof;, that to
the best of Mortgagor's knowledge the Mortgaged Property while
held by Mortgagor or any previous owner has not been used
<PAGE> 2
contrary to law to use, generate, store or dispose of
materials such as toxic waste or hazardous substances commonly
identified by governmental regulations as hazardous including
but not limited to flammable, explosive, corrosive, reactive,
radioactive or otherwise hazardous to human use of the
Mortgaged Property ("Hazardous Materials") and there has been
no seepage, spills, release or discharge of Hazardous
Materials on the Mortgaged Property at any time.
(b) INSURANCE. Mortgagor will keep all buildings and other
insurable property now or hereafter erected or placed in or on
the Mortgaged Property insured against loss or damage by fire,
flood, builder's risk, the several hazards comprehended from
time to time within all risk, extended coverage terms, including
boiler and pressure vessel hazards, if applicable, war damage,
when available, and such other hazards, casualties and
contingencies, in such amounts at replacement costs, and for
such periods as may be required by Mortgagee and at no time will
the amount of fire and extended coverage be less than the
full insurable value of the Mortgaged Property. Further
Mortgagor will maintain comprehensive public liability insurance
for injuries to persons, including death, and property damage or
loss of use in amounts acceptable to Mortgagee. All such
insurance will be carried in companies approved by Mortgagee and
will include a provision satisfactory to it making loss payable
to Mortgagee or naming Mortgagee as an insured as its interest
may appear. Mortgagor will promptly pay when due all insurance
premiums and upon request of Mortgagee will promptly deliver the
policies, certificates of insurance or any renewal thereof to
Mortgagee. Should any loss occur to the the Mortgaged Property,
Mortgagor will promptly give written notice to Mortgagee of such
loss or damage and will not adjust or settle such loss without
the written consent of Mortgagee, and Mortgagee is hereby
appointed attorney-in-fact for Mortgagor to make proof of loss
or damage if Mortgagor fails to do so promptly, to receive any
sums collected under said policies, which sums or any part
thereof at the option of Mortgagee may be applied as payment for
the indebtedness or to the restoration or repair of the
Mortgaged Property so destroyed or damaged, and, in the event
any insurance losses are paid by check, draft or other
instrument payable to Mortgagor, Mortgagee may endorse
Mortgagor's name thereon and take such further steps in behalf
of Mortgagor as are necessary to realize on such instrument.
Application of insurance proceeds to payment indebtedness will
not extend, postpone, or waive installments otherwise due, or
change the amount of payments to be made, and proceeds may be
applied in such order and in such amounts as Mortgagee may
elect. In the event of foreclosure of this Mortgage, all
right, title and interest of Mortgagor in and to any insurance
policies then in force will pass to Mortgagee who is hereby
appointed attorney-in-fact for Mortgagor to assign and
transfer such policies.
(c) MAINTENANCE. Mortgagor will at all times maintain the Mortgaged
Property in good and substantial repair, free from waste or
nuisance of any kind; will make all repairs, replacements,
improvements and additions which may be necessary to preserve
and maintain the Mortgaged Property; will permit the Mortgagee,
its agents or representatives, to inspect the same at any
reasonable time; will comply with any reasonable requirements
made by Mortgagee with respect to maintaining and preserving the
Mortgaged Property; has an will comply with all laws,
ordinances and regulations affecting the Mortgaged Property or
its use and will not use, generate, store or dispose of
Hazardous Materials in, on, under or around the Mortgaged
Property or permit anyone to use the Mortgaged Property for
such purposes and will not permit to occur any seepage, spill,
release or discharge of Hazardous Materials on or onto the
Mortgaged Property at any time, and will indemnify Mortgagee
for any loss arising out of the presence of Hazardous
Materials in any way on the Mortgaged Property and any
violation of federal, state or local environmental laws or
regulations, such as clean up costs, personal injury or death,
restoration, and remedial actions; will not alter, destroy or
remove any of the Mortgaged Property or permit the Mortgaged
Property to be altered, destroyed or removed or used for any
purpose other than that for which it is not used or permit the
Mortgaged Property to be altered, destroyed or removed or used
for any purpose other than that for which it is now used or
permit any easement thereon without first obtaining
Mortgagee's written permission; will complete in good
workmanlike manner any building or improvement
BANK ONE is an affiliate of BANK ONE CORPORATION,
Columbus, Ohio
-BANK ONE CORPORATION 1991
<PAGE> 3
which is being or may be constructed or repaired thereon: will
pay when due all claims for labor performed and material
furnished and will not permit any lien of mechanics or
materialmen nor any judgment lien to attach to the
Mortgaged Property. Mortgagor hereby authorizes and empowers
Mortgagee at its option to do all things authorized or
required to be done by Mortgagee under any present or future
law of the State of Ohio relating to improvement of or payment
of encumbrances on the Mortgaged Property or to the granting
of liens for work, labor, material or machinery in connection
with the construction of any building or other improvement on
the Mortgaged Property in protection of Mortgagee's interest
therein and Mortgagee will be subrogated to the claims of
any party paid with the proceeds.
(d) CONSTRUCTION. If any building or other improvements of the
Mortgaged Property are to be constructed or are under
construction and are not completed, Mortgagee will have the
right, upon the happening of any event of default, to enter into
possession of the Mortgaged Property and perform any and all
work and labor necessary to complete improvements substantially
in accordance with the plans and specifications therefor and
employ watchmen to protect the Mortgaged Property; all sums
expended by Mortgagee for such purposes will be deemed to have
been paid to Mortgagor and secured by this Mortgage. For this
purpose, Mortgagor hereby constitutes and appoints Mortgagee its
true and lawful attorney-in-fact with full power of substitution
to complete to the construction in the name of Mortgagor, and
hereby empowers said attorney or attorneys to use any funds of
Mortgagor including any balance which may be held in escrow and
any funds which may remain unadvanced hereunder for the purpose
of completing construction in the manner called for by the plans
and specifications; to make such additions and changes and
corrections in the plans and specifications which will be
necessary or desirable to complete construction as Mortgagee
deems necessary in its sole judgment and in substantially the
manner contemplated by the plans and specifications; to employ
such contractors, subcontractors, agents, architects and
inspectors as will be required for said purposes; to enforce or
otherwise without limitation deal with any bonding or insurance
company under any policy required hereunder as Mortgagor might
do in its own behalf; to pay, settle or compromise all existing
bills and claims which are or may be liens against the Mortgaged
Property, or which may be necessary or desirable for the timely
completion of construction or the removal of liens and
encumbrances; to execute all applications and certificates in
the name of Mortgagor which may be required by any construction
contract to do any and every act with respect to construction
which Mortgagor may do in its own behalf; and to prosecute and
defend all actions or proceedings in connection with
improvements on the Mortgaged Property and to take such action
and require such performance as Mortgagee deems necessary. This
power of attorney will be deemed to be a power coupled with an
interest which cannot be revoked. Said attorney-in-fact will
also have power to prosecute and defend all actions or
proceedings in connection with the construction of improvements
on the Property and to take such action and require such
performance as is deemed necessary.
Mortgagee will not be liable for any loss sustained by Mortgagor
resulting from Mortgagee's failure to enforce the power of
attorney granted herein or from any other act or omission of
Mortgagee in managing the Mortgaged Property. Nor will
Mortgagee be obligated to perform or discharge nor does
Mortgagee hereby undertake to perform or discharge any
obligation, duty or liability with respect to improvements and
Mortgagor will indemnify Mortgagee for, and hold Mortgagee
harmless from, any and all liability, loss or damage which may
or might be incurred in the exercise or failure to exercise any
of the rights granted to Mortgagee under this section or by
reason of any assignment to Mortgagee of the construction
contract, architectural agreements, plans and specifications and
other contract rights with respect to the Mortgaged Property.
Should Mortgagee incur any such liability or in defense of any
claims or demands relating thereto, the amount thereof,
including costs, expenses and reasonable attorney's fees, will
be secured hereby and Mortgagor will reimburse Mortgagee
therefore immediately upon demand. It is further understood
that this section will not operate to place responsibility upon
Mortgagee for the control, care, management or repair of the
Mortgaged Property or for the carrying out construction; nor
will it operate to make Mortgagee responsible or liable for any
waste committed on the Mortgaged Property by the contractor or
or any other parties, or for any dangerous or defective
condition of the Mortgaged Property, or for any negligence in
the management, upkeep, repair or control of the Mortgaged
Property resulting in loss, injury, or death to any contractor,
subcontractor, licensee, invitees, employee, agent or stranger.
(e) TAXES. Mortgagor will pay before they become delinquent, all
taxes (both general and special), agreements, water rates, sewer
service or other governmental or municipal charges, fines or
impositions lawfully levied or assessed against the Mortgaged
Property, or any part thereof, or upon the rents, income and
profits thereof, so that the lien and priority of this Mortgage
<PAGE> 4
will be fully preserved; will promptly at the request of
Mortgagee deliver to Mortgagee the receipt showing such payment;
and will allow no payment of any taxes, assessments or
governmental charges by a third party with subrogation
attaching; nor permit the Mortgaged Property or any part thereof
to be sold or forfeited for any tax, assessment or governmental
charge whatsoever.
(f) FURTHER ASSURANCES, CONDEMNATION. Mortgagor will execute,
acknowledge and deliver all and every further assurance in law
for the better assuring, conveying, assigning and transferring
to Mortgagee the Mortgaged Property hereby conveyed in such
manner as Mortgagee will require. All awards of damages in
connection with any condemnation or exercise of the power of
eminent domain for public use of or injury to any of the
Mortgaged Property are hereby assigned and will be paid to
Mortgagee, who may apply the same to payment of the
indebtedness, including a foreclosure deficiency and Mortgagee
is hereby authorized, in the name of Mortgagor, to execute and
deliver valid acqittances thereof and to appeal to any such
award. Application of proceeds to payment of indebtedness will
not extend, postpone, or solve installments otherwise due, or
change the amount of payments to be made, and proceeds may be
applied in such order and in such amounts as Mortgagee may
elect.
3. EVENTS OF DEFAULT. Mortgagee will have the Remedies and powers set
forth herein upon occurrence of any of the following "Events of
Default": (a) failure of Mortgagor or Obligor to make payment when due
of the principal or interest of the structured indebtedness or failure
to perform any terms of the Obligations; (b) failure of Obligor to
furnish satisfactory additional collateral; (c) failure of Mortgagor
to comply with any of the terms and conditions of this Mortgage; (d)
death of Mortgagor or Obligor, dissolution, termination of existence,
insolvency, business failure, appointment of a receiver for Mortgagor
or Obligor or any property of Mortgagor or Obligor, assignment for the
benefit of creditors or commencement of any proceeding under any
bankruptcy, reorganization, arrangement or liquidation law for
Mortgagor or Obligor, or if such proceedings are commenced by a
creditor and remain undismissed for thirty (30) days; (e) failure of
Mortgagor or Obligor to pay when due any premium on any policy of life
or other insurance pledged hereunder, or held in connection with the
Mortgaged Property; (f) Mortgagee deeming itself insecure and in good
faith believing that the prospect of payment or performance by
Mortgagor or Obligor is impaired; (g) the filing of a judgment or
statutory lien or the institution of any proceedings by foreclosure,
attachment, levy or otherwise against Mortgagor, Obligor, the
Mortgaged Property or any other collateral securing the indebtedness;
(h) failure of Mortgagor or Obligor to furnish Mortgages within thirty
(30) days after written request by Mortgagee, current financial
statements in form satisfactory to Mortgagee or to permit inspection
of any Mortgagor's or Obligor's books or records; (i) any
representation, warranty, statement, report, or application made, or
furnished, by Obligor or Mortgagor proving to have been false, or
erroneous, in any material respect at the time of the making thereof;
(j) the issuance of any tax levy or lien against Mortgagor or Obligor
or the failure to pay, withhold, collect or remit any tax when
assessed or due; (k) abandonment, sale, or transfer of the Mortgaged
Property by contract to sell or lease, by conveyance, assignment of
lease, rents or rights thereto, encumbering or granting other rights
therein, by Mortgagor; (l) a bulk sale of Obligor's assets; or (m) the
suspension of liquidation of Obligor's business.
4. REMEDIES. Upon an Event of Default Mortgagee may at its option
without notice and without affecting the validity or priority of the
lien hereby created or any right of Mortgagee hereunder:
(a) Perform any such defaulted covenant or agreement to such extent
as Mortgagee will determine and enter upon the Mortgaged
Property, inspect, repair and maintain the same and perform such
other acts thereon as Mortgagee will deem necessary or advisable
for any of the above purposes and all funds so advanced by
Mortgagee with interest thereon at the highest rate applicable
to the indebtedness as set forth in any instrument evidencing
the Indebtedness, from the date advanced until paid will be
secured hereby and will be repaid promptly without demand.
Nothing herein will be construed as requiring Mortgagee to
advance funds for any of the aforesaid purposes. Mortgagee
will have the right to take possession of the Mortgaged
Property, manage it and collect the rents, issues and profits
therefrom and apply the same less reasonable costs of
collection upon the indebtedness. Any and all of the rights
and remedies granted by this paragraph will accrue and become
available to Mortgagee upon such default whether or not a
receiver has been appointed or a foreclosure action has been
commenced;
(b) Declare without notice all sums secured hereby immediately due
and payable whether or not such default be remedied by
Mortgagor, to enforce any of the rights which accrue to
Mortgagee hereunder and to enforce any right or remedy of
Mortgagee under the laws of the State of Ohio. Upon
commencement of any judicial proceedings to enforce any right
under this Mortgage, the court in which such proceedings are
brought, at any time thereafter (without notice to Mortgagor
or any party claiming under Mortgagor, such notice being
hereby expressly waived, and without reference to the then
<PAGE> 5
value of the Mortgaged Property, to the use of the Mortgaged
Property as a homestead or to the solvency or insolvency of
any Obligor or other grounds for extraordinary relief) may
appoint a receiver for the benefit of Mortgagee with power to
take immediate possession of the Mortgaged Property, manage,
rent and collect the rents, issues and profits thereof and
such rents, issues and profits when collected may be applied
toward the payment of the indebtedness and the costs, taxes,
insurance or other items necessary for the protection and
preservation of the Mortgaged Property, including the expenses
of such receivership. In the event of a sale, judicial of
otherwise, of the Mortgaged Property, the Mortgaged Property
may be sold in one or more parcels as the Mortgagee may
determine.
WAIVER. To the extent permitted by law Mortgagor will not claim the
benefit of any stay, extension, valuation, appraisement or redemption
law now or at any time hereafter in force.
AVAILABILITY OF REMEDIES. Every right and remedy provided in this
Mortgage whether herein or by law conferred and may be enforced
concurrently therewith and no acceptance of the performance of any
obligation as to which Mortgagor will be in default, or waiver of
particular or single performance of any obligation or observance of any
covenant, will be construed as a waiver of the obligation or covenant or
as a waiver of any other default then, theretofore or thereafter
existing. Mortgagee's acceptance of less than the entire payment of
principal due or receipt of interest computed at a rate less than the
maximum permitted to be charged under the terms of any Obligation or
Indebtedness will not constitute a waiver of Mortgagee's rights
hereunder to thereafter require payment of the full amount of principal
and interest computed at such maximum rate and receipt of payments after
maturity, by acceleration, declaration, or otherwise of any instrument
of indebtedness in an amount less than that due will not constitute a
waiver of Mortgagee's rights to full payment unless so agreed in
writing.
7. INDULGENCE. Mortgagee may, at any time and without notice, deal with
Mortgagor or grant to Mortgagor or any Obligor any indulgence or
forbearance or any extension of time of payment of the Indebtedness, or
a release of liability for payment of the secured indebtedness, or may,
with or without consideration, release portions of the Mortgaged
Property from the lien hereof. No such act or acts of Mortgages will
effect the personal liability of any other Obligor for payment of the
Indebtedness or the lien of this Mortgage upon the remainder of the
Mortgaged Property for the full amount of the
<PAGE> 6
Indebtedness. Assumption of liability for the payment of the
Indebtedness by any other party will not release Mortgagor from
liability for the payment of the secured indebtedness, and the consent
of Mortgagee to any such assumption or to any sale, lease,
conveyance or transfer of the Mortgaged Property will not be construed
as a release of any Obligor. No delay or omission of Mortgagee to
exercise any right, power or remedy occurring upon any default will
exhaust or impair such right, power or remedy or will be construed to
be a waiver of any such default or acquiescence therein; and every
right, power and remedy given by this Mortgage may be exercised from
time to time and as often as may be deemed expedient by Mortgagee.
8. JOINT AND SEVERAL LIABILITY. The term "Mortgagor" wherever used in this
Mortgage will include the joint and several liability of not only the
persons signing this Mortgage, but also any person or persons who
hereafter may assume payment of any or all of the Indebtedness, together
with respective heirs, representatives, successors and assigns of such
persons, and the term "Mortgagee" wherever used in this Mortgage will
include any lawful owner, holder or pledgee of any Indebtedness.
9. FINANCIAL STATEMENTS. As long as the indebtedness remains unpaid in
whole or in part, Mortgagor agrees to furnish Mortgagee upon request by
Mortgagee, at such times reasonably required by Mortgagee, financial
statements certified by Mortgagor, including balance sheets and
statements of income and expense for such period requested by Mortgagee
including such information with respect to the Mortgaged Property as
Mortgagee will request.
10. DOWER. The undersigned, spouse of Mortgagor, if any, does hereby
remiss, release and forever quit-claim unto Mortgagee, its successors
and assigns all right, title and expectancy do dower in the Mortgaged
Property.
11. FEES AND EXPENSES. If Mortgagee incurs any costs and expenses
(including reasonable attorneys' fees) in connection with any action or
proceeding to sustain the lien of this Mortgage of its priority or to
enforce any of Mortgagee's rights hereunder or to recover any
Indebtedness, or for any title examination or title insurance policy
relating to title to the Mortgaged Property required by Mortgagee, or
in curing any default of Mortgagor under any lease, or other agreement,
all such sums will be paid by Mortgagor on demand, together with
interest thereon at the default rate from date of payment by Mortgagee.
To the maximum extent permitted by law, such sums will be secured by
this Mortgage and will be a lien on the Mortgaged Property prior to any
right, title or interest claimed upon the Mortgaged Property
subordinate to the lien of this Mortgage.
12. TIME IS OF THE ESSENCE. Time is of the essence in the performance of
the terms of this Mortgage, the Indebtedness and the Obligations.
13. INDEMNIFICATION. Mortgagor will protect, save harmless and Indemnify
Mortgagee from and against any and all claims, liabilities, costs and
expenses, of whatever nature. (Including court costs and attorneys'
fees), which may arise or result directly or indirectly, by reason of
the use, occupation or operation of the Mortgaged Property or any part
thereof, or of any violation of any covenants of this Mortgage.
14. ASSIGNMENT OF RENTS AND LEASES. Mortgagor hereby absolutely and
unconditionally assigns, transfers and sets over unto Mortgagee, its
successors and assigns, all present and future leases covering all or
any part of the Mortgaged Property and all of the rents,
income, receipts, revenues, issues and profits now due or which may
hereafter become due under the leases of any extensions or renewals
thereof, together with any and all rights and remedies which Mortgagor
may have against any tenant under any of the leases or others in
possession of the Mortgaged Property.
Mortgagee shall not be obligated to perform or discharge any
obligation or duty to be performed or discharged by Mortgagor under any
of the leases; and Mortgagor hereby agrees to indemnify Mortgagee for,
and to save Mortgagee harmless from, any and all liability, damage or
expense arising from any of the leases or from this assignment,
including attorneys' fees. This assignment shall not place
responsibility for the control, care, management or repair of the
Mortgaged Property upon Mortgagee. Upon any default in the payment of
the indebtedness, or upon any default in performance or observance of
any of the terms, covenants or agreements of this Mortgage or any one or
more of the other instruments securing the Indebtedness and Obligations
all rents assigned hereunder shall be paid directly to Mortgagee, and
Mortgagee may notify the tenants under the leases (or any other parties
in possession of the Mortgaged Property) to pay off the rents directly
to Mortgagee. Rents collected by Mortgagee may be applied toward the
payment of taxes, assets, insurance premiums, repairs, protection of the
Mortgaged Property, and other charges against the Mortgaged Property,
or in the reduction of the Indebtedness and the payment of interest as
Mortgagee may elect.
Mortgagor shall not lease the Mortgaged Property without
Mortgagee's consent, however, if Mortgagee consents to a lease
Mortgagor will comply with and observe the duties of lessor thereunder
and Mortgagor will furnish Mortgagee with a copy upon request.
Mortgagor agrees to provide Mortgagee a separate Assignment of Lease
upon request to clarify the rights of Mortgagor and Mortgagee
therein. The absence of a separate assignment will not affect the
rights of Mortgagee granted hereby.
<PAGE> 7
15. NOTICES. Any provision in this Mortgage requiring or permitting notice
or demand or request will be deemed satisfied by written notice
personally served on Mortgagor or Mortgagee, as the case may be, or as
of the fifth (5th) day after being mailed by United States Postal
Service, registered or certified mail, return receipt requested, postage
prepaid, addressed to Mortgagor as follows:
OIOPT Acquisition Corp.
----------------------------------------------
2029 Edgefield Rd.
----------------------------------------------
Moraine, Ohio
----------------------------------------------
and addressed to Mortgagee as follows:
BANK ONE, Dayton, NA
-------------------------------------
Kettering Tower
----------------------------------------------
Dayton, Ohio 45401
----------------------------------------------
Attn: Commercial Financial Services Division
----------------------------------------------
Either party may, by written notice to the other in the above manner,
specify a different address for notice purposes.
16. CONFLICTS. The terms of this Mortgage will prevail over conflicting
terms set forth in any of the Obligations secured.
17. SEVERABILITY. In the event that any provision of this Mortgage, the
Indebtness or Obligations or any other agreement conflicts with
applicable law, such conflict will not affect other provisions of this
Mortgage, which can be given effect without the conflicting provision,
and to this end the provisions of this Mortgage, the Indebtedness and
Obligations, and other agreements are declared to be severable.
18. FURTHER ASSURANCES. Mortgagor will, at its own expense, within fifteen
(15) days after request by Mortgagee, do, execute, acknowledge and
deliver all further acts, deeds, conveyances, transfers, security
interests, security agreements, financing statements, renewals,
certificates, affidavits, continuation statements and other documents
and assurances necessary or proper to effectuate, complete, or perfect,
or to continue and preserve, the Obligations of Mortgagor and the lien
provided for by this Mortgage in the Mortgaged Property or any part
thereof.
19. GOVERNING LAW. This Mortgage will be construed, interpreted, enforced
and governed by and in accordance with laws of the State of Ohio.
20. CAPTIONS & HEADINGS, GENDER & NUMBER. The captions or headings of the
provisions hereof are for convenience of reference only and will not
define or limit the terms hereof. Whenever the singular or plural
number, masculine or feminine or neuter gender is used herein, it will
equally include the other.
21. PROVIDING ALWAYS, that if Mortgagor will pay to Mortgagee the secured
Indebtedness with Interest and perform the secured Obligations at the
time and in the manner provided therein or under this Mortgage, then
these presents will be void and this Mortgage will be released and
cancelled at the cost of Mortgagor.
IN WITNESS WHEREOF, this Open End Mortgage has been executed at Dayton,
Ohio, this 14th day of July, 1993.
Signed, acknowledged and OIOPT Acquisition Corp.
delivered in the presence of: -------------------------------
/s/ Michael P. Moloney BY: /s/ Vince Pisano
- ------------------------------ ---------------------------
Michael P. Moloney Vince Pisano
/s/ Scott E. Roman ITS: V.P. - CFO
- ------------------------------ ---------------------------
Scott E. Roman
<PAGE> 8
PERSONAL ACKNOWLEDGMENT
STATE OF__________________________)
) SS.
COUNTY OF_________________________)
Before me, a Notary Public in any for said county and state, personally
appeared the above named_____________________________________________________
and _____________________________who acknowledged signing the foregoing
instrument and that the same is his/her/their free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and offical seal at
____________________________________________, this day of
_____________________, 19_________.
________________________________________
Notary Public
CORPORATE ACKNOWLEDGMENT
STATE OF Ohio
----------------------------)
) SS.
COUNTY OF Montgomery )
--------------------------
BEFORE ME, a Notary Public in and for said county and state, personally
appeared the above-named OIOPT Acquisition Corp. by Vince Pisano, its Vice
President and Chief Financial Officer, and ___________________________ its
___________________________________, who acknowledged that he/she/they did
sign the foregoing instrument for and on behalf of the partnership and
that the same is his/her/their free act and deed and the free act and deed of
the corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
Dayton, Ohio, this 14th day of July, 1993.
/s/ Stanley J. Cohen
---------------------------------------
Notary Public
STATE OF
----------------------------)
) SS.
COUNTY OF
--------------------------)
BEFORE ME, a Notary Public in and for said county and state, personally
appeared the above-named __________________________ by _______________________
and __________________________ its partners, who acknowledged that he/she/they
did sign the foregoing instrument for and on behalf of the partnership and that
the same his/her/their free act and deed and the free act and deed of the
partnership.
IN TESTIMONY WHEREOF, I have hereunto set my hand official seal at
_______________________________, this _________ day of _____________________,
19________.
______________________________________
Notary Public
This instrument prepared by BANK ONE, Dayton NA
----------------------------------------
Address of BANK ONE: Kettering Tower Dayton, Ohio 45401
----------------------------------------------------------
<PAGE> 9
EXHIBIT "A"
SITUATED IN THE CITY OF MORAINE, COUNTY OR MONTGOMERY, STATE OF OHIO AN BEING
LOTS NUMBERED THREE THOUSAND EIGHT HUNDRED FOUR (3804) AND FOUR THOUSAND FOUR
HUNDRED SEVENTY THREE (4473) OF THE CONSECUTIVE NUMBERS OF LOTS ON THE REVISED
PLAT OF THE SAID CITY OF MORAINE, OHIO.
<PAGE> 1
EXHIBIT 10.27
PLEDGE AGREEMENT
AGREEMENT, dated as of , 1993 between EDUCATIONAL
MEDICAL, INC., a Delaware corporation (the "Pledgor"), OHIO INSTITUTE OF
PHOTOGRAPHY AND TECHNOLOGY, INC., an Ohio corporation (the "Pledgee") and OIOPT
ACQUISITION CORP., a Delaware corporation (the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common
stock, par value $.10 per share (the "Pledged Securities"), of the Issuer.
The Issuer and the Pledgor have jointly and severally executed and
delivered to Pledgee (i) their Promissory Note in the principal amount of
$200,000 (the "Second Payment Note"), a copy of which is attached as Exhibit 1
to this Pledge Agreement. The Second Payment Note was issued pursuant to an
asset purchase agreement (the "Asset Purchase Agreement") entered into among
the Pledgor, Pledgee, the Issuer and the Shareholders of the Pledgee and dated
June 23, 1993. The Pledgor's obligations with respect to the payment of the
Second Payment Note and the Consulting Payments (as defined in Section 1(f)(1)
of the Asset Purchase Agreement) and the Individual Non-Competition Payments
(as defined in Section 1(f)(2) of the Asset Purchase Agreement) are
collectively called the "Secured Obligations" and are to be secured by the
Pledged Collateral, as defined in Section 1.
In consideration of the premises and of the mutual covenants herein
contained, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Pledge. As security for the due and punctual payment and
performance of the payment of the Secured Obligations, and this Agreement, the
Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and
delivers unto the Pledgee, and hereby grants to the Pledgee a security interest
in, the following:
(a) the Pledged Securities and the certificates
representing the Pledged Securities, and all cash, proceeds, securities,
dividends and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Securities; and
(b) all securities hereafter delivered or issued in
substitution for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such securities, together with the
interest coupons (if any) attached thereto, and all cash, proceeds, securities,
interest, dividends and other property at any time and from time to time
received or otherwise distributed in respect of or in exchange for any or all
thereof (all such Pledged Securities, certificates, interest coupons, cash,
proceeds, securities, interest, dividends and other property being herein
collectively called the "Pledged Collateral");
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Pledgee, its successors and assigns, forever, subject,
however to the terms, covenants and conditions hereinafter set forth.
2. Transfer to Escrow Agent. The original certificates representing
all Pledged Collateral shall be held on behalf of Pledgee by Sebaly, Shillito &
Dyer, P.O. Box 220, Dayton, Ohio (the "Escrow Agent"). The Pledgor shall
deliver to the Escrow Agent all original certificates representing the Pledged
<PAGE> 2
Collateral issued in the name of the Pledgor, endorsed or assigned in blank in
favor of the Pledgee. The Pledgee may, upon request to the Escrow Agent and
delivery by the Escrow Agent of the appropriate Pledged Collateral to the
Issuer, exchange the certificates representing the Pledged Collateral for
certificates of smaller or larger denominations for any purpose consistent with
the terms of this Pledge Agreement.
3. Voting Rights; Dividends. So long as there is no failure to make
due and punctual payment to the Pledgee in accordance with the terms of the
Secured Obligations nor any other continuing event which would constitute an
event of default under this Agreement (an "Event of Default"):
(a) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to the
Pledged Collateral or any part thereof.
(b) The Pledgor shall be entitled to receive and retain
any and all ordinary cash dividends and interest payable on the Pledged
Collateral, but any and all stock and/or liquidating dividends, distributions
in property, returns of capital or other distributions made on or in respect of
the Pledged Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of an Issuer or received in
exchange for Pledged Collateral or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which the
Issuer may be a party or otherwise, and any and all cash and other property
received in payment of the principal of or in redemption of or in exchange for
any Pledged Collateral (either at maturity, upon call for redemption or
otherwise), shall be and become part of the collateral pledged by the Pledgor
hereunder and, if received by the Pledgor, shall be received in trust for the
benefit of the Pledgee or its assigns or the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement and shall forthwith
be delivered to the Escrow Agent (accompanied by proper instruments of
assignment and/or stock and/or bond powers executed by the Pledgor in
accordance with the Pledgee's instructions) to be held as Pledged Collateral
subject to the terms of this Pledge Agreement.
(c) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of attorney,
dividend orders, interest coupons and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
subparagraph (a) above and/or to receive the dividends and/or interest payments
which it is authorized to receive and retain pursuant to subparagraph (b)
above.
(d) Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
Section 3(a) hereof and/or to receive the dividends and interest payments which
it is authorized to receive and retain pursuant to Section 3(b) hereof shall
cease, and all such rights shall thereupon become vested in the Pledgee who
shall have the sole and exclusive right and authority to exercise such voting
and/or consensual rights and powers and/or to receive and retain the dividends
and/or interest payments which the Pledgor would otherwise be authorized to
retain pursuant to Section 3(b) hereof. Any and all money and other property
paid over to or received by the Pledgee pursuant to the provisions of this
Section 3 or pursuant to the exercise by Pledgee of the voting and/or
consensual rights and powers shall be retained by the Pledgee as additional
collateral hereunder and be applied in accordance with the provisions of this
Pledge Agreement.
4. Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default:
-2-
<PAGE> 3
(a) the Pledgor and the Issuer shall default in making any
payment with respect to the Secured Obligations; or
(b) if the Pledgor and the Issuer shall fail to make any
payment9 when with respect to the Consulting Payments or the Individual
Non-Competition Payments (as defined in the Asset Purchase Agreement; or
(c) if either the Pledgor or the Issuer become bankrupt or
insolvent, or file any petition for reorganization or relief from creditors
under any applicable law of any jurisdiction, or make any general assignment
for the benefit of creditors, and in any event; and
(d) except as provided for in subsection (c), if such default
or event shall continue for 10 days after the giving of written notice to the
Pledgee.
5. Remedies upon Default. If any Event of Default shall have
occurred and be continuing, then, in addition to exercising any rights and
remedies as a secured party under the Uniform Commercial Code in effect in
Ohio, the Pledgee may without being required to give any notice to the Pledgor:
(a) apply the cash (if any) then held by it as collateral
hereunder, first, to the payment of all costs of collection (including
attorneys' fees) incurred in enforcing Pledgee's rights under the Secured
Obligations and this Agreement; second to the payment of interest accrued and
unpaid on the Second Payment Note to and including the date of such
application, third to the payment or prepayment of principal of the Second
Payment Note; fourth, to the payment of all amounts due with respect to the
Consulting Payments; fifth to the payment of all amounts due with respect to
the Individual Non-Competition Payments; and sixth all other amounts then due
with respect to other Secured Obligations and then otherwise pursuant to this
Pledge Agreement, and
(b) sell the Pledged Collateral, or any part thereof, at any
public or private sale or at any broker's board or in any securities exchange,
for cash, upon credit or for future delivery, as the Pledgee shall deem
appropriate. The Pledgee shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to
persons who will represent and agree that they are purchasing the Pledged
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Pledgee shall have the right to assign, transfer and deliver to the purchaser
or purchasers thereof the Pledged Collateral so sold, free and clear from any
claims or rights of Pledgor. Further, it shall be deemed commercially
reasonable for the Pledgee to impose sufficient conditions on any such sale so
as to preclude the necessity of registration of the Pledged Collateral under
the Securities Act of 1933, as amended. Each such purchaser at any such sale
shall hold the property sold absolutely, free from any claim or right on the
part of the Pledgor, and the Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay and/or appraisal which he now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Pledgee shall give the Pledgor and the holder of any
subsequent perfected lien as provided in the addendum to this Pledge Agreement
at least 30 days' written notice in the manner specified for notices under this
Agreement of the Pledgee's intention to make any such public or private sale or
sales at any broker's board or on any such
- ----------------------------
(1) In the event of a dispute with respect to the payment of any
non-competition fee, it shall not be a default for purposes of this pledge
agreement if payments of such fee are made into the registry or similar
facility of any court of competent jurisdiction pending the outcome of such
dispute.
-3-
<PAGE> 4
securities exchange, and the Pledgor agrees that such notice of sale will be
commercially reasonable notice to it. Such notice, in case of public sale,
shall state the time and place fixed for such sale, and, in the case of sale at
a broker's board or exchange at which such sale is to be made, the day on which
the Pledged Collateral, or portion thereof, will first be offered for sale at
such board or exchange. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places, as the
Pledgee may fix in the notice of such sale. At any such sale, the Pledged
Collateral, or portion thereof, to be sold may be sold in one lot as an
entirety or in separate parcels, as the Pledgee may (in its sole and absolute
discretion) determine and the Pledgee or other holder of the Secured
Obligations may bid (which bid may be in whole or in part, in the form of
cancellation of indebtedness) for and purchase for the account of the Pledgee
or other holder of any Secured Obligation the whole or any part of the Pledged
Collateral. If the proceeds of the Pledged Collateral are insufficient to
satisfy Pledgor's obligations under the Second Payment Note and then the other
Secured Obligations and then otherwise pursuant to this Agreement, Pledgor
shall remain liable for any deficiency. The Pledgee shall not be obligated to
make any sale of Pledged Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of Pledged Collateral may have been
given. The Pledgee may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In case sale of all or any part of the Pledged Collateral is made
on credit or for future delivery, the Pledged Collateral so sold may be
retained by the Pledgee until the sale price is paid by the purchaser or
purchasers thereof, but neither the Pledgee nor any other holder of the Secured
Obligations or the assignee of any of the Pledgee's rights, shall incur any
liability in case any such purchaser or purchasers shall fail to take up and
pay for the Pledged Collateral so sold and, in the case of such failure, such
Pledged Collateral may be sold again upon like notice. As an alternative to
exercising the power of sale herein conferred upon it, the Pledgee may proceed
by a suit or suits at law or in equity to foreclose this Pledge Agreement and
to sell the Pledged Collateral, or any portion thereof, pursuant to a judgment
or decree of a court or courts of competent jurisdiction.
6. Application of Proceeds of Sale. The proceeds of sale of Pledged
Collateral sold pursuant to Section 5 (c) hereof shall be applied by the
Pledgee as follows:
First: in the manner provided in paragraph (a) of Section 5
hereof; and
Second: the balance (if any) of such proceeds shall be paid
to the holder of any subsequent perfected lien as provided in the addendum to
this Pledge Agreement and then the Pledgor, its successors or assigns in
proportion to their ownership of the Pledged Collateral, or as a court of
competent jurisdiction may direct.
7. Extension or Modification of the Second Payment Note and the
Purchase Money Note. The Pledged Collateral pledged hereunder secures the
payment and performance of all of the indebtedness of the Pledgor with respect
to the Secured Obligations and the Pledgor agrees that the Second Payment Note
may be extended or otherwise modified in accordance with its terms without
affecting this Pledge Agreement or the obligations of Pledgor hereunder, which
shall continue in full force and effect until the Secured Obligations shall
have been fully paid and performed.
8. Authority of Pledgee. The Pledgee shall have and be entitled to
exercise all such powers hereunder as are specifically delegated to the Pledgee
by the terms hereof, together with such powers as are reasonably incidental
thereto. The Pledgee may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the
-4-
<PAGE> 5
advice of such counsel (whether written or oral) concerning all matters
pertaining to its duties hereunder. Neither the Pledgee, nor any director,
officer or employee of the Pledgee, shall be liable for any action taken or
omitted to be taken by it or them hereunder in connection herewith, except for
its or their own gross negligence or willful misconduct. The Pledgor hereby
agrees to reimburse the Pledgee, on demand, for all expenses incurred by the
Pledgee in connection with the administration and enforcement of this Pledge
Agreement (including expenses incurred by the Escrow Agent or any subagent
employed by the Pledgee) and agrees to indemnify and hold harmless the Pledgee
and/or any such subagent against any and all liability incurred by the Pledgee
(or such subagent hereunder or in connection herewith), unless such liability
shall be due to willful misconduct or gross negligence on the part of the
Pledgee or such subagent.
9. Pledgee Appointed Attorney in Fact. The Pledgor hereby appoints
the Pledgee the Pledgor's attorney-in-fact for the purpose of carrying out the
provisions of this Pledge Agreement and, upon the occurrence of any Event of
Default, taking any action and executing any instrument which the Pledgee may
deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, upon an Event of Default, the Pledgee shall have
the right and power to receive, endorse and collect all checks and other orders
for the payment of money made payable to the Pledgor representing any dividend,
interest payment or other distribution payable or distributable in respect of
the Pledged Collateral or any part thereof and to settle or compromise any
claims relating thereto and to give full discharge for the same.
10. Representations and Warranties of Pledgor. To induce Pledgee to
enter into the transactions provided for in the Asset Purchase Agreement and to
accept the Second Payment Note, Pledgor represents and warrants to Pledgee,
and covenants with Pledgee that:
(a) it owns the Pledged Securities and by the execution and
delivery of this Agreement and delivery of the Pledged Collateral it has
created is a first priority lien granted in favor of the Pledgee with respect
to such Pledged Collateral; and
(b) this Agreement is the valid and binding obligation of
Pledgor, enforceable in accordance with its terms.
11. No Waiver; Cumulative Remedies. No failure on the part of the
Pledgee to exercise, and no delay in exercising any right, power, privilege or
remedy hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power, privilege or remedy of the Pledgee
preclude any other or further exercise thereof or the exercise of any other
right, power, privilege or remedy. All remedies hereunder are cumulative and
are not exclusive of any other remedies provided herein or by law.
12. Termination. This Pledge Agreement shall terminate when the
Secured Obligations have been fully paid and performed, provided that, with
respect to the Individual Non-Competition Agreements, it shall terminate upon
payment in full of the Consulting Payments, provided at the time of such
payments all amounts due with respect to such Individual Non-Competition
Payments have been paid or provided for in accordance with this Agreement, at
which time the Pledgee shall reassign and redeliver (or cause to be reassigned
and redelivered) to the Pledgor, or to such person or persons as the Pledgor
shall designate, such of the Pledged Collateral (if any) as shall not have been
sold or otherwise applied by the Pledgee pursuant to the terms hereof and shall
still be held hereunder, together with appropriate instruments of reassignment
and release. Any such reassignment shall be without recourse against or
express or implied representation or warranty by the Pledgee and at the expense
-5-
<PAGE> 6
of the Pledgor.
13. Assignability. The Pledgee may assign, in whole or in part, any
or all of its rights, title and interests provided for in this Pledge
Agreement, to any holder of the Secured Obligations or portion thereof.
14. Terms Relating to Escrow Agent.
(a) Sebaly, Shillito & Dyer shall initially act as Escrow
Agent under this Agreement. The Escrow Agent shall acknowledge its receipt of
the original certificate(s) representing the Pledged Securities by executing
this Agreement. Pledgor shall also deliver to the Escrow Agent any and all
original certificates, funds or documents as may hereafter become part of the
Pledged Collateral. The possession of the original certificates and other
documents relating to the Pledged Collateral shall be deemed to constitute the
Pledgee's possession thereof in order to perfect Pledgee's security interest in
the Pledged Collateral.
(b) The Escrow Agent shall hold all certificates, funds
and documents representing the Pledged Collateral (collectively, the
"Instruments") subject to the following terms and conditions:
(i) If the Pledgee at any time instructs the Escrow Agent
to exchange any certificates representing any securities included in
the Pledged Collateral to change the denominations of such
certificates, the Escrow Agent shall comply with such request promptly
by so exchanging certificates directly with the Issuer. The Escrow
Agent shall give Pledgor and the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement notice of
any such action within 10 days after it is completed.
(ii) Either Pledgor or Pledgee may give the Escrow Agent a
notice requesting the Escrow Agent to make any delivery or take any
action with respect to any Instruments that is proposed to be taken
pursuant to this Agreement. If the notice describing any such request
is executed by both the Pledgor and the Pledgee, the Escrow Agent
shall promptly comply with the request.
If the notice is given by Pledgor or Pledgee, and is not signed by
both, the Escrow Agent shall promptly forward a copy of such notice to the
party that did not sign it. Thereafter, the Escrow Agent shall refrain from
taking any action with respect to such request for at least 5 business days, or
until the other party authorizes the Escrow Agent in writing to comply with
such request. If the other party fails to deliver written notice of objection
to the Escrow Agent within such 5-day period, the Escrow Agent shall be fully
protected in complying with such request.
(c) In order to induce the Escrow Agent to act under this
Agreement, the Pledgor and the Pledgee jointly and severally agree as follows:
(i) The Escrow Agent shall not in any way be bound or
affected by any notice or modification or cancellation of this
Agreement unless in writing, signed by all parties hereto, nor shall
the Escrow Agent be bound by any modification hereof unless the same
shall be satisfactory to the Escrow Agent. The Escrow Agent shall be
entitled to rely upon any judgment, certification, demand or other
writing (including but not limited to any instructions given to it
under (b), above) without being required to determine the authenticity
or the correctness of any fact stated therein, the propriety of
validity of the service thereof, or the
-6-
<PAGE> 7
jurisdiction of the court issuing such judgment or order.
(ii) The Escrow Agent may act in reliance upon any
document, instrument or signature believed by it to be genuine, and
the Escrow Agent may assume that any person purporting to give any
notice or instructions in accordance with the provisions hereof has
been duly authorized to do so.
(iii) The Escrow Agent may act in reliance upon advice of
counsel in reference to any matter(s) in connection herewith, and
shall not be liable for any mistake of fact or error of judgment, or
for any acts or omissions of any kind, unless caused by the Escrow
Agent's willful misconduct or gross negligence. The Escrow Agent
shall be entitled to consult with its counsel, which shall include any
attorney retained by it, and the Escrow Agent shall not be liable for
any action taken, suffered or omitted by it in accordance with the
advice (whether written or oral) of such counsel.
(iv) This Agreement sets forth exclusively the Escrow
Agent's duties with respect to any and all matters pertinent hereto.
The Escrow Agent shall not be bound by, the provisions of any other
agreement.
(v) The Escrow Agent may at any time resign hereunder by
giving written notice of its resignation to all parties hereto at
least thirty (30) days prior to the date specified for such
resignation to take effect, and upon the effective date of such
resignation, all cash, documents and all other property then held by
the Escrow Agent hereunder shall be delivered by it to such persons as
may be designated in writing by all parties hereto, whereupon all
further obligations of Escrow Agent hereunder shall cease and
terminate. The Escrow Agent's sole responsibility thereafter shall be
to keep safely all property then held by it and to deliver same to a
person designated by all parties hereto or in accordance with the
directions of a final order or judgment of a court of competent
jurisdiction. In addition, the Escrow Agent shall be discharged from
any further duties and obligations hereunder upon its filing an
impleader or other appropriate proceeding in a court of competent
jurisdiction and depositing in such court all of the funds and
property then held by it hereunder. All parties hereto hereby submit
to the personal jurisdiction of said court (but solely for the purpose
of implementing this Agreement) and waive all rights to contest said
jurisdiction.
(vi) Pledgor and Pledgee shall be jointly and severally
obligated to pay the Escrow Agent its fees, and reimburse all of its
costs and expenses in connection herewith, including reasonable
counsel fees for counsel retained by the Escrow Agent (even though the
Escrow Agent is a practicing attorney) and to indemnify it and hold it
harmless against any claim asserted against it or any liability, loss
or damage incurred by it in connection herewith. The Escrow Agent may
apply to a court of competent jurisdiction for payment of its fees and
expenses from the Pledged Collateral and such claim shall have
priority over the rights of the undersigned with respect to any
payment to be made pursuant to this agreement. In that connection the
Escrow Agent may sell all or any part of the Pledged Collateral to
satisfy such obligations as if they were Secured Obligations as
defined in this agreement.
(vii) Nothing herein contained shall be deemed to obligate
the Escrow Agent to deliver any securities, cash, instruments,
documents or any other property referred to herein, unless the same
shall have first been received by the Escrow Agent pursuant to this
Agreement.
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<PAGE> 8
(vii) Pledgor acknowledges that the Escrow Agent is counsel
of the Pledgee, and agrees that no action taken by the Escrow Agent
under this Agreement shall affect or impair the right of the Escrow
Agent to represent the Pledgee in any matter, including an impleader
action pursuant to this Agreement.
15. Miscellaneous. This Agreement shall be binding on and inure to
the benefit of the respective parties hereto and their successors and assigns.
This Agreement may be executed in counterparts, each of which shall be deemed
an original, but both of which together shall constitute one and the same
instrument. This Agreement represents the entire understanding of the parties
hereto, and supersedes any and all other prior agreements between the parties
relating to the subject matter of this agreement. The terms and provisions of
this Agreement cannot be terminated or modified or amended except in writing
and signed by the party against whom enforcement is sought. This Agreement
shall be construed in accordance with the laws of the State of Ohio, and any
suit, action or proceeding arising out of or relating to this Agreement shall
be commenced and maintained in the circuit court in Montgomery County, Ohio, or
the United States District Court for the Southern District of Ohio and each
party waives objection to such jurisdiction and venue. The provisions of this
Agreement are severable, and any invalidity, unenforceability or illegality in
any provision or provisions hereof shall not affect the remaining provisions of
this Agreement. As between Pledgor and Pledgee, in any suit, action or
proceeding arising out of or in connection with this Agreement, the prevailing
party shall be entitled to an award of the amount of attorneys' fees and
disbursements actually billed to such party in connection herewith, including
fees and disbursements on one or more appeals.
All notices required or allowed hereunder shall be in writing and
shall be deemed given upon (i) hand delivery or (ii) deposit of same in the
United States Certified Mail, Return Receipt Requested, first class postage and
certification fees prepaid and correctly addressed to the party for whom
intended at their address written in the first paragraph hereof, or such other
address as is most recently noticed for such party as aforesaid.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
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<PAGE> 9
In the Presence of: EDUCATIONAL MEDICAL, INC.
- ------------------------------
By:
- ------------------------------ ---------------------------------
Authorized Signatory
OIOPT ACQUISITION CORP.
- ------------------------------
By:
- ------------------------------ ---------------------------------
Authorized Signatory
OHIO INSTITUTE OF PHOTOGRAPHY AND
TECHNOLOGY, INC.
- ------------------------------
By:
- ------------------------------ ---------------------------------
Authorized Signatory
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<PAGE> 10
ACCEPTANCE OF ESCROW AGENT
Sebaly, Shillito & Dyer acknowledges receipt of the foregoing
Agreement and agrees to act as Escrow Agent under its terms.
SEBALY, SHILLITO & DYER
By:
--------------------------------
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<PAGE> 11
AGREEMENT OF ESCROW AGENT TO HOLD AS AGENT FOR SECOND LIENOR
The Escrow Agent acknowledges that the Pledged Collateral is subject
to a second lien held by Bank South, N.A., and in order to perfect such lien
agrees to hold the Pledged Collateral as agent for Bank South, N.A., subject to
the first lien otherwise provided for in this Agreement, and to promptly
deliver the Pledged Collateral to Bank South, N.A. upon the earlier of payment
in full of the Secured Obligations or termination of this Pledge Agreement at
Bank South, N.A., P.O. Box 4387, Atlanta, Georgia, Attn: Mr. Randall P.
Coerver.
The obligation of the Escrow Agent to Bank South, N.A., shall be
limited by the provisions of Section 14(c)(1) to 14(c)(v), inclusive, and by
Section 14(c)(vii) and 14(c)(viii).
SEBALY, SHILLITO & DYER
Acknowledged, Accepted and Agreed to as of July ____, 1993.
EDUCATIONAL MEDICAL, INC.
By:
--------------------------------
Authorized Representative
<PAGE> 1
EXHIBIT 10.28
ASSET PURCHASE AGREEMENT
Agreement dated as of June 23, 1993, among EDUCATIONAL MEDICAL, INC., a
Delaware corporation ("EMI"), OIOPT Acquisition Corp., a Delaware corporation
wholly owned by EMI ("Buyer"), OHIO INSTITUTE OF PHOTOGRAPHY AND TECHNOLOGY,
INC., an Ohio corporation (the "Seller"), Mr. K. TERRY GUTHRIE, Mr. RICHARD L.
CRETCHER, Mr. STEPHEN T. McLAIN, Mr. GERALD D. GUTHRIE, and Mr. JAMES R.
MADDEN (each such individual is separately called a "Shareholder" and such
Shareholders are collectively called the "Shareholders").
PRELIMINARY STATEMENT
The Seller is the owner of a post secondary educational school
located, at 2029 Edgefield Road, Dayton, Ohio (the "School"). The Buyer wants
to buy the School. The Seller and each Shareholder want to sell the School to
the Buyer.
This Agreement provides for the sale and purchase of the School. It
contains the terms pursuant to which Seller has agreed to sell substantially
all of its School Related Assets to Buyer and Buyer has agreed to assume
certain related Stated Liabilities of Seller. EMI has entered into this
Agreement to reflect that it is jointly and severally liable with the Buyer
with regard to the obligations of the Buyer provided for in it.
IN CONSIDERATION OF THE COVENANTS CONTAINED IN THIS AGREEMENT, AND THE
OTHER CONSIDERATION PROVIDED FOR IN IT, THE PARTIES, EACH INTENDING TO BE
LEGALLY BOUND, AGREE AS FOLLOWS:
1. THE PURCHASE PRICE; CONVEYANCE OF THE ASSETS; ASSUMPTION OF
STATED LIABILITIES; CERTAIN DEFINITIONS; INDIVIDUAL NON-COMPETITION AGREEMENTS;
CONSULTING AGREEMENTS; EFFECTIVE DATE OF TRANSACTION.
(a) The Purchase Price and Other Payments. The purchase
price for the "School Related Assets" (as defined in Section 1(h), below, is
(1) $370,000.00 (the "Cash Portion"), plus
(2) the amount of cash (the "Existing Mortgage
Payments") necessary to repay in full the Existing First Mortgage and Existing
Second Mortgage (as defined in Section 1(m) of the Addendum to this Agreement
secured by the Facility (as defined in Section 1(h)(1)(ii), below), plus
(3) the amount of cash (the "Wage Claims Payment")
necessary to pay Accrued Wage Claims (as defined in Section 1(h)(4), below),
plus
(4) the assumption of the Stated Liabilities (as
defined in Section 1(h)(2), below).
The payments provided for in clauses (i), (ii) and (iii) of the preceding
sentence are called the "Cash Portion of the Purchase Price"); the Cash Portion
of the Purchase Price plus the assumption provided for in clause (iv) of the
preceding sentence is called the ("Purchase Price"). The Purchase Price shall
be allocated between tangible and intangible assets and between real estate and
personal property as determined by Buyer and Seller prior to the Closing.
(b) Conveyance of Assets. On July 21, 1993, or such earlier
date as the parties may specify (the "Closing Date") the Seller shall convey to
Buyer all of its School Related Assets (the "Closing").
(c) Cash Payments. At the Closing, the Buyer shall deliver
to Seller or the holder of
<PAGE> 2
the Existing Mortgage, as the case may be:
(1) $170,000 in immediately available funds on
account of the Cash Portion (the "First Payment");
(2) The Existing Mortgage Payments, which shall be
delivered to the respective mortgagees in full satisfaction of the Existing
Mortgages; and
(3) The Wage Claims Payment, which shall be paid by
the Seller to the relevant employees or appropriately deposited on account of
withholding taxes or similar deposits in compliance with laws requiring similar
withholdings or deposits.
(d) Assumption of Stated Liabilities. On the Closing Date
the Buyer shall assume all of the "Stated Liabilities" (as defined in Section
1(h)(2), below.
(e) Delivery of Second Payment Note. On the Closing Date the
Buyer shall deliver to Seller its Promissory Not e for $200,000.00 (the "Second
Payment Note") in the form attached to this Agreement as EXHIBIT 172, payable
the earlier of the last business day within the first 30 calendar days
following the date on which the Prerequisite Student Aid Approvals are
obtained, but no later than twelve months from the date of Closing.
"Prerequisite Student Aid Approvals" mean approvals by the United States
Department of Education and all other applicable private and governmental
agencies and organizations of the change in control of the School resulting
from the sale of the School pursuant to this Asset Purchase Agreement which are
a prerequisite to receipt of federal and state aid by the School's students;
(f) Consulting Agreements and Individual Non-Competition
Agreements. In addition to the payments for the School Related Assets
described above, the Buyer shall:
(1) enter into consulting agreements (the "Consulting
Agreements") with each of the Shareholders in the form attached to this
agreement as EXHIBIT 273 providing for aggregate semi-annual payments (the
"Consulting Payments") in the following amounts:
<TABLE>
<CAPTION>
AGGREGATE SEMI-ANNUAL
CONSULTING CONSULTING
SHAREHOLDER PAYMENT PAYMENT
----------- ------- -------
<S> <C> <C>
K. Terry Guthrie $ 71,420.00 $11,903.33
Richard L. Cretcher 60,960.00 10,160.00
Stephen T. McLain 43,800.00 7,300.00
Gerald D. Guthrie 17,140.00 2,856.67
James R. Madden 6,680.00 1,113.33
----------- ----------
TOTAL $200,000.00 $33,333.33
</TABLE>
The Consulting Payments shall be paid to each Shareholder in 10 equal
semiannual payments in the amounts set forth above. Such payments shall be due
on June 30, and December 31 of each year, commencing on December 31, 1993.
(2) pay to Messrs. Guthrie and Cretcher,
respectively, the amounts of
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<PAGE> 3
$175,00.00 and $150,000.00 (the "Individual Non-Competition Payments") on
account of the agreements contained in Section 7(f) of this Agreement
prohibiting them from Competing with the Buyer or EMI for a period of 5 years.
The Individual Non-Competition Payments shall be paid to Messrs. Guthrie and
Cretcher in 10 equal semiannual payments of $17,500.00 and $15,000.00,
respectively. Such payments shall be due on June 30, and December 31 of each
year, commencing on December 31, 1993.
(g) DELIVERY OF THE PLEDGE AGREEMENT. At the Closing EMI shall
deliver to the Seller a pledge agreement in the form attached to this Agreement
(the "Pledge Agreement") in the form attached to this Agreement as EXHIBIT
374pursuant to which EMI secures the payment of the Second Payment Note and the
Consulting Payments by a pledge of all of the outstanding capital stock (the
"Buyer's Stock") of the Buyer.
(h) Definitions of School Related Assets and Stated Liabilities.
(1) "School Related Assets" shall mean:
(i) All cash and cash equivalents owned by
the Seller at the Closing Date except for "Excess Cash," which shall mean cash
or cash equivalents on hand at the Closing Date less that amount, up to $
, distributed to the Shareholders subsequent to December 31, 1992,
("Permitted Pre-Closing Distributions") and (y) increased or decreased, as the
case may be, to the extent the Net Assets of the Seller as of March 31, 1993
are greater or less than $419,667.00, without giving effect to any Permitted
Pre-Closing Distributions (the "Closing Adjustment"). "Net Assets" means
assets minus liabilities, as calculated in accordance with generally accepted
accounting principals, as indicated on financial statements reviewed by [
] prior to the Closing for the purpose, among others, of making such
calculation (the "Reviewed March 31, 1993 Financials"). Any Closing Adjustment
shall first be made by reducing the First Payment and then the amount of the
Second Payment Note.
(ii) The Facility, which means the Real
Property described on EXHIBIT 475, along with all improvements to it.
(iii) The non-cash assets reflected in the
Seller's 1993 Balance Sheet and included in the Seller's Financial Statements,
together with the related goodwill and rights of Seller as a going concern,
tangible and intangible, used in connection with the operation of the School,
together with any other assets acquired by Seller subsequent to the date of
such balance sheet in connection with the operation of the School;
(iv) Seller's right to use the name "Ohio
Institute of Photography & Technology" either alone or in conjunction with
other words or names in the context of the operation of a school or other
learning institution.
(v) National student matching funds, if
any.
School Related Assets shall not include "Excluded Assets." Excluded Assets
are:
(i) assets disposed of in the ordinary
course of business subsequent to the date of the Seller's March Balance Sheet,
and
(ii) those assets listed on EXHIBIT
5 attached to this Agreement.
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<PAGE> 4
(2) "Stated Liabilities" shall mean shall mean the
liabilities, duties, and obligations of the Seller related to the operations of
the School:
(i) which are reflected on the Seller's March
Balance Sheet in accounts numbered 20100, 23000, 20410, 20640, 20700 and 20800
which include liability for unearned tuition and similar liabilities incurred
by the Seller prior to the Closing in the ordinary course of business after
March 31, 1993 which are posted to such accounts consistently with the Seller's
prior practice,
(ii) provided for in agreements made or
entered into in the ordinary course of business after the date of the Seller's
March Balance Sheet, including accounts payable arising in the ordinary course
of business, from transaction with trade creditors and suppliers, regardless of
whether such agreement is in writing, (the "Closing Date Liabilities"), and
(iii) provided for in the agreements
disclosed on the Exhibits attached to this Agreement and specifically assumed
by the Buyer;
provided, in the case of liabilities, duties, and obligations described in
clauses (i), (ii) and (iii) of this sentence, Stated Liabilities shall only
include the liability, duty or obligation to (x) pay money if, and to the
extent, such obligation is provided for in such agreement and (y) perform any
service or take any other action if, and to the extent, such service or other
action is capable of being performed in the ordinary course of business.
Stated Liabilities shall exclude, without limitation (x) obligations of the
Seller to employees whether in the nature of wages, benefits or otherwise,
including, Accrued Wage Claims (the later of which will be paid by the Seller
from the Purchase Price) and (y) any contingent liabilities not specifically
assumed, whether arising prior to of after the Effective Date and regardless of
whether disclosed to Seller, including without limitation, any liabilities
arising from failure to comply with any law or regulation relating to the
administration of any kind of student aid or grant, or record keeping or
reporting required in connection with such administration.
(3) "Cohort Default Report" shall mean the relevant
Department of Education report from indicating the student default rate for the
applicable fiscal year computed in accordance with federally mandated
procedures for all students attending the School and receiving assistance
pursuant to the Stafford Loan and Supplemental Loans for Students programs.
(4) "Accrued Wage Claims" means the Seller's
obligation to pay Employee Wages, federal and state withholding and similar
taxes and deposits as reflected in accounts 20130, and 20500 through 20560,
inclusive, described in the Seller's March Balance Sheet and similar
liabilities incurred by the Seller prior to the Closing in the ordinary course
of business after March 31, 1993 which are posted to such accounts consistently
with the Seller's prior practice.
(i) Effective Date. The effective date of this
transaction for all accounting purposes shall be March 31, 1993, provided that
the selection of such effective date shall not be considered to impose on the
Buyer any liability of the Seller other than with respect to the assumption of
Stated Liabilities.
2. REPRESENTATIONS OF THE SELLER AND THE SHAREHOLDER.
Seller and each Shareholder, jointly and severally, represent and
warrant to Buyer:
(a) No Misstatements. The representations of the Seller
and each Shareholder and the information supplied by Seller or each Shareholder
contained in this Agreement, the Exhibits attached to it and the documents
incorporated into it by reference do not contain any untrue statement of a
material fact or omit to state any fact necessary to make such representations
or information not
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<PAGE> 5
materially misleading.
(b) Validity of Actions. Seller (i) is duly organized,
validly existing and in good standing under the laws of its organization, (ii)
has all requisite corporate and other appropriate authorization to conduct its
business as currently conducted, (iii) is qualified to do business in all
jurisdictions in which such qualification is necessary, and (iv) has full power
and authority to enter into this Agreement and to carry out all acts
contemplated by it. This Agreement has been duly executed and delivered on
behalf of the Seller and each Shareholder, has received all necessary corporate
authorization and is a legal, valid and binding obligation of the Seller and
each Shareholder, enforceable against each of them in accordance with its
terms. Entering into this Asset Purchase Agreement and the consummation of the
transactions contemplated by it will not violate any provision of the Articles
of Incorporation or Code of Regulations of Seller or conflict with or result in
any breach of any of the provisions of any agreement to which the Seller or and
or any of the Shareholders is a party or by which any of them or any of their
respective assets are bound, or cause a breach of any applicable law,
governmental regulation, order, or other decree of any court or governmental
agency. The Articles of Incorporation and Code of Regulations of Seller, as
presently in effect, are attached to this Agreement as EXHIBIT 6(6).
(c) Seller's Financial Statements
(1) Attached as EXHIBIT 7(7) to this Agreement
are Seller's unaudited balance sheets at August 31, 1991, and 1992, and
statements of income and expense and cash flows for the years then ending
("Seller's Annual Financial Statements"), and Seller's unaudited balance sheet
at March 31, 1993 ("Seller's March Balance Sheet") and statements of income and
expense for the period then ending (the Seller's March Balance Sheet and such
statements of income and expense are collectively called "Seller's March
Financial Statements"). All of such financial statements are called the
"Seller's Financial Statements."
(2) The Seller's Financial Statements: (i) have
been prepared on the accrual basis in accordance with generally accepted
accounting principles consistently applied ("GAAP"), except the Seller's March
Financial Statements do not contain footnote disclosure and are subject to
normal year end adjustments of a nature consistent with adjustments made to
Seller's Annual Financial Statement, and (ii) fairly present Seller's financial
condition and its results of operations at the times and for the periods
presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects,
properties of assets of Seller since the date of the Seller's March Financial
Statements.
(d) Liabilities of Seller. Seller has no liabilities,
contingent or otherwise, including, without limitation, liabilities for state
or Federal income, withholding, sales, or other taxes, except to the extent
reflected, reserved against, or provided for, in the Seller's March Balance
Sheet, and trade payables and other obligations incurred after the date of the
Seller's March Balance Sheet in amounts consistent with those incurred in prior
periods in the ordinary course of business, including without limitation
liabilities for unearned tuition.
(e) Assets of Seller. Seller has good and marketable
title to all of its School Related Assets. Except as otherwise disclosed in
the Seller's March Balance Sheet, all of the School Related Assets are owned
free and clear of any adverse claims, security interests, or other encumbrances
or restrictions, except liens for current taxes not yet due and payable,
landlords' liens as provided for in the relevant leases or by applicable law,
or liens or similar security interests granted as part of personal property
financing agreements made in the ordinary course of business and which in the
aggregate are
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<PAGE> 6
not material.
(f) Facility and Facility Operations.
(1) The School's operations are conducted solely
at the relevant Facility and all of the tangible School Related Assets used in
connection with such operations are located at the School Facility. All of the
improvements located at the School Facility are in good operating condition and
repair. There is no pending or threatened condemnation proceeding with respect
to the School Facility.
(2) Attached as EXHIBIT 8(8) to this Agreement is
a schedule of furnishings, fixtures and equipment located on, or used in
connection with, the operation of the School Facility as of [INSERT DATE OF
MOST RECENT INVENTORY].
(3) Except for environmental law compliance
(which is addressed in Section 2(f)(4) below) and accreditation, recruitment,
admissions, student loan and funding matters compliance (which are addressed in
Sections 2(h) and 2(i) below) as to which no representation or warranty is made
in this Section, all activities at, and the physical condition of, the Facility
are in compliance with all legal and regulatory requirements applicable to the
Seller, the operation of the School, and the use of the Facility, and the
Seller had not received any notice to the contrary. Seller has paid for and
obtained all licenses, permits, and other authorizations required for the
operation of the School and the use of the Facility (the "Permits"). All
Permits currently the in effect and pertaining to the Seller, the Facility or
the operation of the School are listed on EXHIBIT 980 to this Agreement. The
representations contained in this subsection 3 shall not apply to incidental
instances of non-compliance occurring in the ordinary course of business
without the knowledge of the Seller of any of the Shareholders, which are
immaterial to the operation of the School and capable of being cured without
significantly disrupting such School's operations.
(4) To the best of the knowledge of Seller and each
Shareholder, after investigation, there are no Hazardous Substances6 in, on or
under the Facility and Seller is not now
- -------------------------------
(1) The term "Hazardous Substance" shall include without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any
Ohio Statute and in the regulations promulgated pursuant to any Ohio
Statute;
(iii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or
which are classified as hazardous or toxic under federal, state, or
local laws or regulations; and
(v) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C)
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<PAGE> 7
engaged in any litigation, proceedings or investigations, nor knows of any
pending or threatened litigation, proceedings or investigations regarding the
presence of Hazardous Substances in, on or under the Facility.
(g) Equipment Leases and Financing Agreements. All of
the leases and financing agreements to which Seller is a party or any other
encumbrances which relate to each School Facility or any School Related Asset
are described in EXHIBIT 1081 to this Agreement (the "Financing and Related
Agreements"). Copies of the Financing and Related Agreements are attached to
such Exhibit. Except as reflected in such Exhibit, there have been no
modifications to any of the Financing and Related Agreements; all of them are
in good standing, and free from default; and none of the interests of Seller in
any of them is subject to any restriction except as stated in the applicable
document or as provided by applicable law.
(h) Accreditation. Attached as EXHIBIT 11(11) to this
Agreement is a list of all Federal, state or other licenses and approvals,
including without limitation all accreditation, granted to Seller with respect
to the conduct of its educational or training business (the "Accreditations"),
and the governmental body or agency or other entity granting such
Accreditation. Included in such Exhibit are copies of all such Accreditations.
Except for the Permits and the Accreditations, no license or approval is
necessary for the conduct of Seller's business as it is now being conducted,
and the Seller has received no notice that any other license or approval is
necessary for the continued conduct of such business or that any such license
or approval will not be renewed. Seller is accredited by the Accrediting
Commission of Trade and Technical Schools and is certified by the United States
Department of Education and is a party to, and in compliance with, valid
program participation agreements with that agency with respect to the
operations being conducted at each Facility. Seller has not received any
notice, not previously complied with, with respect to any alleged violation of
the rules or regulations of such agency or any applicable accrediting agency in
respect of any of the Facilities or the terms of any program participation
agreement to which it is or was a party. If any such notices have been
received and complied with, Seller has disclosed their receipt and disposition
to Buyer prior to the execution of this Agreement in writing by a letter making
specific reference to this Section of this Agreement. Seller is not aware of
any investigation or review of its student financial aid programs or any review
of any of its Accreditation whether by a party to any relevant agreement, the
issuer of such Accreditation or otherwise.
(i) Recruitment; Admissions Procedures; Attendance;
Reports. Attached as EXHIBIT 12(12) to this Agreement are copies of all policy
manuals and other statements of procedures or instruction relating to
recruitment of students, including procedures for assisting in the application
by prospective students for direct or indirect state or Federal financial
assistance; admissions procedures, including any descriptions of procedures for
insuring compliance with state or Federal or other appropriate standards or
tests of eligibility; procedures for encouraging and verifying attendance,
minimum required attendance policies, and other relevant criteria relating to
course completion and certification (collectively referred to as the "Policy
Guidelines").
To the best of its knowledge and the knowledge of each Shareholder,
Seller's operations have in all material respects been conducted in accordance
with the Policy Guidelines and all relevant standards imposed by applicable
accrediting agencies, agencies administering state or Federal government
programs in which the Seller participates, or applicable laws or regulations.
- ------------------------
polychlorinated biphenyl, (D) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section
Section 1251 et seq. or listed pursuant to Section 307 of the Clean
Water Act, (E) flammable explosive, or (F) radioactive materials.
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<PAGE> 8
Seller has submitted all reports, audits, and other information,
whether periodic in nature or pursuant to specific requests, ("Compliance
Reports") to all agencies or other entities with which such filings are
required relating to its compliance with (i) applicable accreditation standards
governing its activities or (ii) laws or regulations governing programs
pursuant to which the Seller or its students receive funding, including,
without limitation, the Perkins Loan Program, the Stafford Student Loan
Program, the Pell Grant program and the Supplemental Educational Opportunity
Grant Programs.
Complete and accurate records in all material respects for all present
and past students attending the School have been maintained consistent with the
operations of a school business. All forms and records have been prepared,
completed, maintained and filed in all material respects in accordance with all
applicable federal and state laws and regulations, and are true and correct in
all material respects. As of December 31, 1992 all financial aid grants and
loans, disbursements and record keeping relating to them have been completed in
compliance with all federal and state requirements, and there are no material
deficiencies in respect thereto. No student has been funded prior to the date
for which such student was eligible for funding and such student's records have
been processed in accordance with all applicable federal, state and relevant
third party funding source requirements. All appropriate reports and surveys
have been accurately prepared, taken and filed prior to delinquency.
(j) Default. Attached as EXHIBIT 13(13) is a schedule
indicating the cohort default rate, as calculated by the United States
Department of Education, of all students attending the School receiving
assistance pursuant to the Stafford Loan and Supplemental Loans for Students
programs (or their applicable predecessor programs) for the fiscal years ended
12/31/91, 12/31/90 and 12/31/89. To the best of the knowledge of the Seller and
each of the Shareholders, such schedule is materially accurate in all respects.
(k) Trademarks, etc. Attached to this Agreement as EXHIBIT
14(14) is a list of all tradenames, trademarks, service marks, copyrights and
the registrations for them owned or used by Seller. Seller has not infringed
and is not now infringing, any trademark, tradename, service mark, or copyright
belonging to any other person. Except as set forth on such exhibit, Seller is
not a party to any license, agreement or arrangement, whether as licensor,
licensee or otherwise, with respect to any trademark, tradename, service mark,
or copyright used by Seller. Seller's business may be conducted without
license by others for the use of any tradename, trademark, service mark, or
copyright.
(l) Material Contracts. Attached as composite EXHIBIT
15(15) to this Agreement is (i) a schedule identifying all material contracts
relating to the School's operations or the Facility, including, without
limitation, all agreements relating to state or Federal funding of educational
services provided by the Seller through grants, loans or direct payments either
to the Seller, individual students or otherwise, and any agreements relating to
the placement of students following their completion of relevant educational
programs provided by the Seller other than agreements with students involving
the teaching of standard courses, for standard prices as set forth in the
Sellers catalog or in the enrollment agreement for such students (the
"Contracts"); (ii) a summary of all material provisions of the Contracts that
are not reduced to written documents, including but not limited to all
provisions of each Contract regarding amounts payable by and/or to the Seller
and termination of the Contract; and (iii) a copy of all written Contracts.
Except as disclosed in Exhibit 15: (i) all of the Contracts remain unmodified
and in full force and effect, and (ii) Seller is not in default of any material
nature (nor does any state of facts exist which, with the giving of notice, the
passing of time, or otherwise, would constitute a default of any material
nature by Seller) with respect to any of the Contracts.
(m) Maintenance and Employment Agreements. Attached to
this Agreement as composite EXHIBIT 16(16) is (i) a schedule of all written
agreements between the Company and
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independent contractors, employees and agents who are employed or engaged in
the management or operation of Seller's business, the Facilities or the
personal property used by Seller; (ii) the names of all parties entitled to
payments from Seller under any such agreements or arrangements; (iii) the
amounts payable by Seller under the terms of all such agreements and
arrangements, including without limitation, the terms of employment and
compensation, including vacation and other employee benefit provisions and the
cost of all employee benefits and payroll taxes; and (iv) a copy of all written
contracts for such services. There are no material oral agreements in effect
for any such services. Except as disclosed on such Exhibit: (x) there are no
written agreements between any of such contractors, employees or agents and
Seller; (y) there is no party entitled to compensation or remuneration for any
such services arising from Seller's operations after the Closing; and (z)
Seller's agreements and arrangements providing for such services may be
terminated by Seller at any time with or without cause, and without any
obligation to pay any of said parties any amounts whatsoever except as may be
required by law (including, without limitation, severance pay or accrued
vacation pay or other benefits).
(n) Employee Benefit Plans. Seller maintains employee
benefit plans as listed on EXHIBIT 17(17) to this Agreement (the "Employee
Benefit Plans"). Copies of such plans are attached to such Exhibit. Except as
listed on such Exhibit, Seller does not maintain any profit sharing, pension or
other employee benefit plan. Seller has no unfunded obligations pursuant to
any insurance, retirement, pension, profit sharing or deferred compensation
plan or program.
(o) Labor. There is no existing labor dispute affecting
Seller's business. None of Seller's employees are covered by any union or
collective bargaining agreement.
(p) Insurance. A schedule of all of the policies of
insurance maintained by Seller in connection with the operation of its business
or the ownership of the Facility is attached as EXHIBIT 18(18) to this
Agreement. The insurance coverage provided by such policies complies with all
agreements to which Seller is a party, and applicable legal requirements to
which it is subject. All such policies are currently in effect.
(q) Taxes. Complete and accurate copies of all of the
Seller's Federal, state and other income tax returns for the years ended
August 31, 1989, 1990, and 1991 are attached as composite EXHIBIT 19(19) to this
Agreement. The Company has filed timely all Federal, state and local tax
returns which it is required to file and has no outstanding liability for any
Federal, state or local taxes or interest or penalties thereon, whether
disputed or not, except taxes not yet payable which have been provided for in
accordance with GAAP and are disclosed in the Interim Financial Statements.
Seller's Federal income tax returns have been audited and accepted by the
Internal Revenue Service for all of its fiscal years through the year ended
, 19 ; there is not now in force any extension of time with respect to the
date on which any tax return was or is due to be filed by or with respect to
Seller, or any waiver or agreement by it for the extension of time for the
assessment of any tax.
(r) Actions Pending. Except as disclosed in EXHIBIT
20(20) to this Agreement: (i) there are no actions, suits, proceedings or
claims pending or threatened against Seller or any Shareholder which, if
determined adversely to Seller or each Shareholder, could (A) have a material
adverse effect on Seller, the Assets, or the businesses of Seller when taken
as a whole, or (B) prevent or delay the consummation of any of the transactions
contemplated by this Agreement; (ii) Seller, is not (to its knowledge or the
knowledge of each Shareholder) the subject of any pending or threatened
investigation relating to any aspect of Seller's operations, including the
operations of any of the Facilities, by any Federal, state or local
governmental agency or authority; (iii) Seller, is not and has not been (to its
knowledge or the knowledge of each Shareholder) the subject of any formal or
informal complaint, investigation or inspection under the Equal Employment
Opportunity Act or the Occupational Safety and Health Act (or their state or
local counterparts) or by any other Federal, state or local
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authority.
(s) Accounts Receivable. Each of the accounts receivable
of Seller constitutes a valid claim in its full amount against the debtor
charged on Seller's books and has arisen in the ordinary course of Seller's
business. Seller's management believes that each such account receivable is
fully collectible to the extent of the face value thereof, except to the extent
of the normal allowance for doubtful accounts with respect to accounts
receivable computed as a percentage of sales consistent with Seller's prior
practices as reflected on the Interim Balance Sheet. No account debtor has any
valid setoff, deduction or defense with respect thereto, and no account debtor
has asserted any such setoff, deduction or defense.
(t) No Guaranties. Except for the Existing First
Mortgage, none of Seller's obligations or liabilities is guaranteed by any
other person, firm or corporation, nor has Seller guaranteed the obligations or
liabilities of any other person, firm or corporation.
(u) Bank Accounts and Deposit Boxes. Attached to this
agreement as EXHIBIT 21(21) are the names and addresses of all banks or
financial institutions in which Seller has an account, deposit or safety
deposit box with the names of all persons authorized to draw on these accounts
or deposits or to have access to the boxes, and an indication of which accounts
or deposits or boxes contain financial aid funds.
(v) Records. The books of account of Seller are complete
and correct in all material respects, and there have been no transactions
involving the business of Seller which properly should have been set forth
therein and which have not been accurately so set forth.
(w) Transactions With Certain Persons. Seller does not
owe any amount to, or have any contract with or commitment to, any Shareholder,
other than compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business. No
Shareholder owes any amount to Seller except as reflected in the Seller's
Financial Statements. Seller has made no distributions or other payments to
the Shareholders subsequent to December 31, 1992 except for (i) the
reimbursement of expenses incurred in the ordinary course of business (ii)
salaries consistent with those paid in prior comparable periods, (iii) payments
on the Existing Second Mortgage, or (iv) Permitted Pre-Closing Distributions.
3. REPRESENTATIONS AND WARRANTIES OF EMI AND BUYER. EMI and
Buyer, jointly and severally, represents to Seller and each Shareholder as
follows:
(a) No Misstatements. The representations and the
information supplied by it contained in this Agreement and the documents
incorporated by reference into it do not contain any untrue statement of a
material fact or omit to state any fact necessary to make such representations
or information not materially misleading.
(b) Validity of Actions. It is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the authority to carry on its business as currently conducted, and is qualified
to do business in all jurisdictions in which such qualification is necessary.
It has full power and authority to enter into this Agreement and to carry out
all acts contemplated by it. This Agreement and each of the documents provided
for in it to be delivered as part of this transaction, have been duly executed
and will be delivered pursuant to all appropriate corporate authorization on
its behalf and is its legal, valid and binding obligation and is enforceable
against it in accordance with its terms. The execution and delivery of this
Agreement, the Second Payment Promissory Note, and the consummation of the
transactions contemplated by them will not violate any provision of its
Certificate of Incorporation or Bylaws nor violate, conflict with or result in
any breach
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of any of the terms, provisions of or conditions of, or constitute a default or
cause acceleration of any indebtedness under, any indenture agreement or
instrument to which it is a party or by which it or its assets may be bound, or
cause a breach of any applicable Federal or state governmental law or
regulation, or any applicable order, judgment, writ, award, injunction or
decree of any court or governmental instrumentality.
(c) EMI's Financial Statements
(1) Attached as EXHIBIT 22(22) to this Agreement
are (A) EMI's audited balance sheets at March 31, 1990, 1991, and 1992, and
statements of income and expense and cash flows for the years then ending (the
"Annual Statements"), and (B) EMI's unaudited balance sheet at December 31,
1992 (the "Interim Balance Sheet"), and statements of income and expenses and
cash flow for the period then ending (collectively the Interim Balance Sheet
and such statements are called the "Interim Financial Statements"). The Annual
Statements and the Interim Financial Statements are called the "EMI's Financial
Statements."
(2) EMI's Financial Statements: (i) have been
prepared on the accrual basis in accordance with generally accepted accounting
principles consistently applied ("GAAP"), except as otherwise disclosed in the
reports accompanying them or in the notes attached to them, and (ii) fairly
present EMI's financial condition and its results of operations at the times
and for the periods presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects,
properties of assets of Buyer since the date of the Interim Financial
Statements.
(d) Buyer's Financial Condition. The Buyer is a newly formed
corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
4. COVENANTS OF THE PARTIES.
(a) Prohibited Acts. Pending consummation of the
transactions contemplated in this Agreement or prior to termination of this
Agreement, Seller and each Shareholder agree that, without prior written
consent of Buyer, given in a letter which specifically refers to this Section
of the Agreement:
(1) not to (i) perform any act or omit to take
any act that would make any of their respective representations made in Section
2 above, inaccurate or materially misleading as of the Closing Date, or (ii)
allow Seller to make any payment or distribution except for the payment of
liabilities provided for in Seller's Financial Statements or incurred in the
ordinary course of business or the Permitted Pre-Closing Distributions;
(2) to cause Seller to conduct its businesses in
the ordinary and regular course, maintain each School Facility and carry on its
business practices, protect its Accreditation and Permits, and keep its books
of account, records and files in substantially the same manner as at present.
(b) Notice. Pending the consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, each
party agrees that it will promptly advise the others of the occurrence of any
condition or event which would make any of its representations contained in
this Agreement inaccurate, incorrect, or materially misleading.
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<PAGE> 12
(c) Access. Prior to the Closing, Seller shall afford to
the Buyer (and its officers, attorneys, accountants and other authorized
representatives), upon reasonable notice, free and full access during usual
business hours to its offices, personnel, Facilities, books and records and
other data, financial or otherwise, so that Buyer may have full opportunity to
make such investigation as it shall desire of the Real Property, Assets,
business and operations of Seller, provided that such investigation shall not
unreasonably interfere with Seller's operations. The scope of the investigation
will include, but not be limited to, a verification of Seller's Financial
Statements and a review of Seller's control procedures, regulatory compliance,
each School Facility, material contracts, litigation and tax returns for prior
years. Duly authorized representatives of the Buyer shall also be entitled to
discuss with officers of Seller, its counsel, employees and independent public
accountants, all of its books, records and other corporate documents,
contracts, pricing and service policies, commitments and future prospects.
Representatives of Seller will furnish to Buyer and such other persons, copies
of all materials relating to the business affairs, operations, School Related
Assets and liabilities of Seller which may be reasonably requested from time to
time and will cause representatives and employees of Seller to assist Buyer in
its investigation of the matters relative to Seller. All information obtained
by Buyer, EMI or any of their officers, directors, employees, lender,
investors, agents and other representatives (the "Buyer's Representatives") in
connection with the transactions contemplated by this Agreement or in the
course of their investigations of the Seller, whether obtained before or after
the date of this Agreement (the "Evaluation Material") shall be used only in
connection with this Agreement and, in the event the transactions provided for
in this Agreement are not consummated, each of Buyer and EMI and Buyer's
Representatives shall agree or be instructed, as the case may be, that all
Evaluation Material will be otherwise kept strictly confidential, and, to the
extent practicable, returned to Seller.
(d) Additional Documents. At the request of any party,
each party will execute and deliver any additional documents and perform in
good faith such acts as reasonably may be required in order to consummate the
transactions contemplated by this Agreement and to perfect the conveyance and
transfer of any property or rights to be conveyed or transferred under the
terms of this Agreement.
(e) Employee Notification, Termination of Employee
Benefit Plans, Etc. With respect to any employees employed by the Seller prior
to the Closing, Seller will comply with the terms of all applicable Federal and
state laws and regulations, including without limitation the provisions of the
Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section Section
2101 et. seq. or the Consolidated Omnibus Budged Reconciliation Act ("COBRA").
Seller will terminate all Employee Benefit Plans in accordance with all
applicable laws and regulations as of a date no later than the Closing Date.
(f) Filing of Returns; Additional Information. Seller
will file on a timely basis all tax returns, notices of sale and other
documentation required by law in connection with the transactions provided for
in this Agreement or otherwise required by law, regulation or pursuant to the
terms of any agreement to which it is a party. Seller will supplement any
previous filing made by it in accordance with legitimate requests made by
applicable agencies or parties to the extent required by the relevant law,
regulation or agreement.
(g) Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the Closing Date, each of
the parties to this Agreement will execute such documents and take such other
actions as reasonably may be appropriate to fulfill the conditions to Closing
provided for in Section 5 of this Agreement.
5. CONDITIONS TO CLOSING BY THE RESPECTIVE PARTIES.
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The obligation of EMI and Buyer, on the one hand, and Seller and
each Shareholder on the other hand, to consummate the transactions contemplated
by this Agreement shall be subject to compliance with or satisfaction of the
following conditions by the other, to the extent applicable:
(a) Bring Down. The representations and warranties
set forth in this Agreement shall be true and correct in all material respects
on and at the Closing Date as if then made by the relevant party (except for
those representations and warranties made as of a given date, which shall
continue to be true and correct as of such given date).
(b) Compliance. Each party shall have complied with all
of the covenants and agreements in this Agreement on its or their part,
respectively, to be complied with as of or prior to the Closing Date.
(c) No Material Adverse Changes. Since the date of the
Interim Balance Sheet, there shall not have occurred any material adverse
change in the condition (financial or otherwise) of the School Related Assets
or prospects of Seller.
(d) Certificates. There shall be delivered to the Buyer
and EMI and to the Seller, respectively:
(1) a certificate executed by the President and
Secretary of the other, dated the Closing Date, certifying that the conditions
to be fulfilled by such party set forth in this Section 5 have been fulfilled;
(2) a certificate of incumbency for such entity
executed by its President or any Vice President and by the Secretary of any
Assistant Secretary of such entity, listing the officers of such entity
authorized to execute (to the extent applicable) the Agreement and the other
documents, certificates, schedules and instruments to be delivered on behalf of
such entity, and their respective offices, and containing the genuine signature
of each such person set forth opposite his name; and
(3) good standing certificates and certified
charter documents of such entity of recent date, from the Secretary of the
State of the jurisdiction of incorporation of such entity.
(e) No Suits. No action or proceeding shall have been
instituted in any court or before any Federal, state or local governmental
agency against any party seeking to restrain or prohibit the consummation of
the transactions contemplated by this Agreement, or which could have a material
adverse effect on the School Related Assets or prospects of any of the parties,
which shall not have been dismissed or withdrawn prior to the Closing Date.
(f) Closing Financials.
(1) The Buyer shall have received a student aid
audit, prepared at the Buyer's expense, confirming the accuracy of the relevant
representations and warranties contained in Section 2(h) and 2(i) of this
Agreement in all material respects.
(2) Not more than 15 days prior to the Closing,
Seller shall prepare and deliver to Buyer unaudited interim financial
statements, including a balance sheet (the "Closing Interim Balance Sheet") and
a statement of income and expense (the "Closing Interim Income Statement") for
the period ending March 31, 1993 reviewed by a certified public accountant (the
"Closing Interim Financial Statements"). The Closing Interim Financial
Statements shall be (A) prepared in accordance with GAAP, except that it may
not contain footnote disclosure and will be subject to normal year end
adjustments consistent with those made in prior years, (B) fairly present
Seller's financial condition and
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its results of operations as of the date and for the period presented, and (C)
shall not disclose any materially adverse variation in the results of
operations or financial condition when compared to the Seller's March Financial
Statements. The Closing Interim Financial Statements shall be accompanied by a
letter from the reviewing accountant stating that such accountant has reviewed
the books and records of the Seller as of a date no earlier than 5 days prior
to the Closing Date, and on the basis of a review of such records and
conversations with the Seller's management, nothing has come to his attention
which causes him to believe that there has been any material adverse change in
the financial condition of the Seller.
(g) Change of Seller's Name. At least ten (10) days
prior to the Closing, Seller and Shareholder shall deliver to Buyer a duly
executed and acknowledged certificate of amendment to Seller's articles of
incorporation or other appropriate document required to change Seller's
corporate name to a new name bearing no resemblance to its present name so as
to make Seller's present name available to Buyer. Buyer is hereby authorized
to file such certificate or other documents, at Seller's expense, in order to
effectuate such change of name at or after the Closing.
(h) Documents. All documents required to be delivered to
Buyer at or prior to Closing shall have been so delivered.
(i) Authority. There shall be in full force and effect
on the Closing Date resolutions of the Boards of Directors of the Buyer and
Seller and any corporate Shareholder approving this Agreement and the
transactions contemplated in it. At or prior to the Closing, each party will
deliver to the other a copy of the resolutions of its Board of Directors and,
in the case of the Seller, the resolutions or consents of each Shareholder,
together with any and all required resolutions or consents of each Shareholder
thereof, approving the execution and delivery of this Agreement and the
consummation of all of the transactions contemplated hereby, duly certified by
an appropriate officer.
(j) Opinions of Counsel. Each party shall receive the
opinion of counsel to the other party reasonably satisfactory in form and
content to the party receiving such opinion.
(k) Consents. Seller shall have obtained written
consents to the transfer or assignment to Buyer of all agreements, Licenses,
leases and other material contracts of Seller (other than immaterial purchase
and sales orders in the ordinary course of business) where the consent of any
other party to any such contract may, in the opinion of Buyer's counsel, be
required for such assignment or transfer.
(l) Estoppel. Seller shall have obtained and delivered
to Buyer written estoppel from the holders of any leases, and/or notes set
forth in Exhibits to this Agreement stating the amount due pursuant to such
agreements, and that each is in good standing and free from default.
(m) Current Insurance Coverage. Payments will have been
made as of the Closing Date with respect to all of Seller's insurance policies,
and all insurance coverage concerning Seller's assets and operations shall be
continued in force through at least 10 days subsequent to the Closing Date,
unless cancelled subsequent to the Closing Date by Buyer.
(n) Compliance with Bulk Sales Law. Seller shall have
either (i) duly complied with the provisions of the applicable state Uniform
Commercial Code sections dealing with bulk transfers which impose requirements
on a transferror, and shall have delivered to Buyer all documents and notices
required to be furnished thereunder by a transferror, and copies of any claims
made by creditors, or (ii) delivered to Buyer an opinion of counsel, which
opinion shall be reasonably satisfactory to Buyer and its counsel, indicating
that such compliance is not required in order to complete the transactions
provided for in this agreement in accordance with its terms.
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<PAGE> 15
(o) Bankruptcy, Dissolution, etc. No petition or other
commencement of proceedings in bankruptcy or proceedings for dissolution,
termination, liquidation or an arrangement, reorganization or readjustment of
any party's debts under any state or Federal law enacted for the relief of
debtors or otherwise, whether instituted by or against a party, has been
effected or commenced by or against any party.
(p) Financing. The Buyer shall have received financing
in the amount of at least $720,000.00 (the "Buyer's Financing") to be secured
by a first mortgage on the Facility, on terms and conditions acceptable to
Buyer in its sole, absolute and uncontrolled discretion.
6. CLOSING AND POST CLOSING AGREEMENTS.
(a) Closing Date and Place; Effective Date. The closing
of the transactions provided for in this Agreement shall take place as provided
for in Section 1((b) of this Agreement at the offices of the Seller, or at such
other place or time as the parties shall mutually agree in writing.
(b) Deliveries by Buyer to Seller. At the Closing, Buyer
shall make the payments provided for in Section 1(c), and deliver to the
Seller:
(1) The Second Payment Promissory Note; and
(2) An assumption agreement (the "Assumption
Agreement" in substantially the form attached to this Agreement as EXHIBIT
23(23).
(c) Deliveries by Buyer to Shareholders. At the Closing,
the Buyer shall deliver the Consulting Agreements to the Shareholders, each of
whom shall execute and deliver counterparts of such Agreements to the Buyer.
(d) Deliveries by EMI to Escrow Agent. At the Closing,
EMI shall deliver to counsel for Seller, as Escrow Agent:
(1) The Pledge Agreement; and
(2) The Buyer Stock, accompanied by duly endorsed
stock powers.
(e) Deliveries by Seller to Buyer. At the Closing,
Seller shall deliver to Buyer:
(1) The Bill of Sale (the "Bill of Sale") in the
form attached to this Agreement as EXHIBIT 24(24); and
(2) An Assignment of all of Seller's Bank Accounts;
(3) Such other instruments of conveyance in form
and substance reasonably
satisfactory to Buyer's counsel, as shall be effective to vest in Buyer good
and marketable title to the School Related Assets, including without limitation
the Facility Conveyance Document provided for in Appendix A to this Agreement.
(f) Further Documents or Acts. The parties will also
execute, deliver, and/or perform at Closing and thereafter all other documents
or acts required to consummate any of the transactions contemplated by this
Agreement.
7. CONFIDENTIALITY AND JOINT NON-COMPETITION AGREEMENT.
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(a) Each of Messrs. Guthrie and Cretcher acknowledges
that, as a result of his ownership of the Seller and, if applicable, employment
by Seller, he has had access to and knowledge of confidential or proprietary
information developed by Seller and of a special and unique nature and value to
Seller, including, but not limited to, Seller's methods and systems, students'
records, student files, charts, ledgers, accounts receivable ledgers, price
lists, methods and systems, operating procedures, technical memoranda,
curricula, accounts payable ledgers, records of amounts received from students,
student lists, referral sources, teacher lists, sources of employment for
students, placement materials, research reports, and financial records of
Seller and of its students and operating procedures, and other information,
data, and documents now existing or later acquired by each of Messrs. Guthrie
and Cretcher or Seller, regardless of whether any such information, data, or
documents, qualify as a "trade secret" under applicable Federal or state law
(collectively "Confidential Information"). As a material inducement to Buyer
to enter into this Agreement, each Shareholder and the Seller, jointly and
severally, covenants and agrees not at any time directly or indirectly, to
divulge or disclose for any purpose whatsoever, any Confidential Information
which is in the possession of Seller or which has been obtained by or disclosed
to each of Messrs. Guthrie and Cretcher as a result of employment by Seller,
ownership of Seller, or otherwise as a result of the relationship between each
of Messrs. Guthrie and Cretcher and Seller. In accordance with the foregoing,
each of Messrs. Guthrie and Cretcher and the Seller agrees at no time retain or
remove from the Facility records of any kind or description whatsoever (other
than those which constitute Excluded Assets) for any purpose whatsoever unless
authorized by Buyer. Notwithstanding the foregoing provisions of this Section
7(a), Seller and each of Messrs. Guthrie and Cretcher may disclose Confidential
Information (i) to its employees, counsel, accountants and agents on a
need-to-know basis (provided that any such person shall be informed of the
confidential nature of such information and directed not to disclose or make
public such Confidential Information), (ii) to the extent required by
applicable law, rules and regulation, and (iii) in any action, suit or
proceeding between the parties, provided that in connection with disclosures
permitted by clauses (ii) and (iii) above, Seller or each of Messrs. Guthrie
and Cretcher shall provide Buyer with at least three (3) days notice of such
intent so that an appropriate protective order may be sought by Buyer if
desired.
(b) As a material inducement to Buyer to enter into this
Agreement, each of Messrs. Guthrie and Cretcher and the Seller, jointly and
severally, covenants and agrees for a period of five (5) years after the date
of this Agreement not to (i) engage in any business in direct or indirect
competition with that currently conducted by the Seller which is being sold to
the Buyer pursuant to this Agreement or by EMI or any Affiliate(2) (the
"Prohibited Activities") anywhere within 50 miles of any school listed on
EXHIBIT 25(25) (the "Area"); (ii) become associated as manager, supervisor,
employee, consultant, advisor, stockholder owning more that 5% of the
outstanding stock of a company or participating in the management or direction
of a company or otherwise with any person, corporation or entity engaging in
any Prohibited Activities within the Area; (iii) call upon any of Buyer's
students, teachers or referral sources for the purpose of promoting any
Prohibited Activities for any person, person, corporation or entity within the
Area; or (iv) divert, solicit or take away any of Buyer's teachers or other
personnel for the purpose of engaging in any Prohibited Activities within the
Area.
(c) In the event of a breach or threatened breach by each
of Messrs. Guthrie and Cretcher or Seller of any of the provisions of this
Section 7, Buyer, in addition to and not in limitation of any other rights,
remedies, or damages available to Buyer at law or in equity, shall be entitled
to a permanent injunction in order to prevent or to restrain any such breach by
Seller or each of Messrs. Guthrie and Cretcher, or by such shareholder's
partners, agents, representatives, servants, employers, employees and/or any
and all persons directly or indirectly acting for or with him.
(d) Each of Messrs. Guthrie and Cretcher and the Seller
covenants and agrees that,
__________________________________
(2) An Affiliate is any person or entity controlling, controlled by or
under common control with EMI.
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<PAGE> 17
if he shall violate any of his covenants or agreements provided for in this
Section 7, Buyer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remuneration, or benefits which Seller or
Messrs. Guthrie and Cretcher, directly, or indirectly, has realized and/or may
realize as a result of, growing out of, or in connection with any such
violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Buyer may be entitled to
at law or in equity or under this Agreement.
(e) Each of Messrs. Guthrie and Cretcher and the Seller
has carefully read and considered the provisions of this Section 7, and agrees
that the restrictions set forth above (including without limitation the time
period and geographical areas of restriction) are fair and reasonable and are
reasonably required for the protection of the interest of the Buyer. Each
acknowledge that it is the intention of the Buyer to solicit students on a
nationwide basis, that the market for the schools curricula is national and
limited, and that the Buyer is considering introducing all or parts of the
School's curricula in other locations as part of its national marketing
program. In the event that, notwithstanding the foregoing, any of the
provisions of this Section 7 are held invalid or unenforceable, the remaining
provisions shall continue to be valid and enforceable. In the event that any
provision of this Section 7 relating to time period and/or areas of restriction
are declared by a court of competent jurisdiction to exceed the maximum time
period or areas such court deems reasonable and enforceable, said time period
or areas of restriction shall be deemed to become, and thereafter be, the
maximum time period and/or area which such court deems reasonable and
enforceable.
8. INDEMNIFICATION. Seller and each Shareholder, jointly and
severally, on the one hand, and Buyer, on the other hand (respectively, the
"Indemnifying Party"), agree to defend, indemnify and hold harmless the other
party and its directors, officers, employees and agents (collectively, the
"Indemnified Parties") from and against any loss, damage, settlement, or
expense (including, without limitation, attorneys' fees and disbursements)
incurred by any Indemnified Party and arising from or related to the inaccuracy
or breach of any of the representations, warranties, covenants or agreements of
the respective Indemnifying Party contained in this Agreement or in any
document incorporated by reference into it. In addition, the Buyer agrees to
indemnify and hold harmless the Seller and the Shareholders from and against
any loss, damage, settlement, or expense (including, without limitation,
attorneys' fees and disbursements) incurred by them as a result of the
operation of the School by the Buyer subsequent to the Closing Date. The
relevant Indemnified Part(ies) shall give (or cause to be given) to the
relevant Indemnifying Party notice of any claim or matter for which indemnity
is (or will be) sought under this Section 8; such notice shall be given
promptly after the Indemnified Part(ies) receive actual notice or knowledge of
the claim or matter that is subject to indemnification. With respect to any
claim asserted by a third party against any Indemnified Part(ies) for which
indemnity is sought, the relevant Indemnifying Party shall have the right to
employ counsel reasonably acceptable to the relevant Indemnified Part(ies) to
defend against such assertion, and such Indemnifying Parties shall have the
right to compromise or otherwise settle any such action or claim only with the
prior written consent of the relevant Indemnified Party, which shall not be
unreasonably withheld.
9. EVENTS OF DEFAULT. If any one or more of the following events
occurs then, subject to the expiration of any specified grace period and the
giving of any prior notice required under this Section 9, such event shall
constitute an Event of Default by the party responsible for such event or
against whom it should be charged.
(a) Untrue Statements. Any statement, report, financial
statement, or certificate made or delivered by any party or any of its agents
to another party is not true, complete and correct in any material respect.
(b) Warranties or Representations. Any warranty,
representation or other statement by or on behalf of any party contained in
this Agreement (or in any document between the parties
-17-
<PAGE> 18
furnished in compliance with or in reference hereto) is false or misleading in
any material respect.
(c) Agreements. Any party fails to take any action
required of it to comply with its obligations contained in this Agreement, or
takes any action prohibited or inconsistent with its obligations under this
Agreement, and such failure to act or action is not cured prior to thirty (30)
days after written notice thereof is given to the defaulting party, except in
the case of Section 7 of this Agreement, with respect to with the period
referred to in this Section shall be ten (10) days.
(d) Refusal to Close. A party refuses to consummate the
transactions provided for (and subject to the terms and conditions specified)
in this Agreement on the Closing Date, except if the failure to close is based
upon the failure of another party to meet a condition to Closing provided for
in Section 5 of this Agreement.
(e) Failure of Closing Condition. Any party is unable to
comply with the conditions of Closing provided for in Section 5 of this
Agreement, other than as a result of an Event of Default as described in
Sections 9(a), (b), (c) or (d) above.
10. TERMINATION AND RIGHTS AND REMEDIES ON DEFAULT.
(a) Termination. This Agreement may be terminated and
the transactions contemplated hereby abandoned prior to the Closing: (i) by the
mutual consent of Buyer, EMI, and the Seller, in their sole and absolute
discretion without the consent of the Shareholders; (ii) by Buyer and EMI, if
any condition to their obligations to close set forth in Section 5 hereof
becomes impossible of performance or has not been satisfied in full (in each
case other than as a result of a breach of such party's obligations under this
Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; (iii) by Seller and Shareholder if
any condition to their obligations to close set forth in Article 5 hereof
becomes impossible of performance or has not been satisfied in full (in each
case other than as a result of a breach of such party's obligations under this
Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; or (iv) by any party (other than a
party that is in breach of its obligations under this Agreement) if the Closing
shall not have occurred on or before the Termination Date. If this Agreement
is terminated pursuant to clause (i) of this Article 10, all obligations of the
parties hereunder shall terminate without any further liability or obligation
of any party to the other, except that the provisions of Section 11, Section
13(b) and the confidentiality provisions of Section 4(c) of this Agreement
shall survive and continue in full force and effect notwithstanding such
termination. Except as limited by the preceding sentence, the exercise by any
party of the right to terminate this Agreement shall not terminate or limit any
remedy that such party may have in this Section 10 as a result of an Event of
Default.
(b) Rights and Remedies on Default; Limitation of Liability.
Upon and after an Event of Default by any party, the other party shall have the
following rights and remedies:
(1) Default by Buyer. In the event that Buyer is
obligated to and fails to close by the Termination Date, and Seller and
Shareholder are not in default of their obligations under this Agreement, this
Agreement shall terminate and Seller and Shareholder shall have the right to
seek money damages, including without limitation, attorneys's fees and other
expenses incurred by them relating to the preparation of this Agreement and
indemnification pursuant to Section 8 of this Agreement, as their sole remedy.
Seller and Shareholder hereby agree that they shall not be entitled to seek or
file suit for specific performance of this Agreement.
(2) Default by Seller or Shareholder. If, on the
Termination Date, there exists an Event of Default as described in Section 9 of
this Agreement, chargeable against the Seller
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<PAGE> 19
or any Shareholder, Buyer may either (i) waive such default and close, in which
event Buyer shall have the right to seek specific performance of this
Agreement, including, without limitation, the acquisition of the School Related
Assets and the performance by the Seller and the Shareholder of the covenants
provided for in this Agreement, or (ii) refuse to close, and, except in the
case of an Event of Default described in Section 9(d) above, seek money damages
from Seller and Shareholder, including, without limitation, attorneys's fees
and other expenses incurred by them relating to the preparation of this
Agreement and indemnification pursuant to Section 8 of this Agreement. An
election by Buyer to proceed in accordance with subclause (i) of the preceding
sentence shall constitute the acknowledgment by Buyer, Seller and Shareholder
that Buyer cannot be adequately compensated by money damages for the failure to
perform by Seller and Shareholder, that such damages are indeterminate, and
that a court of competent jurisdiction may enter an order pursuant to which
Seller and Shareholder are obligated to specifically perform their obligations
to Buyer pursuant to the terms of this Agreement.
(3) Default Subsequent to Closing. If any party
breaches this Agreement subsequent to Closing pursuant to Section 9(c), or if a
default occurs pursuant to Sections 9(a) or 9(b), the nondefaulting party(ies)
shall have the right to seek money damages from the defaulting party(ies),
either pursuant to Section 8 of this Agreement or otherwise. In addition, if,
(i) as a result of any action taken or not taken by the Seller in violation of
any applicable law or regulation which (ii) has not been disclosed to the Buyer
in this Agreement, and which (iii) the occurrence or non occurrence of which
was known or reasonably should have been known to the Seller, the Prerequisite
Student Aid Approvals are not received prior to 12 months from the date of the
Closing, or, if received or offered, can only be obtained on conditions
imposing substantial financial burdens on the Buyer in addition to those which
would otherwise be imposed in connection which such approval, the Buyer may
elect to rescind the transactions provided for in this Agreement and, upon such
election, the parties will take such action as may be reasonably required to
restore the other party to its respective positions as they existed prior to
the Closing provided for in this Agreement.
(4) Nature of Remedies Cumulative. All rights
and remedies granted in this Agreement or available under applicable law shall
be deemed concurrent and cumulative and not alternative or exclusive remedies,
to the full extent permitted by law and this Agreement, and any party may
proceed with any number of remedies at the same time or in any order. The
exercise of any one right or remedy shall not be deemed a waiver or release of
any other right or remedy, and any party, upon the occurrence of an event of
default by another party under this Agreement, may proceed at any time, under
any agreement, in any order and with any available remedy.
(5) Limitation on Liability of Seller and
Shareholder. Except in the case of a breach of the agreements contained in
Section 7 of this Agreement, neither Seller nor Shareholder shall have any
liability with respect to any claims of Buyer or EMI for money damages, whether
pursuant to this Section, Section 8 of this Agreement or otherwise, until such
time, if any, as the aggregate amount of all such amounts otherwise subject to
recovery by Buyer or EMI shall exceed, in the aggregate, $25,000, and then only
to the extent of such excess.
11. FINDERS FEES.
Seller and each Shareholder, jointly and severally, represents and
warrants that it has not employed any finder or broker in connection with
transactions contemplated by this Agreement except for Mr. Warner W. Martin of
Associated Business Investment Corp., or his affiliates, and shall be
responsible for any commissions or fees payable to Mr. Martin and any other
such finder or broker for fees incurred by Seller and/or each Shareholder in
connection with this Agreement. Each party agrees to indemnify and hold
harmless the others from and against any claim, damages, liabilities, and
expenses (including without limitation, attorneys' fees and disbursements)
arising from any claim or
-19-
<PAGE> 20
demand asserted by any person or entity on the basis of its employment as a
finder or broker by the respective party.
12. NOTICES. All notices or other communications required or
permitted under the terms of this Agreement shall be made in writing and shall
be deemed given upon (i) hand delivery or (ii) three days after deposit of same
in the Certified Mail, Return Receipt Requested, first class postage and
registration fees prepaid and correctly addressed to the parties at the
following addresses:
If to Buyer: OIOPT Acquisition Corp.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 30076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 33076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
-20-
<PAGE> 21
If to Seller: Ohio Institute of Photography and Technology
2029 Edgefield Road
Dayton, Ohio
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. K. Terry Guthrie
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. Richard L. Cretcher
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. Stephen T. McLain
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. Gerald D. Guthrie
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
--------------------------
--------------------------
If to Shareholder: Mr. James R. Madden
--------------------------
--------------------------
With a copy to:
--------------------------
--------------------------
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<PAGE> 22
or to such other address as any of the parties hereto may designate by notice
to the others.
13. MISCELLANEOUS.
(a) Successors. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their respective successors
and permitted assigns. This Agreement may not be assigned prior to Closing
without the prior written consent of the other parties hereto.
(b) Expenses. Buyer and Seller shall be responsible for
any and all of the respective fees, costs and expenses incurred by each, in
connection with the negotiation, preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by
this reference all Exhibits hereto and all documents executed and/or delivered
at Closing. This Agreement and the documents so incorporated into it contain
the parties' entire understanding and agreement with respect to the subject
matter hereof; and any and all conflicting or inconsistent discussions,
agreements, promises, representations and statements, if any, between the
parties or their representatives that are not incorporated in this Agreement
shall be null and void and are merged into this Agreement.
(d) Amendments Only in Writing. No amendment,
modification, waiver or discharge of this Agreement or any provision of this
Agreement shall be effective against any party, unless such party shall have
consented thereto in writing.
(e) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original, but all of
which together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement,
when requested by another party, shall give all reasonable and necessary
cooperation with respect to any reasonable matters relating to the transactions
contemplated by this Agreement.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio, exclusive of
its choice of law provisions.
(h) Headings. The various section headings are inserted
for purposes of reference only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.
(i) Gender; Number. All references to gender or number
in this Agreement shall be deemed interchangeably to have a masculine,
feminine, neuter, singular or plural meaning, as the sense of the context
requires.
(j) Severability. The provisions of this Agreement shall
be severable, and any invalidity, unenforceability or illegality of any
provision or provisions of this Agreement shall not affect any other provision
or provisions of this Agreement,and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
(k) Survival. Except as otherwise expressly provided in
this Agreement, the liabilities and obligations of each party with respect to
any and all of its representations, warranties, covenants and agreements set
forth in this Agreement and/or in any document incorporated into it shall
-22-
<PAGE> 23
not be merged into, affected or impaired by the Closing under this Agreement,
but rather shall survive such Closing for the period of three years thereafter,
so that (except as otherwise provided below) any claim under this Agreement
must be asserted by notice given to the party claimed to be liable on or before
the third anniversary of the Closing Date. Notwithstanding the foregoing, the
time limitation shall not apply to: (i) the covenants related to
confidentiality and non-competition contained in Section 7 above and the
Non-Competition Agreements; (ii) claims relating to liabilities of the Seller
that are not Stated Liabilities; (iii) claims for indemnification under Section
8, above, which seek indemnity for matters identified in (ii), above, or
arising out of a misrepresentation as to matters contained in section 2 (i) or
2 (j), or Paragraph 6(a) of the Addendum to this Agreement, or (iv) fraud. All
obligations and liabilities described in the previous sentence shall survive
the Closing for the period in which a claim can be asserted with respect
thereto under applicable law.
(l) No Third Party Beneficiaries. This Agreement has been
entered into solely for the benefit of the parties that have executed it, and
not to confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it. The Second Promissory Note
may be assigned by the Seller to the Shareholders in accordance with their
respective interests.
(m) Addendum. The Addendum attached to this Agreement is
incorporated into it and made a part of it as if set forth in full.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
OIOPT ACQUISITION CORP. ("BUYER") OHIO INSTITUTE OF
PHOTOGRAPHY
AND TECHNOLOGY ("SELLER")
BY: By:
---------------------------- -----------------------
Authorized Signatory Authorized Signatory
SHAREHOLDERS:
----------------------
K. Terry Guthrie
SHAREHOLDERS:
----------------------
Richard L. Cretcher
----------------------
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<PAGE> 24
Stephen T. McLain
-----------------------
Gerald D. Guthrie
-----------------------
James R. Madden
By executing and delivering this Agreement, EMI agrees it is jointly and
severally liable for each of the obligations of the Buyer contained in it.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------
Authorized Signatory
-24-
<PAGE> 25
EXHIBITS
1. Form of Second Payment Note
2. Form of Consulting Agreement
3. Form of Pledge Agreement
4. Description of the Property
5. List of Excluded Assets
6. Articles of Incorporation
and By-Laws of the Seller
7. Seller's Financial Statements
8. Inventory of FF & E
9. List of Permits
10. List of Leases, Financing
Agreements, and Other
Encumbrances relating to Real
and Personal Property
11. List of Accreditation
12. Policy Manuals and other
School Material.
13. Cohort Default Rate
Evaluation Material
14. Trademarks etc.
15. List of Material Contracts
16. Employment Agreements
17. Employee Benefit Plans
18. Insurance Policies
19. Federal Income Tax Returns
20. Actions Pending
21. List of Bank Accounts
22. EMI's Financial Statements
23. Form of Assumption Agreement
24. Form of Bill of Sale
-25-
<PAGE> 26
25. List of Schools
-26-
<PAGE> 1
EXHIBIT 10.29
AMENDMENT TO BUSINESS LOAN AGREEMENT
This Amendment to Business Loan Agreement ("Amendment") is made this 28th day
of August, 1995, by and between OIOPT Acquisition Corp., a Delaware corporation
("Borrower"), and Bank One, Dayton, NA ("Bank One").
WITNESSETH:
WHEREAS, Borrower and Bank One entered into a Business Loan Agreement dated
July 14, 1993 (the "Agreement"); and WHEREAS, Borrower desires and Bank One has
agreed to amend certain financial covenants set forth in the Agreement.
NOW, THEREFORE, in consideration of the premises and the terms and conditions
set forth herein, Borrower and Bank One agree to amend the Agreement as
follows:
1. In Section 6.3, delete the first paragraph in its entirety and insert the
following in its place:
6.3 NET WORTH. Guarantor agrees to maintain a Net Worth of not less than
the amounts set forth for the following periods:
Periods Amounts
------- -------
03/31/95 - 03/30/96 $8,000,000
03/31/96 - 03/30/97 $8,500,000
03/31/97 and all times thereafter $9,000,000
and a ratio of Total Debt (defined as any and all debt of Guarantor)
to Net Worth of not more than 2.0 to 1.0 at March 31, 1995 and all
times thereafter.
2. Delete Section 6.4 in its entirety and insert the following in its place:
6.4 DEBT SERVICE COVERAGE RATIO. Guarantor agrees to maintain a ratio
of Cash Flow (defined as the sum of net income, interest expense and
non-cash charges) to Debt Service (defined as the sum of CMLTD
and Interest Expense) of not less than 1.2 to 1.0, tested each
fiscal quarter for the most recently completed four (4) fiscal
quarter period, beginning December 31, 1995.
<PAGE> 2
3. In Section 6.6, delete the first paragraph and the sections referring to
Periods, Amounts and Ratios and insert the following in their place:
6.6 TANGIBLE NET WORTH. Borrower agrees to maintain a Tangible Net
Worth of not less than the amounts set forth at the following
dates:
Dates Amounts
----- -------
03/31/95 & 09/30/95 $745,000
03/31/96 & 09/30/96 $775,000
03/31/97 and all times thereafter $795,000
and a ratio of Debt to Tangible Net Worth of not more than 1.75
to 1.0 at March 31, 1995 and all times thereafter.
4. Delete Section 6.7 in its entirety and insert the following in its place:
6.7 OPERATING INCOME RATIO. Borrower agrees to maintain a ratio of
Operating Income (defined as school contribution before
depreciation, interest and taxes) to debt service (defined as
principal plus interest) of not less than 1.75 to 1.0, tested
each fiscal quarter for the most recently completed four (4)
fiscal quarter period.
5. In Section 6.10, line 9, the word "value" shall be defined as the midpoint
between the Alternative Use Market Value and the Continued Use Market
Value, as defined in the appraisal completed by the Gem Real Estate dated
July 21, 1994.
6. The following shall be included as a new Section 8.13:
8.13 REAPPRAISAL REQUIREMENT. In the event that the Borrower and/or
Guarantor is in default of any of the covenants contained in the
Loan Agreement, Borrower and/or Guarantor will reimburse Bank
One for any reappraisal expenses incurred as a result of the loan
of OIOPT Acquisition Corp.
7. The following shall be included as a new Section 8.14:
8.14 Bank One, Dayton, NA hereby consents to the additional debt
taken on by the Guarantor in its form of $2,200,000.00 term
loan to Sirron Capital Corporation, as defined in the Loan
Agreement dated March 31, 1995.
8. This Amendment is a modification only and not a novation. Except for the
above-quoted modification(s), the Agreement, any agreement or security
document, and all the terms and conditions thereof, shall be and remain in
full force and effect with the changes herein deemed to be incorporated
therein. This Amendment is to be considered attached to the Agreement and
made a part thereof. This Amendment shall not release or affect the
liability of any guarantor, surety or
<PAGE> 3
endorser of the Agreement or release any owner of collateral securing
the Agreement. The validity, priority and enforceability of the
Agreement shall not be impaired hereby. To the extent that any
provision of this Amendment conflicts with any term or condition
set forth in the Agreement, or any agreement or security document
executed in conjunction therewith, the provisions of this Amendment
shall supersede and control
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of
the day and year first written above.
OIOPT ACQUISITION CORP.-Borrower
By: /s/ Vince Pisano
------------------------------
Its: V.P. Finance
-----------------------------
EDUCATIONAL MEDICAL, INC.
Guarantor
By: Vince Pisano
-------------------------------
Its: V.P Finance
-------------------------------
BANK ONE, DAYTON, NA
By:
--------------------------------
Its:
-------------------------------
<PAGE> 1
EXHIBIT 10.30
PROMISSORY NOTE MODIFICATION AGREEMENT
This Agreement is made and entered into on 28th, August, 1995
("Agreement Date"), to be effective as of August 28, 1995 ("Effective Date"),
by and between OIOPT Acquisition Corp., a Delaware corporation ("Maker") and
Bank One, Dayton, NA ("Bank One"):
WITNESSETH:
WHEREAS, Maker heretofore executed a $720,000.00 promissory note dated July
14, 1993 in favor of Bank One as same may have been amended or modified from
time to time ("Promissory Note"); and, WHEREAS, Maker has requested that the
Promissory Note be modified to the limited extent as hereinafter set forth;
and, WHEREAS, Bank One has agreed to such modification; NOW THEREFORE, by
mutual agreement of the parties and in mutual consideration of the premises and
for other good and valuable considerations, the receipt of which is hereby
acknowledged, the parties hereto agree that the Promissory Note is modified as
hereinafter indicated.
1. RATE OF INTEREST
The rate of interest from the Effective Date until paid in full shall be
modified as follows:
Interest on the daily unpaid principal balance of the Promissory Note
shall be changed to a fixed rate of eight and three quarters of one
percent (8.75%) per annum until July 14, 1998, (the "Adjustment Date").
Commencing on July 14, 1993, interest on the daily unpaid principal
balance of the Promissory Note shall be changed to a variable rate of
one and one quarter percent (1.25%) above the Prime Rate in effect on
each respective day.
"Prime Rate" means the rate of interest announced by Bank One from time
to time as its Prime Rate and is adjusted to reflect a change in the
Prime Rate on the same day as the Prime Rate changes.
Interest shall be calculated on a 360 day year basis and shall be
calculated by dividing the actual number of days which elapsed during
the period interest accrued by a year of 360 days ? the interest
rate in effect.
2. PRINCIPAL AND INTEREST PAYMENTS.
Payments of principal and interest shall be due from the Effective Date
as follows:
Commencing on September 1, 1995, and continuing on the first day of
each calendar month thereafter until and including the Adjustment Date,
the monthly payments shall be in an amount equal to the amount
necessary to amortize the outstanding principal sum and accrued
interest thereon at the interest rate as of the Effective Date in 156
equal monthly installments of principal and interest. Commencing with
the payment
<PAGE> 2
due on the first day of the month next succeeding the Adjustment Date,
the monthly payments shall be in an amount equal to the outstanding
principal sum of the Note on the Adjustment Date multiplied by the
fraction in which the numerator is one (1) and the denominator is 156
less the number of monthly principal payments made by Maker since the
Effective Date, plus accrued interest thereon. Notwithstanding anything
in the foregoing to the contrary, the outstanding principal sum of the
Promissory Note, together with all accrued and unpaid interest under the
Promissory Note, shall be due and payable on the Maturity Date.
3. AGREEMENTS/COLLATERAL.
All agreements or security documents previously executed shall remain in full
force and effect except to the extent hereby modified.
4. TERMS AND CONDITIONS.
This Agreement is a modification only and not a provision. Except for the
above-quoted modification(s), the Promissory Note, any agreement or security
document, and all the terms and conditions thereof, shall be and remain in full
force and effect with the changes herein deemed to be incorporated therein.
This Agreement is to be considered attached to the Promissory Note and made a
part thereof. This Agreement shall not release or affect the liability of any
guarantor, surety or endorser of the Promissory Note or release any owner of
collateral securing the Promissory Note. The validity, priority and
enforceability of the Promissory Note shall not be impaired hereby. To the
extent that any provision of this Agreement conflicts with any term or
condition set forth in the Promissory Note, or any agreement or security
document executed in conjunction therewith, the provisions of this Agreement
shall supersede and control. Maker acknowledges and agrees that as of the
Agreement Date there are no claims, setoffs or defenses or rights to claims,
setoffs or defenses to payment of the Promissory Note. If the Promissory Note
is signed by more than one person, the modified Promissory Note shall be the
joint and several obligation of all Makers of the Promissory Note.
5. REAFFIRMATION OF COGNOVIT PROVISION.
Each Maker continues to authorize any attorney at law to appear in an action on
the Promissory Note, as modified, at any time after the sums becomes due,
whether by acceleration or otherwise, in any court of record in or of the State
of Ohio, or of elsewhere, and to waive the issuing and service of process
against any or all Makers, enter an appearance and to confess judgment ?
of Bank One against any or all Makers for the amount that may be due under the
Promissory Note, as modified, together with costs of suit, and to release all
errors and waive all rights of appeal and stay of execution from the judgment
rendered. After the judgment is entered against any one or more Makers, the
powers herein conferred may be exercised as to any one or more of the other
Makers. The death of any Maker shall not impair the authority herein granted
as to the survivor or survivors of such Maker.
<PAGE> 3
- -------------------------------------------------------------------------------
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
- -------------------------------------------------------------------------------
OIOPT ACQUISITION CORP., a Delaware
corporation
By: Vince Pisano
---------------
Its: V.P. Finance
---------------
BANK ONE'S ACCEPTANCE
The foregoing Promissory Note Modification Agreement is hereby agreed to and
acknowledged this 30th day of August, 1995.
BANK ONE, DAYTON, NA
By: Scott E. ????
---------------------------------
Its: Senior Commercial Banking Officer
---------------------------------
<PAGE> 4
ACKNOWLEDGEMENT AND AGREEMENT BY GUARANTOR(S) AND/OR OWNER(S)
OF COLLATERAL SECURING THE PROMISSORY NOTE.
The foregoing Promissory Note Modification Agreement is hereby acknowledged and
agreed to by the undersigned guarantor(s) of the Promissory Note and/or the
owner(s) of collateral securing the Promissory Note, confirming the continuing
validity of said guaranty(ies) and/or security document(s).
EDUCATION MEDICAL, INC.
By: Vince Pisano
---------------------------
Tit: V.P. Finance
--------------------------
<PAGE> 1
EXHIBIT 10.31
AMENDMENT TO BUSINESS LOAN AGREEMENT
This Amendment to Business Loan Agreement ("Amendment") is made this 28th
day of August, 1995, by and between OIOPT Acquisition Corp., a Delaware
corporation ("Borrower"), and Bank One, Dayton, NA ("Bank One").
WITNESSETH:
WHEREAS, Borrower and Bank One entered into a Business Loan Agreement dated
July 14, 1993 (the "Agreement"); and WHEREAS, Borrower desires and Bank One has
agreed to amend certain financial covenants set forth in the Agreement.
NOW, THEREFORE, in consideration of the premises and the terms and conditions
set forth herein, Borrower and Bank One agree to amend the Agreement as
follows:
1. In Section 6.3, delete the first paragraph in its entirety and insert
the following in its place:
6.3 NET WORTH. Guarantor agrees to maintain a Net Worth
of not less than the amounts set forth for the
following periods:
Periods Amounts
------- -------
03/31/95 - 03/30/96 $8,000,000
03/31/96 - 03/30/97 $8,500,000
03/31/97 and all times thereafter $9,000,000
and a ratio of Total Debt (defined as any and all
debt of Guarantor) to Net Worth of not more than 2.0
to 1.0 at March 31, 1995 and all times thereafter.
2. Delete Section 6.4 in its entirety,and insert the following in its
place:
6.4 DEBT SERVICE COVERAGE RATIO. Guarantor agrees to
maintain a ratio of Cash Flow (defined as the sum of
net income, interest expense and non-cash charges) to
Debt Service (defined as the sum of CMLTD and
Interest Expense) of not less than 1.2 to 1.0, tested
each fiscal quarter for the most recently completed
four (4) fiscal quarter period, beginning December
31, 1995.
<PAGE> 2
3. In Section 6.6, delete the first paragraph and the sections referring
to Periods, Amounts and Ratios and insert the following in their place:
6.6 TANGIBLE NET WORTH. Borrower agrees to maintain a
Tangible Net Worth of not less than the amounts set
forth at the following dates:
Dates Amounts
----- -------
03/31/95 & 09/30/95 $745,000
03/31/96 & 09/30/96 $775,000
03/31/97 and all times thereafter $795,000
and a ratio of Debt to Tangible Net Worth of not more
than 1.75 to 1.0 at March 31, 1995 and all times
thereafter.
4. Delete Section 6.7 in its entirety and insert the following in its
place:
6.7 OPERATING INCOME RATIO. Borrower agrees to maintain a
ratio of Operating Income (defined as school
contribution before depreciation, interest and taxes)
to debt service (defined as principal plus interest) of
not less than 1.75 to 1.0, tested each fiscal quarter
for the most recently completed four (4) fiscal quarter
period.
5. In Section 6.10, line 9, the word "value" shall be defined as the
midpoint between the Alternative Use Market Value and the Continued
Use Market Value, as defined in the appraisal completed by the Gem
Real Estate dated July 21, 1994.
6. The following shall be included as a new Section 8.13:
8.13 REAPPRAISAL REQUIREMENT. In the event that the
Borrower and/or Guarantor is in default of any of the
covenants contained in the Loan Agreement, Borrower
and/or Guarantor will reimburse Bank One for any
reappraisal expenses incurred as a result of the loan
to OIOPT Acquisition Corp.
7. The following shall be included as a new Section 8.14:
8.14 Bank One, Dayton, NA hereby consents to the
additional debt taken on by the Guarantor in its form
of $2,200,000.00 term loan to Sirron Capital
Corporation, as defined in the Loan Agreement dated
March 31, 1995.
8. This Amendment is a modification only and not a novation. Except for
the above-quoted modification(s), the Agreement, any agreement or
security document, and all the terms and conditions thereof, shall be
and remain in full force and effect with the changes herein deemed to
be incorporated therein. This Amendment is to be considered attached
to the Agreement and made a part thereof. This Amendment shall not
release or affect the liability of any guarantor, surety or
<PAGE> 3
endorser of the Agreement or release any owner of collateral securing
the Agreement. The validity, priority and enforceability of the
Agreement shall not be impaired hereby. To the extent that any
provision of this Amendment conflicts with any term or condition set
forth in the Agreement, or any agreement or security document executed
in conjunction therewith, the provisions of this Amendment shall
supersede and control.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of
the day and year first written above.
OIOPT ACQUISITION CORP.-Borrower
By: /s/ Vince Pisano
-----------------------------------
Its: V.P. Finance
----------------------------------
EDUCATIONAL MEDICAL, INC.-
Guarantor
By: /s/ Vince Pisano
-----------------------------------
Its: V.P. Finance
----------------------------------
BANK ONE, DAYTON, NA
By: /s/ Scott E. Roman
-----------------------------------
Its: Senior Commercial Banking Officer
----------------------------------
<PAGE> 1
EXHIBIT 10.32
Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
December 31, 1992
Mr. Gary D. Kerber
Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
Re: Employment Agreement
Dear Mr. Kerber:
The following are the revised terms of your employment as President and
Chief Executive Officer of Educational Medical, Inc. (the "Company"). These
revised terms, all of which are included in this Revised Agreement, are
effective immediately.
1. Term; Residence; Duties. You will serve as the President
and Chief Executive Officer of the Company until your employment is terminated
as provided below (the "Employment Period"). During the Employment Period you
will devote substantially all of your time to the duties provided for under the
terms of this Revised Agreement.
As President and Chief Executive Officer of the Company, you shall have
such duties as are delegated by the By-laws of the Company or are assigned to
you by the Board of Directors of the Company, provided that such duties shall be
reasonably consistent with those duties (x) assigned to the President and Chief
Executive Officer of organizations comparable to the Company and (y) assigned to
you by the Board of Directors prior to the date of this Revised Agreement. In
connection with the performance of your duties, the Company will supply you with
services and facilities reasonably appropriate to such duties and your position.
The Company agrees that it will maintain its headquarters in the metropolitan
Atlanta area, where you will maintain you principle office.
2. Salary. Your salary will be $160,000 per year as of
March 21, 1992. Your salary will be reviewed by the Company's Board of Directors
on an annual basis prior to the end of each fiscal year, with the next such
review to occur prior to the end of fiscal 1992 (March 31, 1993). In
<PAGE> 2
Gary D. Kerber
December 31, 1992
Page 2
connection with such reviews your salary will be subject to increase as of the
beginning of the next fiscal year at the sole discretion of the Board of
Directors (e.g., April 1, 1993 in the case of the review conducted prior to
March 31, 1993).
3. Incentive Compensation. You will propose an appropriate
incentive plan for yourself and the other executive officers of the Company (the
"Incentive Plan(s)") to the Board of Directors for each fiscal year no later
than 30 days after it begins or such latter date as you and the Board of
Directors may agree. Concurrently or prior to the submission of the Incentive
Plan(s) you will submit a proposed budget for the applicable fiscal year to the
Board of Directors. The Board of Directors will promptly consider the proposed
Incentive Plan(s), and approve them or propose alternative incentive
compensation within 30 days of receipt of your recommendations. No Incentive
Plan(s) shall be implemented without the approval of the Board of Directors or
its designated representative.
4. Vacation. During the term of this Revised Agreement, you
shall be entitled to four (4) weeks of annual vacation. The time for which you
will be absent from the office shall be at your sole discretion, provided such
time is compatible with reasonable needs of the Company.
5. Insurance. In addition to the compensation provided in the
foregoing provisions of this Revised Agreement, the Company agrees to continue
to provide you with a term life insurance contract insuring your life in the
principal amount of Five Hundred Thousand Dollars ($500,000) Dollars, as
currently in effect. You or your designee shall be owner/beneficiary thereof.
Notwithstanding the foregoing, if the Company is unable to obtain term life
insurance on your life at a normal and customary cost thereof for a male of your
age, then this provision and the obligation of the Company hereunder shall be
limited to a contribution toward the payment of such premium of the amount of
such customary fees and expenses (the "Company Funded Premium"). At your
election, the Company Funded Premium may be applied toward such lesser amount of
term life insurance as it may procure.
<PAGE> 3
Gary D. Kerber
December 31, 1992
Page 3
6. Fringe and Medical Benefits. You, your spouse and your
children will be entitled to reasonable medical insurance benefits, including up
to an aggregate of $5,000 of annual unallocated reimbursements for medically
related expense ("Unallocated Reimbursements"); any unused amounts may be
carried forward to subsequent years. You shall be eligible to participate in the
Company's stock option and other benefit programs. In addition, the Company may
provide such fringe benefits to you, either through direct payments by the
Company or by reimbursement, as the Company may determine from time to time.
7. Disability. In the event of disability, the Company either
directly, through insurance or a combination of both, will provide you with
payments equal to the salary provided for in this Revised Agreement through the
end of the first three months of such disability. In any event, the Company
shall maintain in force the current disability policy or, in the event of
cancellation, a substantially similar policy if available on reasonable terms,
providing in each case for continuation through your sixty-fifth birthday of
disability payments in an amount substantially equivalent to your annualized
compensation at the time such disability occurs. The obligations of the Company
pursuant to this Section 7 shall continue regardless of whether the Company
elects to terminate the Employment Period as provided in Section 8 of this
Revised Agreement on account of such disability. For purposes of this Revised
Agreement disability means a reasonable determination by the Board of Directors
of the Company based on reasonable medical evidence, that you are physically
incapable of substantially performing your obligations pursuant to the terms of
this Revised Agreement, provided that a determination by the issuer of any
disability policy described in this Section 7 that you are "disabled" pursuant
to the provisions of such policy shall be conclusive evidence of such disability
for purposes of this Revised Agreement.
8. Termination. You may terminate the Employment Period
by at least 30 days' prior notice to the
<PAGE> 4
Gary D. Kerber
December 31, 1992
Page 4
Company. The Company may terminate the Employment Period for cause, which shall
mean (a) your death, (b) your disability that prevents you from performing your
obligations to the Company for any three (3) consecutive months; (c) acts of
serious moral turpitude; gross negligence in connection with the performance of
your duties as provided for in this Revised Agreement; fraud; the imposition of
any sanctions against you by regulatory agencies governing the Company or you
with respect to the business of the Company; or a material violation by you of
any of the rules and regulations contained in the By-Laws of the Company
relating to your duties. The Board of Directors may make a preliminary
determination that Cause (a "Preliminary Determination of Cause") exists at any
time. If a Preliminary Determination of Cause is made, the Board of Directors,
in its absolute discretion, may suspend you, with full pay, from all offices
provided for in this Agreement pending a Final Determination of Cause as
described in the next sentence. If the Board of Directors makes a Preliminary
Determination of Cause, you shall be notified of such determination in writing
within 24 hours after such determination is made, such notice to specifically
identify the basis for such determination, and scheduling a special meeting of
the Board of Directors at which you may appear for purposes of considering
whether Cause for Termination exists (a "Final Determination of Cause'). A Final
Determination of Cause shall only be made by the Company's Board of Directors at
a meeting duly called, with respect to which you shall have been given (i)
reasonable written notice as described above, specifying in reasonable detail
the basis for the charge that cause for termination exists and (ii) a reasonable
opportunity to contest such charge.
In the event of termination by the Company without cause you will be
entitled to a termination payment (the "Termination Payment") equal to the
greater of (X) $160,000 or (Y) the amount of compensation paid to you or accrued
to your benefit for the fiscal year last ending prior to the date of such
termination, less the amount of bonus included in such compensation, times a
fraction, the denominator of which is 12 and the numerator of which is six, if
the Final Determination
<PAGE> 5
Gary D. Kerber
December 31, 1992
Page 5
of Cause occurs prior to April 1, 1993, and thereafter six plus 1 for each
additional fiscal year you are employed by the company pursuant to this
Agreement or any amendments to it. For example, if you are still employed
pursuant to this Agreement as of April 1, 1993, the numerator of such fraction
would be 7 and would increase to 8 as of April 1, 1994. The increases in the
numerator of the fraction provided for in prior two sentences shall be limited,
however, so that such numerator shall never exceed 12.
9. Continued Applicability of Prior Agreement. The
Non-Competition, Non-Disclosure and Proprietary Information Agreement dated
March 31, 1988 between you and the Company, a copy of which is attached to this
Revised Agreement as Exhibit 2, is specifically reaffirmed and incorporated into
this Revised Agreement by reference.
10. Governing Law. This Revised Agreement shall be governed
by, and construed in accordance with (a) the laws of the State of New York
applicable to contracts made and to be performed wholly therein, and (b) the
laws of the State of Delaware applicable to corporations organized under the
laws of such state.
11. Entire Agreement. This Revised Agreement and the
agreements referred to in it contain the entire agreement between the parties
hereto with respect to the transactions contemplated herein and supersedes all
previously written or oral negotiations, commitments, representations, and
agreements.
12. Counterparts. This Revised Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
13. Amendments. This Revised Agreement, or any provisions
hereof, may not be amended, changed or modified without the prior written
consent of each of the parties hereto.
<PAGE> 6
Gary D. Kerber
December 31, 1992
Page 6
If the foregoing confirms your understanding of our agreements
concerning your employment by the Company, please so indicate by signing in the
space provided below and return a signed copy to us.
Very truly yours,
EDUCATIONAL MEDICAL, INC.
[SEAL] By:
--------------------------------
Morris C. Brown,
Secretary
Confirmed and Agreed to:
- -----------------------------------
Gary D. Kerber
<PAGE> 1
EXHIBIT 10.33
[EDUCATIONAL MEDICAL, INC. LETTERHEAD]
November 21, 1988
Mr. Robert L. Heidrick
The Heidrick Partners, Inc.
Suite 4000
20 North Wacker Drive
Chicago, IL 60606
Dear Bob:
This letter will formalize the stock option portion of the search you did for
Educational Medical, Inc.'s CFO. As we discussed, our original agreement called
for options on 15,000 shares. Since we ended up with one million shares, rather
than the 2,333,332 we originally planned, the number has been proportionately
reduced to 6,429 options.
This will confirm the grant to you of an option to buy 6,429 shares of our
company's common stock for a ten-year period commencing on the effective date of
an initial public offering of our common stock. The option price will be the
public offering price. The number of shares will be subject to adjustment for
stock splits.
If you have any further questions, please don't hesitate to call.
Sincerely,
Gary D. Kerber
Gary D. Kerber
President
GDK/bw
<PAGE> 1
EXHIBIT 10.34
EDUCATIONAL MEDICAL, INC.
1996 STOCK INCENTIVE PLAN
1. DEFINITIONS: As used herein, the following definitions shall
apply:
(a) "Administrator" shall mean the Board of Directors or
the Committee if the Board of Directors, in its sole discretion,
designates the Committee to administer the Plan.
(b) "Board of Directors" shall mean the Board of
Directors of the Corporation.
(c) "Committee" shall mean the Compensation Committee
designated by the Board of Directors of the Corporation, or such other
committee as shall be specified by the Board of Directors to perform
the functions and duties of the Committee under the Plan; provided,
however, that the Committee shall comply with the requirements of (i)
Rule 16b-3 of the Rules and Regulations under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and (ii) Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder.
(d) "Corporation" shall mean Educational Medical, Inc., a
Delaware corporation, or any successor thereof.
(e) "Discretion" shall mean in the sole discretion of the
Administrator, with no requirement whatsoever that the Administrator
follow past practices, act in a manner consistent with past practices,
or treat a key employee, consultant or advisor in a manner consistent
with the treatment afforded other key employees, consultants or
advisors with respect to the Plan.
(f) "Incentive Option" shall mean an option to purchase
Common Stock of the Corporation which meets the requirements set forth
in the Plan and also meets the definition of an incentive stock
option within the meaning of Section 422 of the Code; provided,
however, that Incentive Options may only be granted to persons who are
employees of the Corporation or of a subsidiary corporation in which
the Corporation owns, directly or indirectly, 50% or more of the
combined voting power of all classes of stock of the subsidiary
corporation. The stock option agreement for an Incentive Option shall
state that the option is intended to be an Incentive Option.
(g) "Nonqualified Option" shall mean an option to
purchase Common Stock of the Corporation which meets the requirements
set forth in the Plan but does not meet the definition of an incentive
stock option within the meaning of Section 422 of the Code. The stock
option agreement for a Nonqualified Option shall state that the option
is intended to be a Nonqualified Option.
(h) "Participant" shall mean any individual designated by
the Administrator under Paragraph 6 for participation in the Plan.
<PAGE> 2
(i) "Plan" shall mean this Educational Medical, Inc. 1996
Stock Incentive Plan.
(j) "Restricted stock award" shall mean a grant of Common
Stock of the Corporation which is subject to forfeiture, restrictions
against transfer, and such other terms and conditions determined by
the Administrator, as provided in Paragraph 18.
(k) "Stock appreciation right" shall mean a right to
receive the appreciation in value, or a portion of the appreciation in
value, of a specified number of shares of the Common Stock of the
Corporation, as provided in Paragraph 12.
(l) "Subsidiary" shall mean any corporation or similar
entity in which the Corporation owns, directly or indirectly, stock or
other equity interest ("Stock") possessing more than 25% of the
combined voting power of all classes of Stock; provided, however, that
an Incentive Option may be granted to an employee of a Subsidiary only
if the Subsidiary is a corporation and the Corporation owns, directly
or indirectly, 50% or more of the total combined voting power of all
classes of Stock of the Subsidiary.
2. PURPOSE OF PLAN: The purpose of the Plan is to provide
employees (including officers and directors who are also employees),
consultants and advisors of the Corporation and its Subsidiaries with an
increased incentive to make significant and extraordinary contributions to the
long-term performance and growth of the Corporation and its Subsidiaries, to
join the interests of employees, consultants and advisors with the interests of
the shareholders of the Corporation, and to facilitate attracting and retaining
employees, consultants and advisors of exceptional ability.
3. ADMINISTRATION: The Plan shall be administered by the
Administrator. Subject to the provisions of the Plan, the Administrator shall
determine, from those eligible to be Participants under the Plan, the persons
to be granted stock options, stock appreciation rights and restricted stock,
the amount of stock or rights to be optioned or granted to each such person,
and the terms and conditions of any stock options, stock appreciation rights
and restricted stock. Subject to the provisions of the Plan, the Administrator
is authorized to interpret the Plan, to make, amend and rescind rules and
regulations relating to the Plan and to make all other determinations necessary
or advisable for the Plan's administration. Interpretation and construction of
any provision of the Plan by the Administrator shall, unless otherwise
determined by the Board of Directors in cases where the Committee is the
Administrator, be final and conclusive. A majority of the Administrator shall
constitute a quorum, and the acts approved by a majority of the members present
at any meeting at which a quorum is present, or acts approved in writing by a
majority of the Administrator, shall be the acts of the Administrator.
4. INDEMNIFICATION OF THE BOARD OF DIRECTORS AND COMMITTEE
MEMBERS: In addition to such other rights of indemnification as they may have,
the members of the Board of
-2-
<PAGE> 3
Directors and the Committee shall be indemnified by the Corporation in
connection with any claim, action, suit or proceeding relating to any action
taken or failure to act under or in connection with the Plan or any option,
stock appreciation right or restricted stock granted hereunder to the full
extent provided for under the Corporation's Bylaws with respect to
indemnification of directors of the Corporation.
5. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN: The maximum number
of shares with respect to which stock options or stock appreciation rights may
be granted or which may be awarded as restricted stock under the Plan shall be
961,666 shares in the aggregate of Common Stock of the Corporation. The number
of shares with respect to which a stock appreciation right is granted, but not
the number of shares which the Corporation delivers or could deliver to a
Participant upon exercise of a stock appreciation right, shall be charged
against the aggregate number of shares remaining available under the Plan;
provided, however, that in the case of a stock appreciation right granted in
conjunction with a stock option under circumstances in which the exercise of
the stock appreciation right results in termination of the stock option and
vice versa, only the number of shares subject to the stock option shall be
charged against the aggregate number of shares remaining available under the
Plan. If a stock option or stock appreciation right expires or terminates for
any reason (other than termination as a result of the exercise of a related
right) without having been fully exercised, or if shares of restricted stock
are forfeited, the number of shares with respect to which the stock option or
stock appreciation right was not exercised at the time of its expiration or
termination, and the number of forfeited shares of restricted stock, shall
again become available for the grant of stock options or stock appreciation
rights, or the award of restricted stock, under the Plan, unless the Plan shall
have been terminated.
The number of shares subject to each outstanding stock option, stock
appreciation right or restricted stock award, the option price with respect to
outstanding stock options, the grant value with respect to outstanding stock
appreciation rights and the aggregate number of shares remaining available
under the Plan shall be subject to such adjustment as the Administrator, in its
Discretion, deems appropriate to reflect such events as stock dividends, stock
splits, recapitalizations, mergers, consolidations or reorganizations of or by
the Corporation; provided, however, that no fractional shares shall be issued
pursuant to the Plan, no rights may be granted under the Plan with respect to
fractional shares, and any fractional shares resulting from such adjustments
shall be eliminated from any outstanding stock option, stock appreciation
right, or restricted stock award.
6. PARTICIPANTS: The Administrator shall determine and designate
from time to time, in its Discretion, those employees, consultants or advisors
of the Corporation or any Subsidiary to receive stock options, stock
appreciation rights, or restricted stock who, in the judgment of the
Administrator, are or will become responsible for the direction and financial
success of the Corporation or any Subsidiary; provided, however, that Incentive
Options may be granted only to persons who are employees of the Corporation or
a Subsidiary, and in the case of a Subsidiary
-3-
<PAGE> 4
only if (i) the Corporation owns, directly or indirectly, 50% or more of the
total combined voting power of all classes of Stock of the Subsidiary and (ii)
the Subsidiary is a corporation. For the purposes of the Plan, eligible
employees shall include officers and directors who are also employees of the
Corporation or any Subsidiary.
7. WRITTEN AGREEMENT: Each stock option, stock appreciation
right and restricted stock award shall be evidenced by a written agreement
(each a "Corporation-Participant Agreement") containing such provisions as may
be approved by the Administrator. Each such Corporation-Participant Agreement
shall constitute a binding contract between the Corporation and the Participant
and every Participant, upon acceptance of such Agreement, shall be bound by the
terms and restrictions of the Plan and of such Agreement. The terms of each
such Corporation-Participant Agreement shall be in accordance with the Plan,
but each Agreement may include such additional provisions and restrictions
determined by the Administrator, in its Discretion, provided that such
additional provisions and restrictions are not inconsistent with the terms of
the Plan.
8. ALLOTMENT OF SHARES: Subject to the terms of the Plan, the
Administrator shall determine and fix, in its Discretion, the number of shares
of Common Stock with respect to which a Participant may be granted stock
options and stock appreciation rights and the number of shares of restricted
stock which a Participant may be awarded.
9. STOCK OPTIONS: Subject to the terms of the Plan, the
Administrator, in its Discretion, may grant to Participants either Incentive
Options or Nonqualified Options or any combination thereof. Each option
granted under the Plan shall designate the number of shares covered thereby, if
any, with respect to which the option is an Incentive Option, and the number of
shares covered thereby, if any, with respect to which the option is a
Nonqualified Option.
10. STOCK OPTION PRICE: Subject to the rules set forth in this
Paragraph 10, at the time any stock option is granted, the Administrator, in
its Discretion, shall establish the price per share for which the shares
covered by the option may be purchased. With respect to an Incentive Option,
such option price shall not be less than 100% of the fair market value of the
stock on the date on which such option is granted; provided, however, that with
respect to an Incentive Option granted to an employee who at the time of the
grant owns (after applying the attribution rules of Section 424(d) of the Code)
more than 10% of the total combined voting stock of the Corporation or of any
parent or subsidiary, the option price shall not be less than 110% of the fair
market value of the stock on the date such option is granted. Fair market
value of a share shall be determined by the Administrator and may be determined
by taking the mean between the highest and lowest quoted selling prices of the
Corporation's Common Stock on any exchange or other market on which the shares
of Common Stock of the Corporation shall be traded on such date, or if there
are no sales on such date, on the next following day on which there are sales.
The option price shall be subject to adjustment in accordance with the
provisions of paragraph 5 of the Plan.
-4-
<PAGE> 5
11. PAYMENT OF STOCK OPTION PRICE: To exercise in whole or in
part any stock option granted hereunder, payment of the option price in full in
cash or, with the consent of the Administrator, in Common Stock of the
Corporation or by a promissory note payable to the order of the Corporation in
a form acceptable to the Administrator, shall be made by the Participant for
all shares so purchased. Such payment may, with the consent of the
Administrator, also consist of a cash down payment and delivery of such
promissory note in the amount of the unpaid exercise price. In the Discretion
of and subject to such conditions as may be established by the Administrator,
payment of the option price may also be made by the Corporation retaining from
the shares to be delivered upon exercise of the stock option that number of
shares having a fair market value on the date of exercise equal to the option
price of the number of shares with respect to which the Participant exercises
the stock option. Such payment may also be made in such other manner as the
Administrator determines is appropriate, in its Discretion. No Participant
shall have any of the rights of a shareholder of the Corporation under any
stock option until the actual issuance of shares to said Participant, and prior
to such issuance no adjustment shall be made for dividends, distributions or
other rights in respect of such shares, except as provided in Paragraph 5.
12. STOCK APPRECIATION RIGHTS: Subject to the terms of the Plan,
the Administrator may grant stock appreciation rights to Participants either in
conjunction with, or independently of, any stock options granted under the
Plan. A stock appreciation right granted in conjunction with a stock option
may be an alternative right wherein the exercise of the stock option terminates
the stock appreciation right to the extent of the number of shares purchased
upon exercise of the stock option and, correspondingly, the exercise of the
stock appreciation right terminates the stock option to the extent of the
number of shares with respect to which the stock appreciation right is
exercised. Alternatively, a stock appreciation right granted in conjunction
with a stock option may be an additional right wherein both the stock
appreciation right and the stock option may be exercised. A stock appreciation
right may not be granted in conjunction with an Incentive Option under
circumstances in which the exercise of the stock appreciation right affects the
right to exercise the Incentive Option or vice versa, unless the stock
appreciation right, by its terms, meets all of the following requirements:
(a) the stock appreciation right will expire no later
than the Incentive Option;
(b) the stock appreciation right may be for no more than
the difference between the option price of the Incentive Option and
the fair market value of the shares subject to the Incentive Option at
the time the stock appreciation right is exercised;
(c) the stock appreciation right is transferable only
when the Incentive Option is transferable, and under the same
conditions;
(d) the stock appreciation right may be exercised only
when the Incentive Option is eligible to be exercised; and
-5-
<PAGE> 6
(e) the stock appreciation right may be exercised only
when the fair market value of the shares subject to the Incentive
Option exceeds the option price of the Incentive Option.
Upon exercise of a stock appreciation right, a Participant shall be
entitled to receive, without payment to the Corporation (except for applicable
withholding taxes), an amount equal to the excess of or, in the Discretion of
the Administrator if provided in the Corporation-Participant Agreement, a
portion of the excess of (i) the then aggregate fair market value of the number
of shares with respect to which the Participant exercises the stock
appreciation right, over (ii) the aggregate fair market value of such number of
shares at the time the stock appreciation right was granted. This amount shall
be payable by the Corporation, in the Discretion of the Administrator, in cash
or in shares of Common Stock of the Corporation or any combination thereof.
13. GRANTING AND EXERCISING OF STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS: Subject to the provisions of this Paragraph 13, each
stock option and stock appreciation right granted hereunder shall be
exercisable at any such time or times or in any such installments as may be
determined by the Administrator at the time of the grants; provided, however,
no stock option or stock appreciation right may be exercisable prior to the
expiration of six months from the date of grant unless the Participant dies or
becomes disabled prior thereto. In addition, the aggregate fair market value
(determined at the time the option is granted) of the Common Stock with respect
to which Incentive Options are exercisable for the first time by a Participant
during any calendar year under any plan maintained by the Corporation (or any
parent or subsidiary corporation of the Corporation) shall not exceed $100,000.
A Participant may exercise a stock option or stock appreciation right,
if then exercisable, in whole or in part by delivery to the Corporation of
written notice of the exercise, in such form as the Administrator may
prescribe, accompanied, in the case of a stock option, by (i) payment for the
shares with respect to which the stock option is exercised in accordance with
Paragraph 11, or (ii) in the Discretion of the Administrator, irrevocable
instructions to a stock broker to promptly deliver to the Corporation full
payment for the shares with respect to which the stock option is exercised from
the proceeds of the stock broker's sale of or loan against the shares. Except
as provided in Paragraph 17 or as provided in any applicable
Corporation-Participant Agreement, stock options and stock appreciation rights
granted to a Participant may be exercised only while the Participant is an
employee or consultant of the Corporation or a Subsidiary.
Successive stock options and stock appreciation rights may be granted
to the same Participant, whether or not the stock option(s) and stock
appreciation right(s) previously granted to such Participant remain
unexercised. A Participant may exercise a stock option or a stock appreciation
right, if then exercisable, notwithstanding that stock options and stock
appreciation rights previously granted to such Participant remain unexercised.
-6-
<PAGE> 7
14. NON-TRANSFERABILITY OF INCENTIVE STOCK OPTIONS: No Incentive
Stock Option granted under the Plan to a Participant shall be transferable by
such Participant otherwise than by will or by the laws of descent and
distribution, and Incentive Stock Options shall be exercisable, during the
lifetime of the Participant, only by the Participant.
15. TERM OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS: If not
sooner terminated, each stock option and stock appreciation right granted
hereunder shall expire not more than 10 years from the date of the granting
thereof; provided, however, that with respect to an Incentive Option or a
related stock appreciation right granted to a Participant who, at the time of
the grant, owns (after applying the attribution rules of Section 424(d) of the
Code) more than 10% of the total combined voting stock of all classes of stock
of the Corporation or of any parent or subsidiary, such option and stock
appreciation right shall expire not more than five (5) years after the date of
granting thereof.
16. CONTINUATION OF EMPLOYMENT: The Administrator may require, in
its Discretion, that any Participant under the Plan to whom a stock option or
stock appreciation right shall be granted shall agree in writing as a condition
of the granting of such stock option or stock appreciation right to remain in
the employ of the Corporation or a Subsidiary as an employee, consultant or
advisor for a designed minimum period from the date of the granting of such
stock option or stock appreciation right as shall be fixed by the
Administrator.
17. TERMINATION OF EMPLOYMENT: If the employment or consultancy
of a Participant by the Corporation or a Subsidiary shall terminate, the
Administrator may, in its Discretion, permit the exercise of stock options and
stock appreciation rights granted to such Participant (i) for a period not to
exceed three months following termination of employment with respect to
Incentive Options or related stock appreciation rights if termination of
employment is not due to death or permanent disability of the Participant, (ii)
for a period not to exceed one year following termination of employment with
respect to Incentive Options or related stock appreciation rights if
termination of employment is due to the death or permanent disability of the
Participant, and (iii) for a period not to extend beyond the expiration date
with respect to Nonqualified Options or related or independently granted stock
appreciation rights. In no event, however, shall a stock option or stock
appreciation right be exercisable subsequent to its expiration date and,
furthermore, unless the Administrator in its Discretion determine otherwise, a
stock option or stock appreciation right may only be exercised after
termination of a Participant's employment or consultancy to the extent
exercisable on the date of such termination or to the extent exercisable as a
result of the reason for such termination. The period of time, if any, a
Participant shall have to exercise stock options or stock appreciation rights
upon termination of employment or consultancy shall be set forth in the
Corporation-Participant Agreement, subject to extension of such time period by
the Administrator in its Discretion.
18. RESTRICTED STOCK AWARDS: Subject to the terms of the Plan,
the Administrator may award shares of restricted stock to Participants. All
shares of restricted stock granted to
-7-
<PAGE> 8
Participants under the Plan shall be subject to the following terms and
conditions (and to such other terms and conditions prescribed by the
Administrator):
(a) At the time of each award of restricted shares, there
shall be established for the shares a restricted period, which shall
be no less than six months and no greater than five years. Such
restricted period may differ among Participants and may have different
expiration dates with respect to portions of shares covered by the
same award.
(b) Shares of restricted stock awarded to Participants
may not be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered during the restricted period applicable to such
shares. Except for such restrictions on transfer, a Participant shall
have all of the rights of a shareholder in respect of restricted
shares awarded to him or her including, but not limited to, the right
to receive any dividends on, and the right to vote, the shares.
(c) If the employment of a Participant as an employee,
consultant or advisor of the Corporation or a Subsidiary terminates
for any reason (voluntary or involuntary, and with or without cause)
other than death or permanent disability, all shares theretofore
awarded to the Participant which are still subject to the restrictions
imposed by Paragraph 18(b) shall upon such termination of employment
be forfeited and transferred back to the Corporation, without payment
of any consideration by the Corporation. In the event such employment
is terminated by action of the Corporation or a Subsidiary without
cause or by agreement between the Corporation or a Subsidiary and the
Participant, however, the Administrator may, in its Discretion,
release some or all of the shares from the restrictions.
(d) If the employment of a Participant as an employee,
consultant or advisor of the Corporation or a Subsidiary terminates by
reason of death or permanent disability, the restrictions imposed by
Paragraph 18(b) shall lapse with respect to shares then subject to
such restrictions, unless otherwise determined by the Administrator.
(e) Stock certificates shall be issued in respect of
shares of restricted stock awarded hereunder and shall be registered
in the name of the Participant. Such certificates shall be deposited
with the Corporation or its designee, together with a stock power
endorsed in blank, and, in the Discretion of the Administrator, a
legend shall be placed upon such certificates reflecting that the
shares represented thereby are subject to restrictions against
transfer and forfeiture.
(f) At the expiration of the restricted period applicable
to the shares, the Corporation shall deliver to the Participant or the
legal representative of the Participant's estate the stock
certificates deposited with it or its designee and as to which the
restricted
-8-
<PAGE> 9
period has expired. If a legend has been placed on such certificates,
the Corporation shall cause such certificates to be reissued without
the legend.
In the case of events such as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations of or by the
Corporation, any stock, securities or other property which a Participant
receives or is entitled to receive by reason of his or her ownership of
restricted shares shall, unless otherwise determined by the Administrator, be
subject to the same restrictions applicable to the restricted shares and shall
be deposited with the Corporation or its designee.
19. INVESTMENT PURPOSE: If the Administrator in its Discretion
determines that as a matter of law such procedure is or may be desirable, it
may require a Participant, upon any acquisition of Common Stock hereunder
(whether by reason of the exercise of stock options or stock appreciation
rights or the award of restricted stock) and as a condition to the
Corporation's obligation to issue or deliver certificates representing such
shares, to execute and deliver to the Corporation a written statement, in form
satisfactory to the Administrator, representing and warranting that the
Participant's acquisition of shares of stock shall be for such person's own
account, for investment and not with a view to the resale or distribution
thereof and that any subsequent offer for sale or sale of any such shares shall
be made either pursuant to (a) a registration statement on an appropriate form
under the Securities Act of 1933, as amended (the "Securities Act"), which
registration statement has become effective and is current with respect to the
shares being offered and sold, or (b) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption
the Participant shall, prior to any offer for sale or sale of such shares,
obtain a favorable written opinion from counsel for or approved by the
Corporation as to the availability of such exemption. The Corporation may
endorse an appropriate legend referring to the foregoing restriction upon the
certificate or certificates representing any shares issued or transferred to a
Participant under the Plan.
20. RIGHTS TO CONTINUED EMPLOYMENT: Nothing contained in
the Plan or in any stock option, stock appreciation right or restricted stock
granted or awarded pursuant to the Plan, nor any action taken by the
Administrator hereunder, shall confer upon any Participant any right with
respect to continuation of employment as an employee, consultant or advisor of
the Corporation or a Subsidiary nor interfere in any way with the right of the
Corporation or a Subsidiary to terminate such person's employment at any time.
21. WITHHOLDING PAYMENTS: If upon the exercise of a
Nonqualified Option or stock appreciation right, or upon the award of
restricted stock or the expiration of restrictions applicable to restricted
stock, or upon a disqualifying disposition (within the meaning of Section 422
of the Code) of shares acquired upon exercise of an Incentive Option, there
shall be payable by the Corporation or a Subsidiary any amount for income tax
withholding, in the Administrator's Discretion, either the Corporation shall
appropriately reduce the amount of Common Stock or cash to be delivered or paid
to the Participant or the Participant shall pay such
-9-
<PAGE> 10
amount to the Corporation or Subsidiary to reimburse it for such income tax
withholding. The Administrator may, in its Discretion, permit Participants to
satisfy such withholding obligations, in whole or in part, by electing to have
the amount of Common Stock delivered or deliverable by the Corporation upon
exercise of a stock option or stock appreciation right or upon award of
restricted stock appropriately reduced, or by electing to tender Common Stock
back to the Corporation subsequent to exercise of a stock option or stock
appreciation right or award of restricted stock, to reimburse the Corporation
or a Subsidiary for such income tax withholding (any such election being
irrevocable), subject to such rules and regulations as the Administrator may
adopt, including such rules as it determines appropriate with respect to
Participants subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to effect
such tax withholding in compliance with the Rules established by the Securities
and Exchange Commission (the "Commission") under Section 16 to the Exchange Act
and the positions of the staff of the Commission thereunder expressed in
no-action letters exempting such tax withholding from liability under Section
16(b) of the Exchange Act. The Administrator may make such other arrangements
with respect to income tax withholding as it shall determine.
22. EFFECTIVENESS OF PLAN: The Plan shall be effective on the
date the Board of Directors of the Corporation adopts the Plan, provided that
the shareholders of the Corporation approve the Plan within 12 months of its
adoption by the Board of Directors. Stock options, stock appreciation rights
and restricted stock may be granted or awarded prior to shareholder approval of
the Plan, but each such stock option, stock appreciation right or restricted
stock grant or award shall be subject to shareholder approval of the Plan. No
stock option or stock appreciation right may be exercised prior to shareholder
approval, and any restricted stock awarded is subject to forfeiture if such
shareholder approval is not obtained.
23. TERMINATION, DURATION AND AMENDMENTS OF PLAN: The Plan may be
abandoned or terminated at any time by the Board of Directors of the
Corporation. Unless sooner terminated, the Plan shall terminate on the date
ten years after its adoption by the Board of Directors, and no stock options,
stock appreciation rights or restricted stock may be granted or awarded
thereafter. The termination of the Plan shall not affect the validity of any
stock option, stock appreciation right or restricted stock outstanding on the
date of termination.
For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board of
Directors shall have the right, with or without approval of the shareholders of
the Corporation, to amend or revise the terms of the Plan at any time, however,
no such amendment or revision will, without the consent of the holder thereof,
change the stock option price (other than anti-dilution adjustment) or alter or
impair any stock option, stock appreciation right or restricted stock which has
been previously granted or awarded under the Plan.
As adopted by the Board of Directors on June 20, 1996.
-10-
<PAGE> 1
EXHIBIT 10.35
EDUCATIONAL MEDICAL, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of Plan: The purpose of the Educational Medical, Inc.
Non-employee Director Stock Option Plan (the "Plan") is to attract and retain
the services of experienced and knowledgeable independent directors of
Educational Medical, Inc., a Delaware corporation (the "Corporation"), and to
provide additional incentive for such directors to continue to work for the
best interests of the Corporation and its stockholders through an investment
interest in the future success of the Corporation. The Corporation is
currently in the process of registering shares of its Common Stock with the
Securities and Exchange Commission for sale in an initial public offering (the
"Public Offering").
2. Administration: The Plan shall be administered by the Board
of Directors of the Corporation (the "Board") or, at the election of the Board,
by the Stock Option Committee of the Board of Directors of the Corporation (the
"Committee"; and with the Board, the "Administrator"). Subject to the
provisions of the Plan, the Administrator shall grant stock options under the
Plan and is authorized to interpret the Plan, to promulgate, amend and rescind
rules and regulations relating to the Plan and to make all other determinations
necessary or advisable for its administration. Interpretation and construction
of any provision of the Plan by the Administrator shall be final and
conclusive.
3. Indemnification of Administrator: In addition to such other
rights of indemnification as they may have, the members of the Administrator
shall be indemnified by the Corporation against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such member of the
Administrator has acted in bad faith; provided, however, that within sixty (60)
days after receipt of notice of institution of any such action, suit or
proceeding a member of the Administrator shall offer the Corporation in writing
the opportunity, at its own cost, to handle and defend the same.
4. Maximum Number of Shares Subject to Plan: The maximum number
of shares with respect to which options may be granted under the Plan shall be
200,000 shares in the aggregate of Common Stock of the Corporation, which may
consist in whole or in part of the authorized and unissued or reacquired Common
Stock of the Corporation. If an option expires or terminates for any reason
without having been fully exercised, the number of shares with respect to which
the option was not exercised at the time of its expiration or termination shall
again become available for the grant of options under the Plan.
<PAGE> 2
The number of shares subject to each outstanding option, the number of
shares subject to each option to be granted under the Plan, the option price
with respect to outstanding options, and the aggregate number of shares
remaining available under the Plan shall be subject to such adjustment as the
Administrator, in its discretion, deems appropriate to reflect such events as
stock dividends, stock splits, recapitalizations, mergers, consolidations or
reorganizations of or by the Corporation. Provided, however, that no
fractional shares shall be issued pursuant to the Plan, no options may be
granted under the Plan with respect to fractional shares, and any fractional
shares resulting from such adjustments shall be eliminated from any outstanding
option.
5. Eligibility for and Grant of Options: Each member of the
Board who otherwise (i) is not presently an employee of the Corporation, (ii)
is not a former employee still receiving compensation for prior services (other
than benefits under a tax-qualified pension plan), and (iii) is not currently
receiving remuneration from the Corporation in any capacity other than as a
director shall be eligible for the grant of stock options under the Plan (a
"Participant"). Subject to the terms of the Plan, the Administrator may grant
Participants such number of stock options as the Administrator may determine
from time to time. In addition to any other grants made pursuant to the terms
of the Plan, beginning with the first annual meeting of the stockholders of the
Corporation which is subsequent to the date the Plan is adopted by the Board
and provided that a sufficient number of shares remain available under the
Plan, each year on the date of the annual meeting of the stockholders of the
Corporation there shall automatically be granted to each Participant who is
serving on or elected to the Board on such date an option to purchase 3,000
shares of the Common Stock of the Corporation (subject to adjustment as
provided in Paragraph 4). The options to be granted under the Plan shall be
nonqualified stock options (stock options which do not constitute "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended).
6. Written Agreement: Each option shall be evidenced by a
written agreement which shall contain such provisions as may be approved by the
Administrator. Such agreements shall constitute binding contracts between the
Corporation and the Participant and every Participant, upon acceptance of such
agreement, shall be bound by the terms and restrictions of the Plan and of the
agreement. The terms of each such agreement shall be in accordance with the
Plan, but the agreements may include such additional provisions and
restrictions determined by the Administrator, provided that such additional
provisions and restrictions are not inconsistent with the terms of the Plan.
7. Option Price: The price per share for which the shares
covered by an option may be purchased shall be 100% of the fair market value of
the shares on the date on which the option is granted. For purposes of the
initial option grants to the existing members of the Board on the date the Plan
was adopted, the fair market value of such shares will be the initial public
offering price of the Common Stock of the Corporation in the Public Offering.
8. Payment of Option Price: At the time of the exercise in whole
or in part of any option granted hereunder, payment of the option price in full
in cash or in Common Stock of the Corporation shall be made by the Participant
for all shares so purchased. No Participant
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<PAGE> 3
shall have any of the rights of a shareholder of the Corporation under any
option until the actual issuance of shares to said Participant, and prior to
such issuance no adjustment shall be made for dividends, distributions or other
rights in respect of such shares, except as provided in Paragraph 4.
9. Exercise and Term of Options: Subject to the provisions of
this Paragraph 9, each stock option and stock appreciation right granted
hereunder shall be exercisable at any such time or times or in any such
installments as may be determined by the Administrator at the time of the
grant; provided, however, no stock option may be exercisable prior to the
expiration of six months from the date of grant unless the Participant dies or
becomes disabled prior thereto. If not sooner terminated as provided herein,
each option granted hereunder shall expire ten (10) years from the date of the
granting thereof. Notwithstanding anything contained hereof to the contrary,
the initial option grants to existing non-employee directors of the Corporation
shall not vest until consummation of the Public Offering.
A Participant may exercise an option, if then exercisable, in whole or
in part by delivery to the Corporation of written notice of the exercise, in
such form as the Administrator may prescribe, accompanied by full payment for
the shares with respect to which the option is exercised. Except as provided
in Paragraph 11, options granted to a Participant may be exercised only while
the Participant is serving as a member of the Board.
Successive options may be granted to the same Participant, whether or
not the option(s) previously granted to such Participant remain unexercised. A
Participant may exercise an option, if then exercisable, notwithstanding that
options previously granted to such Participant remain unexercised.
10. Continuation of Service: The Administrator may require, in
its discretion, that any Participant under the Plan to whom an option shall be
granted shall agree in writing as a condition of the granting of such option to
continue serving on the Board for a designated minimum period from the date of
the granting of such option as shall be fixed by the Administrator. Nothing
contained in the Plan or in any option granted pursuant to the Plan, nor any
action taken by the Administrator hereunder, however, shall confer upon any
Participant any right with respect to continuation of membership on the Board
nor interfere in any way with the right of the Corporation to terminate such
person's membership on the Board at any time.
11. Termination of Service: If the membership of a Participant on
the Board terminates by reason of death or disability, an option granted to
such Participant may be exercised for a period of twelve months after such
termination. If the membership of a Participant on the Board terminates for
any reason other than death or disability, an option granted to such
Participant may be exercised for a period of sixty days after such termination.
In no event, however, shall an option be exercisable subsequent to its
expiration date and, furthermore, an option may only be exercised after
termination of a Participant's membership on the Board to the extent
exercisable on the date of such termination.
-3-
<PAGE> 4
12. Investment Purpose: If the Administrator in its discretion
determines that as a matter of law such procedure is or may be desirable, it
may require a Participant, upon any acquisition of stock hereunder, to execute
and deliver to the Corporation a written statement, in form satisfactory to the
Administrator, representing and warranting that the Participant's acquisition
of shares of stock shall be for such person's own account, for investment and
not with a view to the resale or distribution thereof and that any subsequent
offer for sale or sale of any such shares shall be made either pursuant to (a)
a Registration Statement on an appropriate form under the Securities Act of
1933, as amended (the "Securities Act"), which Registration Statement has
become effective and is current with respect to the shares being offered and
sold, or (b) a specific exemption from the registration requirements of the
Securities Act, but in claiming such exemption the Participant shall, prior to
any offer for sale or sale of such shares, obtain a favorable written opinion
from counsel for or approved by the Corporation as to the availability of such
exemption. The Corporation may endorse an appropriate legend referring to the
foregoing restriction upon the certificate or certificates representing any
shares issued or transferred to the Participant.
13. Withholding Payments: If upon the exercise of an option there
shall be payable by the Corporation any amount for income tax withholding,
either the Corporation shall appropriately reduce the amount of stock to be
issued to the participant or the Participant shall pay such amount to the
Corporation to reimburse it for such income tax withholding.
14. Effectiveness of Plan: The Plan shall be effective on the
date the Board adopts the Plan.
15. Termination, Duration and Amendments of Plan: The Plan may be
abandoned or terminated at any time by the Board. Unless sooner terminated,
the Plan shall terminate on the date ten years after its adoption by the Board,
and no options may be grated thereafter. The termination of the Plan shall not
affect the validity of any option outstanding on the date of termination.
For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board shall have
the right, with or without approval of the shareholders of the Corporation, to
amend or revise the terms of the Plan at any time.
As adopted by the Board on June 20, 1996.
-4-
<PAGE> 1
EXHIBIT 10.36
ASSIGNMENT OF REAL ESTATE LEASE
This assignment of lease is made as of the 24th day of May, 1993, by and
between the grantor BETA Services, Inc., a Virginia corporation (the
"Assignor") and the grantee DBS ACQUISITION CORP., a Delaware corporation (the
"Assignee.")
RECITALS
The Assignor hereunder is the tenant under a lease (the "Lease") dated the
7th day of July, 1990 of certain real property and improvements located at 933
Reservoir Street in the City of Harrisonburg, Virginia from Lawson Development,
Inc., a Virginia corporation (the "Landlord,") which lease is attached hereto
and incorporated herein by reference, marked "Exhibit A." The leased premises
is a portion of the property owned by the Landlord, a description of which is
attached hereto and incorporated herein by reference, marked "Exhibit B."
Educational Medical, Inc. (the "Guarantor") is a Delaware corporation which
holds all of the issued and outstanding capital stock of the Assignee. The
terms Assignor, Assignee, Lease, Landlord and Guarantor, have the defined
meaning in the following ASSIGNMENT, ACCEPTANCE OF ASSIGNMENT, GUARANTY, and
CONSENT TO ASSIGNMENT, which accompany this document and which are
incorporated herein.
ASSIGNMENT
This Assignment is made as of May 24, 1993. In consideration of Ten
Dollars ($10.00) cash in hand paid, and other good and valuable consideration,
the receipt and sufficiency of
<PAGE> 2
which is hereby acknowledged, the Assignor hereby assigns all of its
right, title and interest in the Lease to the Assignee.
ASSIGNOR
BETA Services, Inc.
Kenneth C. Horne, Jr. (Seal)
------------------------------
Kenneth C. Horne, Jr.
STATE OF ALABAMA )
) to-wit:
COUNTY OF JEFFERSON)
The foregoing instrument was acknowledged before me this 26th day of May,
1993, by Kenneth C. Horne, Jr., President of BETA Services, Inc., a Virginia
corporation, on behalf of the corporation.
Betty Sue Wates
--------------------
Notary Public
My commission expires:
May 18, 1996
ACCEPTANCE OF ASSIGNMENT
This Acceptance of Assignment is made as of May 24, 1993. The Assignee,
having read the Lease, hereby consents to the foregoing Assignment, and does
hereby unconditionally and irrevocably assume all of the liabilities and
obligations of the Assignor under the Lease to the same extent as if the
Assignee were the original tenant under the Lease.
ASSIGNEE
DBS Acquisition Corp.
(Seal)
-------------------
Secretary
2
<PAGE> 3
STATE OF FLORIDA )
) to-wit:
COUNTY OF PALM BEACH)
The foregoing instrument was acknowledged before me this 28th day of May,
1993, by Morris C. Brown, Secretary of DBS Acquisition Corp., a Delaware
corporation, on behalf of the corporation.
Catherine M. Scott
------------------------------------
Notary Public
[NOTARY SEAL]
CATHERINE M. SCOTT
MY COMMISSION # CC 220714
EXPIRES: AUGUST 9, 1996
BONDED THRU NOTARY PUBLIC UNDERWRITERS
My commission expires:
- --------------------------
GUARANTY
This Guaranty is made as of May 24, 1993. In consideration of Ten Dollars
($10.00) cash in hand paid, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Guarantor hereby
absolutely and unconditionally guaranties to the Landlord and its successors
and assigns (i) the full payment of the fixed minimum rent and all additional
rent as provided for in the Lease, and (ii) the performance and observance of
all agreements and conditions to be performed or observed by the tenant under
the Lease, The Guarantor hereby agrees that it shall not be released from its
obligations under this Guaranty by any assignment of the Lease or any
subletting of the demised premises, or any waiver of default or any extension
of time or other favor or indulgence granted by the Landlord to the Assignee as
tenant under the Lease or by failure to receive notice of any of said actions.
The Guarantor hereby waives (i) presentment, demand for payment and notice of
non-payment or any other default in the performance or observance of any
agreement or condition to be performed or
3
<PAGE> 4
observed by the tenant under the Lease, and (ii) notice of acceptance of
this Guaranty. In the event that the Assignee as tenant under the Lease
defaults in the payment of any fixed minimum rent or additional rent or any
other sum payable by the Assignee as tenant under the Lease, or defaults in the
performance or observance of any of the other terms, covenants or conditions
contained in the Lease to be performed or observed by Assignee as tenant under
the Lease, Landlord may, after the expiration of any applicable cure period
provided for in the Lease, proceed directly against the Guarantor for the full
amount due under this Guaranty without being required first to institute suit
against the Assignee. The Guarantor agrees to pay to Landlord reasonable
attorneys' fees incurred by the Landlord in the event any action or suit is
brought for enforcement of the provisions of this Guaranty in which Landlord
prevails.
GUARANTOR:
Educational Medical, Inc.
(Seal)
-------------------------
Secretary
STATE OF FLORIDA )
)to-wit:
COUNTY OF PALM BEACH)
The foregoing instrument was acknowledged before me this 28th
day of May, 1993, by Morris C. Brown, Secretary of Educational Medical,
Inc., a Delaware corporation, on behalf of the corporation.
Catherine M. Scott
--------------------------------
Notary Public
[NOTARY SEAL]
CATHERINE M. SCOTT
MY COMMISSION #CC 220714
EXPIRES: AUGUST 9, 1996
Bonded Thru Notary
Public Underwriters
My commission expires:
- --------------------------
4
<PAGE> 5
CONSENT TO ASSIGNMENT
This Consent to Assignment is made as of May 24, 1993. In consideration
of and in reliance upon (i) the Guaranty by Guarantor, (ii) the continued
liability of Assignor, (iii) Assignee's assumption of the obligations and
liabilities of Tenant under the Lease and (iv) the continued liability of
Kenneth C. Horne, Jr. and Craig H. Miller as individual guarantors of the
Lease, the Landlord does hereby consent to the above assignment from Assignor
to Assignee.
LANDLORD
Lawson Development, Inc.
By: Lee T. Lawson
----------------------------
an authorized signatory
COMMONWEALTH OF VIRGINIA)
) to-wit:
CITY OF ROANOKE )
The foregoing instrument was acknowledged before me this 25th day of
May, 1993, by Lee T. Lawson, President of Lawson Development, Inc., a Virginia
corporation, on behalf of the corporation.
--------------------------------------
Notary Public
My commission expires:
4-30-95
- ------------------------------
5
<PAGE> 6
EXHIBIT A
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") made and entered into as of this 7th day of
July, 1990, but effective September 1, 1990, by and between Lawson Development,
Inc., a Virginia Corporation, with offices at 4725 Garst Mill Road S.W.,
Roanoke, VA 24018 ("Landlord"), and Beta Services, Inc., a Virginia Corporation
with offices at The Plaza of Roanoke Salem, Roanoke, VA 24017 ("Tenant"), in
consideration of the mutual promises and agreements herein contained, and other
good and valuable consideration, the receipt of which is hereby acknowledged.
ARTICLE I
Grant and Term
Section 1.1 Premises. Landlord does hereby lease to Tenant and Tenant does
hereby rent from Landlord, certain real property commonly known as 933
Reservoir Street, Harrisonburg, VA, a building comprising approximately 9408
square feet, more particularly described on Exhibit A attached hereto and
incorporated herein by referenced ("Leased Premises").
Section 1.2 Term. This Lease shall be for a term of ten (10) years beginning
September 1, 1990, and terminating August 30, 2001.
ARTICLE II
Rent and Reimbursement
Section 2.1 Rental Amount. The Tenant shall pay to the Landlord rent, in equal
monthly payments, on the first day of every month during the term hereof as
follows:
1. From September 1, 1990, to August 30, 1993, the sum of $75,000 rental
in equal monthly payments of $6250 each.
2. From September 1, 1993, to August 30, 2001, a sum equal to five percent
(5%) over the amount of any renegotiated mortgage payment for the balance of
the lease term. Landlord agrees to make every reasonable effort to renegotiate
the lowest possible mortgage rate. Landlord shall inform Tenant of any new
rental rate at least sixty (60) days prior to a change.
Section 2.2 Reimbursement of Taxes and Insurance. Tenant shall promptly
reimburse Landlord for all property taxes and assessments incurred by Landlord
by virtue of Landlord's ownership of the demised premises.
Tenant shall further promptly reimburse Landlord for all property and liability
insurance premiums incurred by Landlord by virtue of Landlord's ownership of
the demised premises.
<PAGE> 7
ARTICLE III
Use and Operation of Business by Tenant
Section 3.1 Use of Premises. Tenant shall use the leased premises solely for
the purpose of a business school and related activities.
Section 3.2 Tenant shall, except as otherwise provided herein, from and after
the commencement of the Term, (a) use the Leased Premises for the uses herein
specified and conduct Tenant's business therein in a reputable manner; (b) keep
and maintain the Leased Premises and Tenant's personal property; and signs
therein or thereon and the exterior and interior in a neat, clean, sanitary, and
safe condition; (c) comply with all ordinances, laws, and regulations of all
governmental authorities having jurisdiction and apply for, secure, maintain,
and comply with all licenses or permits which may be required for the conduct by
Tenant of the business herein permitted to be conducted in the Leased Premises
and to pay, if, as and when due all license and permit fees and charges of a
similar nature in connection therewith; (d) comply with and abide by all
protective covenants, restrictions, and other recorded documents pertaining to
the Leased Premises; and (e) not use or permit the Leased Premises to be used
for any disreputable or immoral purposes or in any way that will injure the
reputation of Landlord.
Section 3.3 Utilities. If necessary, Tenant, shall make application for and
arrange for the installation of all utility services (including meters and
connection fees) necessary for the use and occupancy of the Leased Premises and
Tenant shall be solely responsible for and promptly pay, as and when the same
become due and payable, all connection charges, deposits, all charges for gas,
water, sewer, electricity, telephone, and any other utility used or consumed in
the Leased Premises imposed by the utility company or authority providing same.
Landlord shall not be liable for damages or otherwise for any interruption in
the supply of any utility to the Leased Premises nor shall any such
interruption constitute any ground for an abatement of any rents reserved
hereunder unless such interruption results from the negligence of Landlord.
ARTICLE IV
Exterior Display, Solicitation, Advertising
Section 4. Signs and Exterior Fixtures.
(a) Tenant shall have the right to install an illuminated or nonilluminated
sign or signs on the exterior wall and/or grounds of the Leased Premises,
provided such sign does not violate any governmental law, ordinance, or
regulation. Landlord agrees to operate with Tenant to obtain any required
permits. Tenant shall at its own expense maintain and keep in good repair all
<PAGE> 8
signs, advertising, and display devices in or about the Leased Premises and
shall pay for all electric current required in connection with any such
advertising and display devices.
(b) Tenant shall not decorate, paint, or in any other manner alter, and shall
not install or affix any device, fixture, or attachments, including antennas,
satellite receivers, and cable television installations, upon or to, the
exterior of the Leased Premises, including the roof or canopy thereof, without
the prior written consent thereto of Landlord which approval shall not be
unreasonably withheld. If Tenant shall do any of the foregoing acts in
contravention of the provision, Landlord shall have the right to remove any
such decoration, paint, alteration, device, fixture, or attachment and restore
the Leased Premises to the condition thereof prior to such and the cost of such
removal and restoration shall be paid by Tenant as additional rent payable for
the month next following such removal and restoration.
ARTICLE V
Improvements, Fixtures, and Personal Property
Section 5.1 Tenant's Improvements. Tenant shall construct and install all
improvements necessary for Tenant's occupancy and use of the Leased Premises.
All such improvements shall be approved in writing by Landlord which approval
shall not be unreasonably withheld. Tenant at his expense shall immediately
repair any damage occasioned to the Leased Premises by reason of the
construction and installation of any improvements made by Tenant.
Section 5.2 Ownership and Right of Removal of Trade Fixtures. Any trade
fixtures and other personal property of Tenant shall remain the property of
Tenant and Landlord agrees that Tenant shall have the right, provided Tenant
not be in default under the terms of this Lease, at any time, and from time to
time, to remove any and all of its trade fixtures and other personal property
which is may have stored or installed in the Leased Premises. Tenant at its
expense shall immediately repair any damage occasioned to the Leased Premises
by reason of the removal of any such trade fixtures and other personal
property, and upon expiration Term, shall leave the Leased Premises in a neat
and clear condition, free of debris.
Section 5.3 Ownership and Removal Of Leasehold Improvements. All partitions
and ceiling, wall and floor coverings, and finished installed by Tenant in or
about the Leased Premises shall be deemed the property of Landlord upon
installation.
ARTICLE VI
Repairs and Maintenance
Section 6.1 Tenant's Obligation. Tenant agrees at all times and at its own cost
and expense, to repair and maintain in good condition (excepting normal wear
and tear) the interior of Leased
<PAGE> 9
Premises. Tenant shall keep and maintain in good and tenantable condition and
repair, the main water service line and main sanitary sewer line serving the
Leased Premises and the exterior and the roof, the structural parts of the
Leased Premises, including without limitation, the structural parts of the
floor, roof, external pipes, conduits, electrical, heating and air conditioning
systems and plumbing or installation of any internal sprinkler system (if such
system is required by law or regulation).
Section 6.2 Reserved.
Section 6.3 Landlord's Rights Upon Tenant's Refusal to Repair and/or Maintain.
If Tenant refuses or neglects to make repairs and/or maintain the Leased
Premises or any part thereof, in a manner reasonably satisfactory to Landlord,
Landlord shall have the right, upon giving Tenant reasonable written notice of
its election to do so, to make repairs or perform such maintenance on behalf of
and for the account of Tenant. In such event such work shall be paid for by
Tenant as additional rent promptly upon receipt of a bill therefor.
Section 6.4 "Repair and Maintain" Defined. "Repair and Maintain:, as used in
this Article VI, shall mean the performance and furnishing of all repairs,
replacements, and renewals to the Leased Premises and alterations, additions,
improvements, and betterments thereto.
ARTICLE VII
Alterations
Tenant may, at its own expense, from time to time during the Term, make
alterations, additions, changes, and improvements in and to the interior of the
Leased Premises but only with Landlord's prior written consent which consent
shall not be unreasonably withheld. All such work shall be done in a good and
workmanlike manner, in accordance with all applicable laws and regulations and
shall be diligently prosecuted to that the Leased Premises shall at all times
be a complete unit except during the period such alterations, additions,
changes, and improvements are made.
ARTICLE VIII
Mechanic's Liens
Tenant agrees that it will pay or cause to be paid all costs for work done by
it or caused to be done by it on the Leased Premises and Tenant agrees to and
shall indemnify and save Landlord free and harmless against liability, loss,
damage, costs, attorneys' fees, and all other expenses on account of claims of
lien of laborers or materialmen or others for work performed or materials or
supplies furnished for Tenant or persons claiming under it; provided, however,
that Tenant shall have the right, at its sole cost and expense, to contest any
mechanic's lien that might be filed on account of any such work.
<PAGE> 10
ARTICLE IX
Indemnity-Insurance-Waiver of Subrogation
Section 9.1 Tenant's Indemnity.
(a) Tenant hereby indemnifies and shall protect and hold Landlord harmless from
and against all liabilities, losses, claims, demands, costs, expenses, and
judgments of any nature arising, or alleged to arise, from or in connection
with (i) any injury to, or the death of, any person or loss or damage to
property on or about the Leased Premises or any adjoining property arising from
or connected with the use of the Leased Premises by Tenant during the term, or
(ii) performance of any labor or services or the furnishing of any materials or
other property in respect of the Leased Premises or any part thereof by or at
the request of Tenant. Tenant will resist and defend any action, suit, or
proceeding brought against Landlord by reason of any such occurrence by counsel
designated by Tenant.
(b) Tenant shall give notice to Landlord within twenty-four (24) hours in the
event of fire or other casualty or accidents in the Leased Premises or of any
defects therein or in any of its fixtures, machinery or equipment.
Section 9.2 Landlord's Indemnity. Landlord shall indemnify and save Tenant
harmless against and from any and all liabilities, obligations, damages,
penalties, claims, costs (including compliance and clean up costs), charges,
expenses and disbursements (including, without limitation, fees and expenses of
attorneys, expert witnesses, engineers and other consultants), which may be
imposed upon, incurred by or asserted against Tenant by reason of any
environmental contamination of the Leased Premises caused by Landlord, prior
owners, prior tenants, or any third parties other than Tenant.
Section 9.3 Waiver of Subrogation. Landlord and Tenant hereby waive any rights
each may have against the other on account of any loss or damage occasioned to
Landlord or Tenant, as the case may be, their respective property, the Leased
Premises, or its contents arising from any risk generally covered by fire and
extended coverage insurance, vandalism, malicious mischief and sprinkler
leakage; and the parties each, on behalf of their respective insurance
companies insuring the property of either Landlord or Tenant against any such
loss, waive any right of subrogation that it might have against Landlord or
Tenant, as the case may be, if such waiver of subrogation is available.
Section 9.4 Tenant's Insurance. Tenant further covenants and agrees that from
and after the execution of this Leased, Tenant will carry and maintain, at its
sole cost and expense, the following types of insurance, in the amounts
specified and in the form hereinafter provided for:
<PAGE> 11
(a) Public Liability and Property Damage. Bodily injury liability insurance
with a single limit of not less than $1,000,000 insuring against any and all
liability of the insured with respect to injury or damage to person and
property occurring on or about the use or occupancy thereof. All such liability
insurance shall specifically include, in addition to the above, contractual
liability insurance covering the insuring provisions of this Lease, the
performance by Tenant of the indemnity agreement as to liability for injury to
or death of persons and injury or damage to property in this Article contained.
This policy of insurance will cover Landlord as an additional insured for
liabilities incurred under this Lease. The policy shall provide that it may not
be cancelled except upon Ten (10) days prior written notice to Landlord.
Section 9.5 Tenant's Blanket Policies. Tenant's obligations to carry the
insurance provided for herein may be brought within the coverage of a so-called
blanket policy or policies of insurance carried and maintained by Tenant.
Tenant agrees to furnish Landlord for each renewed or new policy thereafter
during the Term, a copy of the policies of insurance covering the
above-described risks or to furnish a certificate of insurance if part of a
blanket policy.
ARTICLE X
Damage to Leased Premises
Section 10.1 Rights and Obligations of Landlord and Tenant. If the Leased
Premises shall be partially damaged or destroyed by fire, the elements,
unavoidable accident, or other casualty, Landlord shall, except as otherwise
provided herein, repair and restore the same (exclusive of Tenant's trade
fixtures, decorations, signs, and contents, all of which shall be repaired and
restored by Tenant) substantially to the condition thereof immediately prior to
such damage or destruction unless such damage or destruction be due to the
negligent act or omission of Tenant or Tenant's employees or agents and not be
covered by Landlord's fire and extended insurance policy. If by reason of such
occurrence: (a) the Leased Premises are rendered wholly untenantable, or (b)
the Leased Premises are damaged in whole or part during the last year of the
Term, Landlord may elect either to repair the damage as aforesaid, or to cancel
this Lease by written notice of cancellation give to Tenant within ninety (90)
days after the date of such occurrence, and thereupon this Lease shall cease
and terminate with the same force and effect as though the date set forth in
the Landlord's said notice were the date herein fixed for the expiration of the
Term and Tenant shall vacate and surrender the leased Premises to Landlord.
Upon the termination of this lease, as aforesaid, Tenant's liability for the
rents reserved hereunder shall cease as of the date Tenant's vacation or
termination of this lease, subject, however, to the provisions for the prior
abatement of rent hereinafter set forth. Unless this Lease is terminated by
<PAGE> 12
Landlord, as aforesaid, this Lease shall remain in full force and effect and
Tenant shall repair, restore, or replace Tenant's trade fixtures, decorations,
signs, and contents in the Leased Premises in a manner and to at least a
condition equal to that existing prior to their damage or destruction. If by
reason of such fire or other casualty the Leased Premises are rendered wholly
untenantable the rent shall be fully abated, or if only partially damaged such
rent shall be abated proportionately as to that portion of the Leased Premises
rendered untenantable, in either event (unless Landlord shall elect to terminate
this Lease, as aforesaid) until fifteen (15) days after notice by Landlord to
Tenant that the Leased Premises have been substantially repaired and restored or
until Tenant's business operations are restored in the entire Leased Premises,
whichever shall occur sooner. Tenant shall continue the operation of Tenant's
business in the Leased Premises or any part thereof not so damaged during any
such period to the extent reasonably practicable from the standpoint of prudent
business management; and, except for such abatement of the fixed minimum rent as
herein set forth, nothing herein contained shall be construed to abate Tenant's
obligations for the payment of the percentage rent or any other additional rents
and charges reserved hereunder. If such damage or other casualty shall be caused
by the negligence of Tenant or of Tenant's subtenants, concessionaires,
licensees, contractors or invitees or their respective agents or employees,
there shall be no abatement of rent and Tenant shall repair such damage or
destruction if it is not covered by Landlord's fire an extended coverage
insurance policy.
Section 10.2 Termination. Upon any termination of the Lease under any of the
provisions of this Article XI, the parties shall be released thereby without
further obligations to the other party coincident with the surrender of
possession of the Leased Premises to the Landlord, except for items which have
theretofore accrued and be then unpaid.
ARTICLE XI
Eminent Domain
Section 11.1 Termination of Lease. In the event any part of the Leased Premises
shall be appropriated or taken under the power of eminent domain by any public
or quasi-public authority, this Lease may be terminated as of the date of such
taking at the option of either Tenant or Landlord to be exercise in writing
within thirty (30) days following date of the event giving rise to such
option.
Section 11.2 Award. If this Lease is terminated as above provided, Tenant shall
be entitled to that portion of the net award specifically designated as payment
for Tenant's leasehold interest, trade fixtures, expenses, business
interruption, and loss of profits and the balance of the award shall be payable
to Landlord; but the rent and other charges for the last month of
<PAGE> 13
Tenant's occupancy shall be pro-rated and Landlord agrees to refund to Tenant
any rent or other charges paid in advance. If this Lease shall not terminate as
above provided, Landlord shall be entitled to the entire award or compensation
in such proceedings.
ARTICLE XII
Assigning, Mortgaging, Subletting, Change in Ownership
Section 12.1 Transfer by Tenant, Requirements. Tenant shall not transfer,
assign, sublet, or pledge this Lease or Tenant's interest in the entire Leased
Premises without the prior written consent of Landlord. The consent to such
transactions shall not be unreasonably withheld, provided that Tenant shall
remain liable during the Term of this lease and that no uncured defaults exist
at the time of the request and granting of such consent.
Tenant shall have the unrestricted right to sublet portions of the Leased
Premises with Landlord's written consent.
Section 12.2 Restrictions Concerning Consent to Transfer. Any consent by
Landlord to any assignment, subletting, license, or concession shall be upheld
to apply only to the specific transaction thereby authorized and shall not
constitute a waiver of the necessity for such consent to any subsequent
assignment, subletting, license, or concession.
ARTICLE XIII
Attornment, Subordination, Attorney-In-Fact
Section 13.1 Attornment. Tenant shall, in the event of a sale, transfer or
assignment of Landlord's interest in the Leased Premises or any part thereof or
in the event any proceedings are brought for the foreclosure or in the event of
exercise of the power of sale under any mortgage made by Landlord encumbering
the Leased Premises or any part thereof, attorn to and recognize such
transferee, purchaser, or mortgagee as Landlord under this Lease.
Section 13.2 Subordination.
(a) This Lease and the estate of Tenant hereunder shall be subject and
subordinate to any deed of trust or mortgage lien and any replacement, renewal,
or extension of any such deed of trust or mortgage lien, which at any time
hereafter may be placed upon the Leased Premises. Any such mortgage shall, for
the full amount of principal at any time advanced thereon or secured thereby,
with interest, be prior and paramount to this Lease and to the rights of Tenant
hereunder and all persons claiming through or under Tenant, or otherwise, in
the Leased Premises Tenant, on Tenant's behalf, and on behalf of all persons
claiming through and under Tenant, covenants and agrees that Tenant will, from
time to time at the request of Landlord,
<PAGE> 14
execute and deliver any necessary or proper instruments or certificates
acknowledging the priority of the lien or charge of such mortgage to this Lease
and to subordination of this lease thereto.
(b) Any mortgage herein referred to shall contain a provision that any
purchaser at a sale on foreclosure of said mortgage shall acquire and accept
the premises subject to this Lease, provided, however, that Tenant hereby
agrees to attorn to such purchaser upon foreclosure sale of said mortgage and
to recognize such purchaser as Landlord under this Lease; and provided,
further, that such purchaser upon foreclosure sale of said mortgage shall not
be obligated to accept this Lease or the leasehold estate created hereby in the
event that Tenant is in default in the performance of any of the terms and
provisions of Tenant's part to be kept and performed under this Lease.
Section 13.1 Estoppel Certificates. Tenant, upon request of any party in
interest, shall execute promptly such instruments or certificates to carry out
the intent of Sections 14.1 and 14.2 as reasonably requested by Landlord.
ARTICLE XIV
Default of the Tenant
Section 14.1 Right to Re-enter. In the event of any failure of Tenant to pay
any rental due hereunder within ten (10) days after the same shall be due, or
any failure to perform any other of the terms, conditions, or covenants of this
Lease to be observed or performed by Tenant for more than thirty (30) days
after written notice of such default shall have been given to Tenant, or if
Tenant shall be finally adjudicated a bankrupt and all appeal rights have been
extinguished, or if Tenant, in any court pursuant to any statute either of the
United States or of a State, shall file a petition in bankruptcy or insolvency,
or for reorganization or the appointment of a receiver or trustee of all or a
portion of Tenant's property, or shall make an assignment for the benefit of
creditors, or if Tenant shall abandon the Leased Premises and remove its
furnishings and equipment therefrom, or if Tenant shall abandon said premises
and also be in default under the Lease or suffer this Lease to be taken under
any writ of execution, then Landlord, besides other rights or remedies it may
have, shall have the immediate right of re-entry and may remove all persons and
property from the Leased Premises and such property may be removed and stored
in a public warehouse or elsewhere at the cost of, and for the account of
Tenant, all without service of notice or resort to legal process and without
being deemed guilty of trespass, or becoming liable for any loss or damage
which may be occasioned thereby.
Section 14.2 Right to Relet, Damages. Should Landlord elect to re-enter, as
herein provided, or should it take possession pursuant to legal proceedings or
pursuant to any notice provided for bylaw, it may either terminate this Lease
or it may from time
<PAGE> 15
to time without terminating this Lease, make such alterations and repairs as
may be necessary to relet the premises, and relet said premises or any part
thereof for such term or terms (which may be for a term extending beyond the
term of this Lease) and at such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion may deem advisable; upon each
such reletting all rentals received by the Landlord from such reletting shall
be applied, first, to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord; second, to the payment of any costs and
expenses of such reletting, including brokerage and attorney's fees and of
costs of alterations and repairs; third, to the payment of rent due and unpaid
hereunder, and the residue, if any, shall be held by the Landlord and applied
in payment of future rent as the same may become due and payable hereunder. If
such rentals received from such reletting during any month be less than that to
be paid during that month by Tenant hereunder, tenant shall pay any such
deficiency to Landlord. No such re-entry or taking possession of the Leased
Premises by Landlord shall be construed as an election on its part to terminate
this Lease unless a written notice of such intention be given to Tenant or
unless the termination thereof by decree by a court of competent jurisdiction.
Notwithstanding, any such reletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for such previous breach. Should
Landlord at any time terminate this Lease for any breach, in addition to any
other remedies it may have, it may recover from Tenant all damages it may incur
by reason of such breach, including the present value at the time of such
termination of the excess, if any, of the amount of rent and charges equivalent
to rent reserved in this Lease for the remainder of the stated term over the
then reasonable rental value of the Leased Premises for the remainder of the
stated term, all of which amount shall be immediately due and payable from
Tenant to Landlord.
Section 14.3 Injunctive Relief. In the event of any breach or threatened breach
by Tenant or Landlord of any of the terms and provisions of this Lease, either
Tenant or Landlord shall have the right to injunctive relief as if no other
remedies were provided herein for such breach.
Section 14.4 Rights and Remedies Cumulative. The rights and remedies herein
reserved by or granted to Landlord or Tenant are distinct, separate and
cumulative, and the exercise of any one of them shall not be deemed to
preclude, waive, or prejudice Landlord's or Tenant's right to exercise any or
all others.
Section 14.5 "Re-entry" Not Restricted to Technical Legal Meaning. Wherever in
this Lease the Landlord has reserved or is granted the right to re-entry into
the Leased Premises the use of such word is not intended nor shall it be
construed, to be limited to its technical legal meaning.
<PAGE> 16
ARTICLE XV
Access by Landlord
Section 15.1 Right of Entry. Landlord or Landlord's agents shall have
the right to enter the Leased Premises at all reasonable times during
Tenant's business hours upon reasonable notice to Tenant (except in
the case of an emergency in which event Landlord may enter at any
time without notice), to examine the same, and to show them to
prospective purchasers or tenants, and to make such repairs and
alterations to the Leased Premises, as Landlord may deem necessary,
and Landlord shall be allowed to take all material into and upon said
premises so long as such activity does not interrupt Tenant's
business that may be required therefor without the same constituting
an eviction of Tenant in whole or in part and the rent reserved shall
in no wise abate while said repairs are being made so long as there
is no interruption of business of Tenant. During the sixty (60) days
prior to the expiration of the term of this Lease or any renewal
term, Landlord may exhibit the Leased Premises to prospective tenants
or purchasers during Tenant's business hours.
ARTICLE XVI
Surrender of Premises
Upon the expiration or sooner termination of the Term, Tenant shall quit and
surrender the Leased Premises, in good condition and repair, reasonable wear
and tear excepted, together with all keys and combination to locks, all
improvements, alterations, and additions, except personal property and other
trade fixtures, furnishings, and equipment that Tenant may remove pursuant to
the terms thereof, all of which shall thereupon become the property of Landlord
without any claim by Tenant therefore; but the surrender of such property to
Landlord shall not be deemed to be a payment of rent or in lieu of any rent
reserved hereunder; however, notwithstanding the generality of the foregoing
provisions, Landlord shall have the right to require Tenant, upon written
notice given at any time during the Term or within sixty (60) days thereafter,
to remove any improvements, alterations, or additions made by or on behalf of
Tenant and to repair any damage to the Leased Premises caused by such removal.
Before surrendering the Leased Premises, Tenant shall remove all of Tenant's
said personal property and unattached movable trade fixtures, furnishings, and
equipment and if Tenant fails to do so said property shall be deemed abandoned
and become the exclusive property of Landlord; but the retention or disposition
of such abandoned property by Landlord shall not act as release or satisfaction
of any damages sustained by Landlord on account of Tenant's failure to remove
the same as required by this section. If the leased Premises be not surrendered
as and when aforesaid, Tenant shall indemnify landlord against all loss and
liability resulting from the delay by Tenant in so surrendering the same,
including, without limitation, any claims made by any succeeding occupant
founded on such delay. Tenant's obligations under this
<PAGE> 17
Article shall survive the expiration or sooner termination of the term of
this Lease.
ARTICLE XVII
Quiet Enjoyment
Upon payment of Tenant of the rents herein provided, and upon the observance
and performance of all the covenants, terms, and conditions on Tenant's part to
be observed and performed, Tenant shall peaceably and quietly hold and enjoy
the Leased Premises for the term hereby demised without hindrance or
interruption by Landlord or any other person or persons lawfully or equitably
claiming by, through or under the Landlord, subject, nevertheless, to the terms
and conditions of this Lease; to all easements and restrictions, if any, now of
record; to the rights of other tenants; and to all deeds of trust now or
hereafter of record subject, however, to the provisions of Article XVI.
ARTICLE XVIII
Successors
Section 18.1 Binding Effect of Lease. All rights and liabilities herein given
to, or imposed upon, the respective parties hereto shall extend to and bind the
several respective heirs, executors, administrators, successors, and assigns of
the said parties; and if there shall be more than one tenant, they shall all be
bound jointly and severally by the terms, covenants, and agreements herein.
ARTICLE XIX
Miscellaneous
Section 19.1 Controlling Law. The laws of the state of Virginia shall govern
the validity, performance, and enforcement of this Lease.
Section 19.2 Waiver. The waiver by Landlord of any breach of any term,
covenant, or condition herein contained shall not be deemed to be a waiver of
any subsequent breach of the same or any other term, covenant, or condition
herein contained. The subsequent acceptance of rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any term,
covenant, or condition of this Lease, other than the failure of Tenant to pay
the particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent. No covenant, term, or
condition of this Lease shall be deemed to have been waived by Landlord, unless
such waiver be in writing signed by Landlord.
Section 19.3 Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying any
check or
<PAGE> 18
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy in this Lease provided.
Section 19.4 Entire Agreement. This Lease and Exhibit A attached hereto set
forth all the covenants, promises, agreements, conditions, and understandings
between Landlord and Tenant concerning the Leased Premises and there are no
covenants, promises, agreements, conditions, or understandings, either oral or
written between them other than are herein set forth. No subsequent alteration,
amendment, change or addition to this lease shall be binding upon Landlord or
Tenant unless reduced to writing and signed by Landlord and Tenant.
Section 19.5 Holding Over. Any holding over after the expiration of the Term,
with the consent of the Landlord, shall be construed to be a tenancy from month
to month on the terms and conditions herein specified, so far as applicable.
Section 19.6 Force Majeure. In the event that either party hereto shall be
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lock-outs, labor troubles, shortages of
materials or supplies, inability to procure materials, failure of power,
restrictive governmental laws or regulations, riots, insurrection, war, or
other reason of a like nature not the fault of the party delayed in performing
work or doing acts required under the terms of this lease, then performance of
such act shall be excused for the period of the delay and the period equivalent
to the period of such delay.
Section 19.7 Notices. Any notice, demand, request, or other instrument which
may be or is required to be given under this Lease shall be delivered in person
or sent by United States certified mail, postage prepaid, and shall be
addressed to (a) in the case of the Landlord to: 4725 Garst Mill Road S.W.,
Roanoke, VA 24018 or such other address as Landlord shall designate by written
notice and (b) in the case of Tenant to: The Plaza of Roanoke-Salem, Roanoke,
VA 24017, or at such other address that Tenant shall designate by written
notice.
Section 19.8 Captions and Section Numbers. The captions, section numbers, and
article numbers appearing in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such sections or articles nor in any way affect this Lease.
Section 19.9 Partial Invalidity. It is agreed that if any provision of this
Lease shall be determined to be void by any court of competent jurisdiction,
then such determination shall not affect any other provision of this Lease and
all such other provisions shall remain in full force and effect.
<PAGE> 19
Section 19.10 Reserved.
Section 19.11 Recording. Tenant shall not record this Lease without the
written consent of Landlord, however, upon the request of either party hereto
the other party shall join in the execution of a memorandum or so-called
"short form" of this Lease for the purpose of recordation. Said memorandum or
short form of this Lease shall describe the parties, the Leased Premises, and
the Term of this lease and shall incorporate this Lease by reference.
Section 19.12 Corporate Tenant. The person(s) executing this Lease on behalf
of Tenant hereby covenant and warrant that Tenant is a duly qualified
corporation and is authorized to do business in the state of Virginia; and the
person(s) executing this Lease on behalf of Tenant is an officer or are
officers of such Tenant, and that as such are authorized to sign and execute
this Lease.
Section 19.13 Counterparts. This Lease may be executed in two (2) or more
counterparts each of which shall be deemed an original.
Section 19.14 Miscellaneous. This Lease has been negotiated by Landlord and
Tenant and this lease, together with all of the terms and provisions hereof
shall not be deemed to have been prepared solely by either Landlord or Tenant,
but by both equally.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
the day and year first above written.
Landlord: LAWSON DEVELOPMENT, INC.
By: Lee T. Lawson
------------------------------
Lee T. Lawson, President
Tenant: BETA SERVICES, INC.
By: Craig H. Miller
------------------------------
Craig H. Miller, President
Individually as a personal guarantee of this lease:
Kenneth C. Horne
- -----------------------------------
Kenneth C. Horne
Craig H. Miller
- ----------------------------------
Craig H. Miller
<PAGE> 20
EXHIBIT B
All that certain lot or parcel of land containing 1,826 acres on the
western side of Cantrell Avenue in the City of Harrisonburg, Virginia, and
being shown and designated as Lot 4, Section 3, Lawson Subdivision on an Owner's
Consent & Division Plot dated March 16, 1990, by Michael W. Mars, L.S., which
is recorded in the Clerk's Office of the Circuit Court of Rockingham County,
Virginia, in Deed Book 1018, at page 603.
This real estate is a portion of the property acquired by Lawson
Development, Inc. from Preston Heights Corp. by a deed dated February 27, 1990
and recorded in the Clerk's Office in Deed Book 1002, at page 315.
[Clerk Stamp]
<PAGE> 21
[ DIAGRAM OF LOT PLAN FOR ROANOKE-SALEM SHOPPING CENTER]
<PAGE> 22
LANDLORD ESTOPPEL CERTIFICATE
The undersigned is the landlord under a lease (the "Lease") dated the 7th
day of July, 1990 of certain real property and improvements located at 933
Reservoir Street in the City of Harrisonburg, Virginia in which BETA Services,
Inc. is the tenant. The tenant desires to assign its interest in the Lease and
has requested the landlord to execute this certificate which it is willing to
do.
The undersigned landlord hereby certifies:
1. Rent payments under the Lease are current through May 31, 1993.
2. As of the date of this certificate the Lease is in good
standing and free from default by the tenant.
Dated: 5-25-93 Lawson Development, Inc.
----------------
By: Lee T. Lawson
------------------------
Lee T. Lawson
<PAGE> 23
May 28, 1993
Mr. Gary Kerber, President
Educational Medical, Inc.
1327 Northmeadow Parkway, Suite 132
Roswell, GA 30076
Dear Mr. Kerber:
This letter is to confirm that Landlord intends to enter into
a new lease with DBS acquisition corporation under the following terms:
l. From June 1, 1993 through December 31, 1993, the sum of $43,750 rental in 7
equal monthly payments of $6,250 each, payable in advance on the first day of
each month.
2. From January 1, 1994 through May 31, 1996, the sum of $159,500 rental in 29
equal monthly payments of $5,500 each, payable in advance on the first day of
each month.
3. From June 1, 1996 through May 31, 1998, if the first renewal option is
exercised by Tenant as provided above, the sum of $132,000 rental in 24 equal
monthly payments of $5,500 each, payable in advance on the first day of each
month.
4. From June 1, 1998 through May 31, 2000, if the second renewal option is
exercised by Tenant as provided above, a sum equal to five percent (5%) over
the amount of any renegotiated mortgage payment for the balance of the lease
term. Landlord agrees to make every reasonable effort to renegotiate the lowest
possible mortgage rate. Landlord shall inform Tenant of any new rental rate at
least sixty (60) days prior to a change. Said amount shall be paid in 24 equal
monthly payments made in advance on the first day of each month.
Kenneth C. Horne
Kenneth C. Horne, Landlord
KCH:bjm
<PAGE> 24
9
<PAGE> 25
The HARRISON FIRM PC
Corporate Legal Counsel
ASSIGNMENT OF REAL ESTATE LEASE
This assignment of lease is made as of the 7th day of May, 1993, by and
between the grantor BETA SERVICES, INC., a Virginia corporation (the
"Assignor") and the grantee DBS ACQUISITION CORP., a Delaware corporation (the
"Assignee.")
RECITALS
The Assignor hereunder is the tenant under a lease (the "Lease") dated the
5th day of September, 1989 of certain real property and improvements located at
4142-1 Melrose Avenue in the City of Roanoke, Virginia from Roanoke-Salem Plaza
Limited Partnership, a Virginia limited partnership (the "Landlord,") which
lease is attached hereto and incorporated herein by reference, marked "Exhibit
A." The leased premises is a portion of the property owned by the Landlord, a
description of which is attached hereto and incorporated herein by reference,
marked "Exhibit B." Educational Medical, Inc. (the "Guarantor") is a Delaware
corporation which holds all of the issued and outstanding capital stock of the
Assignee. The terms Assignor, Assignee, Lease, Landlord and Guarantor, have
the defined meaning in the following ASSIGNMENT, ACCEPTANCE OF ASSIGNMENT,
GUARANTY, and CONSENT TO ASSIGNMENT, which accompany this document and which
are incorporated herein.
ASSIGNMENT
This Assignment is made as of May 7, 1993. In consideration of Ten Dollars
($10.00) cash in hand paid, and other good and valuable consideration, the
receipt and sufficiency of
<PAGE> 26
The HARRISON FIRM PC
Corporate Legal Counsel
which is hereby acknowledged, the Assignor hereby assigns all of its
right, title and interest in the Lease to the Assignee.
ASSIGNOR
BETA Services, Inc.
Kenneth C. Horne, Jr. (Seal)
----------------------------------
Kenneth C. Horne, Jr.
President
STATE OF ALABAMA)
) to-wit:
Jefferson County)
The foregoing instrument was acknowledged before me this ___ day of
May, 1993, by Kenneth C. Horne, Jr., President of BETA Services, Inc., a
Virginia corporation, on behalf of the corporation.
Josephine Ross
-------------------------------------
Notary Public
My commission expires:
MY COMMISSION EXPIRES MARCH 26, 1994
ACCEPTANCE OF ASSIGNMENT
This Acceptance of Assignment is made as of May 7, 1993. The Assignee,
having read the Lease, hereby consents to the foregoing Assignment, and does
hereby unconditionally and irrevocably assume all of the liabilities and
obligations of the Assignor under the Lease to the same extent as if the
Assignee were the original tenant under the Lease.
ASSIGNEE:
DBS Acquisition Corp.
Morris C. Brown (Seal)
------------------------------
Secretary
2
<PAGE> 27
[THE HARRISON FIRM PC
CORPORATE LEGAL COUNSEL LOGO]
STATE OF FLORIDA )
) to-wit:
COUNTY OF PALM BEACH)
The foregoing instrument was acknowledged before me this 27th day of
May, 1993, by Morris C. Brown, Secretary of DBS Acquisition Corp., a Delaware
corporation, on behalf of the corporation.
Catherine M. Scott
-------------------------------
Notary Public
My commission expires:
[SEAL] CATHERINE M. SCOTT
My Commission #cc 220714
EXPIRES: August 9, 1996
Bonded Thru Notary Public Underwriters
- ---------------------------
GUARANTY
This Guaranty is made as of May 7, 1993. In consideration of Ten Dollars
($10.00) cash in hand paid, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Guarantor hereby
absolutely and unconditionally guaranties to the Landlord and its successors
and assigns (i) the full payment of the fixed minimum rent and all additional
rent as provided for in the Lease, and (ii) the performance and observance of
all agreements and conditions to be performed or observed by the tenant under
The Guarantor hereby agrees that it shall not be released from its obligations
under this Guaranty by any assignment of the Lease or any subletting of the
demised premises, or any waiver of default or any extension of time or other
favor or indulgence granted by the Landlord to the Assignee as tenant under the
Lease or by failure to receive notice of any of said actions. The Guarantor
hereby waives (i) presentment, demand for payment and notice of non-payment or
any other default in the performance or observance of any agreement or
condition to be performed or
3
<PAGE> 28
[THE HARRISON FIRM PC
CORPORATE LEGAL COUNSEL LOGO]
observed by the tenant under the Lease, and (ii) notice of acceptance
of this Guaranty. In the event that the Assignee as tenant under the Lease
defaults in the payment of any fixed minimum rent or additional rent or any
other sum payable by the Assignee as tenant under the Lease, or defaults in the
performance or observance of any of the other terms, covenants or conditions
contained in the Lease to be performed or observed by Assignee as tenant under
the Lease, Landlord may, after the expiration of any applicable cure period
provided for in the Lease, proceed directly against the Guarantor for the full
amount due under this Guaranty without being required first to institute suit
against the Assignee. The Guarantor agrees to pay to Landlord reasonable
attorneys' fees incurred by the Landlord in the event any action or suit is
brought for enforcement of the provisions of this Guaranty in which Landlord
prevails.
GUARANTOR:
Educational Medical, Inc.
Morris C. Brown (Seal)
------------------------
Secretary
STATE OF FLORIDA )
) to-wit:
COUNTY OF PALM BEACH)
The foregoing instrument was acknowledged before me this 27th day of
May, 1993, by Morris C. Brown, Secretary of Educational Medical, Inc., a
Delaware corporation, on behalf of the corporation.
Catherine M. Scott
------------------------------
Notary Public
My commission expires: [SEAL] CATHERINE M. SCOTT
My Commission #cc 220714
EXPIRES: August 9, 1996
- --------------------------- Bonded Thru Notary Public Underwriters
4
<PAGE> 29
[THE HARRISON FIRM PC
CORPORATE LEGAL COUNSEL LOGO]
CONSENT TO ASSIGNMENT
This Consent to Assignment is made as of May 7, 1993. In consideration of
and in reliance upon (i) the Guaranty by Guarantor, (ii) the continued
liability of Assignor, and (iii) Assignee's assumption of the obligations and
liabilities of Tenant under the Lease, the Landlord does hereby consent to the
above assignment from Assignor to Assignee.
LANDLORD
Roanoke-Salem Plaza Limited
Partnership
By: Circle Development
Corporation, its general partner
By: Kevin P. Adams (Seal)
--------------------------
Kevin P. Adams, Vice President
STATE OF VIRGINIA)
) to-wit:
______ OF _______)
The foregoing instrument was acknowledged before me this 11th day of
May, 1993, by Kevin P. Adams, Vice President of Circle Development
Corporation, a Virginia corporation, general partner of Roanoke-Salem Plaza
Limited Partnership, a Virginia limited partnership, on behalf of Roanoke-Salem
Plaza Limited Partnership, a partnership.
Kathy L. J. Stear
--------------------------------
Notary Public
My commission expires:
My Commission Expires May 31, 1994
5
<PAGE> 30
EXHIBIT A
LEASE AGREEMENT
BETWEEN
ROANOKE-SALEM PLAZA LIMITED PARTNERSHIP, LANDLORD
AND
BETA SERVICES, INCORPORATED, TENANT
<PAGE> 31
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
1. Demised Premises and Term ................................. 1
2. Fixed Minimun Rent ........................................ 1
3. Percentage Rent ........................................... 2
4. Common Area Maintenance ................................... 2
5. Real Estate Taxes ......................................... 4
6. Security Deposit .......................................... 5
7. Possession ................................................ 6
8. Signs ..................................................... 6
9. Use of Demised Premises ................................... 7
10. Sales Reports and Audits for
Percentage Rental ....................................... 8
11. Maintenance and Repairs ................................... 10
12. Insurance; Indemnity ...................................... 12
13. Damage to Personal Property ............................... 14
14. Damage .................................................... 14
15. Condemnation .............................................. 15
16. Landlord's Inspection Rights .............................. 15
17. Landlord's Rights on Tenant's Default ..................... 16
18. Assignment and Subletting ................................. 18
19. Competitive Location ...................................... 19
20. Attorneys' Fees and Related Matters ....................... 20
21. Holding Over .............................................. 20
22. Promotion Fund ............................................ 20
23. Landlord's Title & Covenant of Quiet
Enjoyment ............................................... 21
24. Rental Agent; Brokers ..................................... 21
25. Subordination, Attornment & Non-Disturbance ............... 22
26. Transfer of Landlord's Interest ........................... 22
27. Changes Required by Lender ................................ 23
28. Status of Lease ........................................... 23
29. Mortgagee's Right to Cure Landlord's
Default ................................................. 24
30. Renovation ................................................ 24
31. Notice .................................................... 24
32. Relationship of Parties ................................... 24
33. Rules and Regulations ..................................... 25
34. Special Provisions Concerning Delivery
of Possession ........................................... 25
35. Miscellaneous ............................................. 25
36. Signature Page ............................................ 27
Guaranty Page ............................................. 28
Exhibits ............................................ 29-31
-i-
<PAGE> 32
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 5TH day of SEPTEMBER, 1989, by and between
Roanoke-Salem Plaza Limited Partnership (hereinafter, "Landlord"), and BETA
SERVICES, INCORPORATED, 4142 MELROSE AVENUE, BUILDING #1B - 2ND LEVEL, ROANOKE,
VIRGINIA 24017 (hereinafter, "Tenant").
ARTICLE ONE: DEMISED PREMISES AND TERM
A. Demised Premises: For and in consideration of the rents and other sums
agreed herein to be paid by Tenant to Landlord, and in further consideration of
the covenants, agreements, conditions and terms on the part of Tenant and
Landlord to be performed, kept and fulfilled as herein set forth, Landlord does
hereby lease unto Tenant and Tenant does hereby lease and hire from Landlord, a
store unit consisting of approximately 12,000 square feet in the shopping
center commonly known as Roanoke-Salem Plaza Shopping Center (hereinafter, the
"Shopping Center") situated in the City of Roanoke, County of Roanoke, in the
Commonwealth of Virginia, as shown on the attached Exhibit "A" and more
particularly described as follows: BUILDING # 1B - 2ND. FLOOR PARTITIONED AT
TENANTS EXPENSE. APPROXIMATELY 12,000 SQ. FT. (hereinafter, the "demised
premises").
B. Term: The term of this Lease shall commence upon the SUBSTANTIAL
COMPLETION OF LANDLORD WORK AS PER EXHIBIT D1 (hereinafter, the "lease
commencement date") and shall continue thereafter for EIGHTY-FOUR (84)
consecutive months, unless sooner terminated as hereinafter provided.
ARTICLE TWO: FIXED MINIMUM RENT
A. Fixed Minimum Rent: Tenant agrees to pay Landlord during the term of this
Lease, without previous demand therefor and without any setoffs or deductions
whatsoever, fixed minimum rent per annum, payable in equal monthly installments
in advance, on or before the first day of each calendar month throughout the
term of this Lease.
1-6 months - 0.00
7-18 months - $2,000.00
19-36 months - 4,000.00
37-48 months - 6,500.00
49-84 months - 7,500.00
D. Adjustments: If the lease commencement date or the date of termination of
the Lease occurs on other than the first or last day of a calendar month,
respectively, an appropriate adjustment (on a pro-rata, daily basis) shall be
made to the first and/or last monthly installment of fixed minimum rent and
additional rent payable hereunder.
E. First Month's Rent: An amount equal to one (1) full monthly installment of
TWO THOUSAND DOLLARS ($2,000.00) fixed minimum rent shall be paid at the time
of execution of this Lease, and shall be applied to the first installment of
fixed minimum rent due hereunder.
F. Landlord's Address: The fixed minimum rent, and all additional rent as
hereinafter provided, shall be payable to Landlord or order at 14014B
Sullyfield Circle, Chantilly, VA 22021, or at such other place as may from time
to time be designated by Landlord in a written notice to Tenant.
G. Restrictive Endorsements Ineffective: No payment by Tenant or receipt by
Landlord of a lesser amount than the then-current installment of fixed minimum
rent and additional rent due hereunder shall be deemed to be other than on
account of the earliest fixed minimum rent or additional rent due hereunder,
nor shall any endorsement or statement on any check, nor any letter
accompanying any check or payment as rent, be deemed a settlement or an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right
-1-
8/87 ed.
<PAGE> 33
to recover the balance of such fixed minimum rent or additional rent or
to pursue any other remedy in this Lease or by law provided. All fixed minimum
rent, and all additional rent payable hereunder, shall be payable without prior
demand therefor, and without any deduction or offset whatsoever.
ARTICLE FOUR: COMMON AREA MAINTENANCE
A. Agreement to Pay Common Area Maintenance: For each full or partial
calendar year during the term of this Lease, Tenant agrees to pay Landlord,
without previous demand therefor and without any setoffs or deductions
whatsoever, as additional rent, a sum equal to Tenant's proportionate share of
Landlord's "gross cost of operating and maintaining the common areas and
facilities of the Shopping Center" (hereinafter, the "common area maintenance,"
and defined below).
B. How Tenant's Share Determined: Tenant's share of common area maintenance
shall be determined for each calendar year by multiplying Landlord's gross cost
of common area maintenance for such calendar year by a fraction, the numerator
of which shall be the floor area of the demised premises as set forth in Article
one, and the denominator of which shall be 243,319 square feet, which is the
approximate net leasable floor area of the Shopping Center.
C. Terms of Payment: Tenant's share of common area maintenance for each
calendar year shall be payable, in advance, in monthly installments on or before
the first day of each month throughout the term of this Lease. The monthly
installment shall be ONE THOUSAND ONE HUNDRED Dollars ($1,100.00) through the
close of the first calendar year during the term of this Lease. After the end
of the first calendar year, and each calendar year thereafter during the term
of this Lease, Landlord shall furnish Tenant with a statement of the actual
amount of Tenant's share of common area maintenance for the preceding calendar
year. If the total amount paid by Tenant as its share of common area
maintenance for any calendar year was less than the actual amount due from
Tenant for such calendar year as shown on the statement, Tenant shall pay to
Landlord the difference within twenty (20) days after the furnishing of such
statement. If the total amount paid by Tenant as its share of common area
maintenance for any calendar year was more than the actual amount due from
Tenant for such calendar year as
-2-
8/87 ed.
<PAGE> 34
D. Annual Adjustment: Commencing with the first day of January of the
first full calendar year after the lease commencement date during the term of
this Lease, and on the first day of January of each calendar year thereafter,
the amount of Tenant's monthly installment of common area maintenance shall be
adjusted to equal one-twelfth (1/12th) of Tenant's share of actual common area
maintenance for the immediately preceding calendar year. Appropriate
adjustments to the amounts payable under this Article shall be made, on a
daily, pro-rata basis, for partial calendar years which may occur at the
commencement and expiration of the term of this Lease.
E. Items Included: Landlord's "gross cost of operating and maintaining
the common areas and facilities of the Shopping Center" is hereby defined as
One Hundred Twenty Percent (120%) of the total cost and expense incurred by
Landlord in operating, maintaining and repairing (which terms include
replacements, additions and alterations) of common areas and roofs of the
Shopping Center, including, but not limited to: the costs of maintaining,
repairing and/or replacing all service pipes, electric, gas, and water lines
and sewer mains leading to and from the demised premises and/or other premises
in the Shopping Center; the costs of operating, maintaining and repairing all
heating, air-conditioning and ventilation equipment serving the common areas;
all utility charges incurred in operating the Shopping Center; all costs
incurred in painting, repaving, resurfacing, gardening, landscaping, and for
traffic control equipment; the cost of public liability insurance, property
damage insurance, and all other insurance coverage carried by Landlord for all
land and improvements comprising the Shopping Center; all costs for line
painting and striping, lighting, Christmas and/or other seasonal decorations,
sanitary and drainage control, public address system, cleaning, removal of
snow, trash and rubbish, and depreciation on machinery and equipment used in
such maintenance; and the cost of personnel to control traffic and direct
parking and to provide security for the common areas and facilities. "Common
areas and facilities" is defined as all of the Shopping Center improvements now
or hereafter existing, excepting that area which is presently leased to tenants
or leasable space, including, but not limited to, the parking areas provided
by Landlord in the Shopping Center, the mall area (if any), the public
conveniences of the Shopping Center, the delivery areas and service lanes, and
all other areas in the Shopping Center now or hereafter constructed and
intended to be used in common by, or for the benefit of, the tenants and/or
customers of the Shopping Center.
F. Items Excluded: Notwithstanding the foregoing, the "gross cost of
operating and maintaining the common areas and facilities of the Shopping
Center" shall not include the following: (i) any leasing or mortgage brokerage
commission or fee paid or payable by Landlord; (ii) mortgage interest; (iii)
real estate taxes, as defined in Article Five; (iv) franchise or income taxes
imposed on Landlord; (v) costs incurred in renovating or otherwise improving,
decorating, painting or redecorating space for tenants; (vi) ground rent
incurred pursuant to the ground lease, if any, in effect during the term of
this Lease; (vii) any operating expense of Landlord which is otherwise paid or
reimbursed in full by Tenant or any other tenant of the Shopping Center; (viii)
depreciation and amortization, except with respect to machinery and equipment
used in maintenance; (ix) any loss, claim, damage, award or other amount paid
or payable by Landlord (including all attorneys' fees, court costs, and other
costs incurred in connection therewith) as a result or arising out of (a) the
violation or breach by Landlord or any tenant of the Shopping Center of the
terms and conditions of any lease of space in the Shopping Center, or
(b) any act of negligence or willful misconduct by Landlord, or Landlord's
agents, contractors, employees and assigns; (x) repairs or other work
occasioned by fire or other casualty the costs of which are reimbursed to
Landlord by insurers or by governmental authorities in eminent domain; (xi)
legal expenses and other costs and expenses incurred in connection with (a)
leasing space in the Shopping Center or (b) negotiations or disputes with
present or prospective tenants of the Shopping Center; (xii) expenses of a
capital nature, including without limitation capital improvements, capital
repairs, capital equipment and capital tools, all as determined in accordance
with generally accepted accounting principles, consistently applied; (xiii)
Landlord's general overhead and general administrative expenses; (xiv)
advertising and promotional expenses including Landlord's portion of any
Promotion Fund hereunder; and (xv) any other
-3-
8/87 ed.
<PAGE> 35
expense which, under generally accepted accounting principles, consistently
applied, would not be rendered as a normal maintenance or operating expense.
In addition, the depreciation of any maintenance equipment used by Landlord and
the compensation of any personnel hired or contracted by Landlord to
maintain properties in addition to the Shopping Center shall be allocated
proportionately between each of such properties.
G. Tenant's Right to Verify: Tenant shall have the right, within thirty
(30) days of receiving the year-end statement of actual common area maintenance
expenses, to request copies, certified by Landlord as true and complete, of such
books and records, including purchase orders, invoices, and payrolls, as may be
reasonably necessary to enable Tenant to verify the amount of any item of
common area maintenance of which Tenant is required to pay its share. If, upon
the basis of an examination by the accountant of Tenant, who shall be a
Certified Public Accountant, it shall be determined that the amount paid by
Tenant as its share of common area maintenance for any year was overstated,
Landlord shall promptly refund the amount overpaid by Tenant, plus interest at
the same rate Tenant is required to pay to Landlord under Article 20, Paragraph
B of this Lease. If, on the basis of such examination, it shall be determined
that Tenant's share was overstated by greater than five percent (5%), Landlord
shall also reimburse Tenant for the reasonable expenses incurred by Tenant in
making such examination.
ARTICLE FIVE: REAL ESTATE TAXES
A. Agreement to Pay Real Estate Taxes: Tenant agrees to pay Landlord
during the term of this Lease, without previous demand therefor and without any
setoffs or deductions whatsoever, as additional rent, a sum equal to Tenant's
proportionate share of all real estate taxes which may be levied or assessed by
lawful taxing authorities against the land, buildings and all improvements in
the Shopping Center.
B. Real Estate Taxes Defined: "Real estate taxes" shall be deemed to mean
all city, county, town and village taxes, special or general, ordinary or
extraordinary, assessments, water and sewer rents, charges for public utilities,
excises, levies, license and permit fees, and other governmental charges which
shall be imposed upon or become due and payable or become a lien upon the
premises or any part thereof, including the building and improvements which may
hereafter be placed or erected thereon, or on the sidewalks or streets in front
of the same by any Federal, state, municipal, or other governmental or public
authority under existing law or practice or under any future law or practice,
and costs and expenses incurred in contesting or negotiating an adjustment
thereof.
C. How Tenant's Share Determined: Tenant's proportionate share of real
estate taxes shall be determined for each calendar year by multiplying the real
estate taxes for such calendar year by the same fraction utilized in Article
Four for determining Tenant's proportionate share of common area maintenance
expenses. The real estate taxes for any calendar year shall mean all real
estate taxes actually paid or due to be paid during such calendar year, whether
or not such real estate taxes relate to such calendar year or to a fiscal year.
Tenant's liability for its share of any real estate taxes for the calendar
years in which this Lease commences and terminates shall be subject to a
pro-rata adjustment based on the number of days of said calendar year during
which the term of this Lease is in effect.
D. Terms of Payment: Tenant's proportionate share of real estate taxes
shall be payable in advance, in monthly installments, on or before the first day
of each calendar month during the term of this Lease, subject to adjustments as
hereinafter provided. The monthly installment shall be ONE HUNDRED THIRTY
DOLLARS ($130.00) through the close of the first calendar year during the term
of this Lease. The amount of the monthly installment shall be adjusted
(upwards or downwards) commencing January 1 of the first calendar year after
the lease commencement date, and on the first day of each calendar year
thereafter during the term of this Lease, on the basis of Landlord's reasonable
estimate of Tenant's proportionate share of the real estate taxes for the
then-forthcoming calendar year.
E. Adjustment: Subsequent to the end of each calendar year, Landlord
shall furnish Tenant with a statement of the actual amount of Tenant's
proportionate share of real estate taxes for such calendar year. If the total
amount paid by Tenant as its proportionate share of the real estate taxes for
such calendar year
-4-
8/87 ed.
<PAGE> 36
was less than the actual amount due from Tenant as shown on such statement,
Tenant shall pay to Landlord the difference within twenty (20) days after the
furnishing of such statement. If the total amount paid by Tenant as its
proportionate share of the real estate taxes for such calendar year was more
than the actual amount due from Tenant for such calendar year as shown on
the statement, Landlord shall pay to Tenant the difference within twenty (20)
days after the furnishing of such statement.
F. Refund: If the operation of any of the foregoing provisions results in
payment by Tenant of a share of real estate taxes for calendar years extending
beyond the term of this Lease, Landlord, within thirty (30) days following the
expiration of the term of this Lease, shall reimburse to Tenant any such
amount, less amounts, if any, then due Landlord from Tenant. Landlord's
and Tenant's obligations under this Article shall survive the expiration
of the term of this Lease.
G. Substantiation: A copy of a tax bill or assessment bill provided by
Landlord to Tenant shall at all times be sufficient evidence of the amount of
taxes and/or assessments assessed or levied against the Shopping Center.
H. Verification: Tenant shall have the right, within thirty (30) days of
receiving the statement referred to in Paragraph E above, to request copies,
certified by Landlord as true and complete, of such books and records as may be
reasonably necessary to enable Tenant to verify the amount of any item of "real
estate taxes" of which Tenant is required to pay its proportionate share.
Landlord shall keep such records for a period of not less than three (3) years
after the dates such taxes are actually paid. If, upon the basis of an
examination by the accountant of Tenant, who shall be a Certified Public
Accountant, it shall be determined that the amount paid by Tenant as its
proportionate share of such taxes for any year (or years, as the case may be)
was overstated, Landlord shall promptly refund the amount overpaid by
Tenant plus interest at the same rate Tenant is required to pay under Article
20, Paragraph B of this Lease, and, if on the basis of such examination it
shall be determined that Tenant's proportionate share was overstated by more
than five percent (5%), Landlord shall also reimburse Tenant for reasonable
expenses incurred by Tenant in making such examination.
I. Future Laws: In the event any present or future enactment of any state or
political subdivision thereof, or of any governmental authority having
jurisdiction thereover: (i) imposes a tax and/or assessment of any kind or
nature upon, against or with respect to the rents payable by tenants in the
Shopping Center to Landlord derived from the Shopping Center or with respect to
Landlord's (or Landlord's lessor's) ownership of the land and improvements
comprising the Shopping Center, either by way of substitution for all or any
part of the taxes and assessment levied or assessed against such land and such
improvements, or in addition thereto (but excluding any income tax imposed on
Landlord's gross or net income); and/or (ii) imposes a tax or surcharge of any
kind or nature, upon, against or with respect to the parking areas or the number
of parking spaces in the Shopping Center, such tax, assessment and/or surcharge
shall be deemed to constitute real estate taxes for all purposes of this Article
Five.
J. Taxes on Tenant's Interest: Tenant shall at all times be responsible for
and shall pay when due all municipal, county, state and Federal taxes assessed
against Tenant's leasehold interest in the demised premises or against any
personal property of any kind owned, installed or used by Tenant.
ARTICLE SIX: UTILITY DEPOSIT
Tenant has deposited with Landlord, the receipt of which, if by check subject to
collection, is hereby acknowledged, for Landlord's general account, the sum of
THREE THOUSAND AND 00/100 DOLLARS AS UTILITY DEPOSIT WHICH SHALL BE HELD BY
LANDLORD UNTIL TERMINATION OF SAID LEASE NO INTEREST PAID. In the event that
Tenant is in default hereunder, Landlord may use, apply or retain the whole (or
any portion of) the Security Deposit for the payment of (i) any fixed minimum
rent, additional rent or other sum of money which Tenant may not have
paid or which may become due after the occurrence of a default, (ii) any sum
expended by Landlord on Tenant's behalf in accordance with the provisions of
this Lease, or (iii) any sum which Landlord may expend or be required to expend
by reason of Tenant's default. Upon any such use, payment or application,
Tenant
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shall, upon five (5) days' written notice from Landlord, restore the Security
Deposit to the original sum set forth above. The use, application or retention
of the Security Deposit by Landlord shall not prevent Landlord from exercising
any other right or remedy provided in this Lease or at law and shall not operate
as a limitation on any recovery to which Landlord may otherwise be entitled. Not
later than thirty (30) days after the expiration or earlier termination of this
Lease, and provided Tenant is not in default, Landlord shall return the Security
Deposit to Tenant, without interest and less any sums used, applied or retained
as hereinabove set forth. In the event of a sale or transfer of Landlord's
interest in the Shopping Center or the demised premises, Landlord shall have
the right to transfer the Security Deposit to the purchaser or transferee. In
the event the Security Deposit is transferred, Tenant shall look solely to the
purchaser or transferee for the return of the Security Deposit and Landlord
shall thereupon be released from all liability to Tenant for the return of the
Security Deposit; provided, that the purchaser or transferee has affirmatively
assumed all of Landlord's obligations to Tenant in writing.
ARTICLE SEVEN: POSSESSION
Tenant agrees to take possession of the demised premises on the lease
commencement date. Tenant has examined the demised premises and all equipment
presently serving the demised premises prior to and as a condition precedent to
its execution of this Lease, and its taking possession thereof shall be
conclusive evidence of its receipt thereof in good order and repair. LANDLORD
WARRANTS THAT ALL PLUMBING AND HEATING AND ELECTRICAL SHALL BE IN GOOD WORKING
ORDER AT TIME OF POSSESSION BY TENANT. Exhibit D1- D2 Landlord work - tenants
work attached. Possession shall be sixty (60) days after building permit.
Landlord shall furnish the building permit in a timely fashion. Notwithstanding
the contrary, tenant shall take possession of demised premises when landlord has
substantially completed landlords work AND THIS SHALL BE THE LEASE COMMENCEMENT
DATE.
ARTICLE EIGHT: SIGNS
A. Sign on Vertical Sign Area of Canopy: Landlord has provided suitable
mounting structures and electric service to the vertical sign area of the
canopy above the tenant spaces in the Shopping Center, including the demised
premises. Tenant agrees to install an illuminated sign which meets LANDLORDS
PRIOR APPROVAL AND ATTACHED TO LEASE AS EXHIBIT A1 (hereinafter, the "Sign
Criteria") within the vertical sign area of the canopy directly above the
demised premises, at Tenant's sole cost and expense. Within fifteen (15) days
of the execution of this Lease, Tenant shall submit a drawing of a proposed
sign to Landlord for written approval, which shall not unreasonably be
withheld. Upon Landlord's approval of its drawing, Tenant shall employ a
qualified contractor to fabricate and install the sign in the sign area in
strict compliance with the approved drawing and the Sign Criteria, such work to
be completed in sixty (60) days. It shall be Tenant's responsibility to obtain
all necessary building permits and/or approvals for the installation of the
sign. SEE EXHIBIT A1.
B. Under-Canopy sign: Landlord has provided suitable mounting structures and
electric service beneath the canopy above the tenant spaces in the Shopping
Center, including the demised premises. Tenant agrees to install an illuminated
sign which meets the criteria set forth in Exhibit "B" attached to this Lease
(hereinafter, the "Sign Criteria") beneath the canopy directly above the
demised premises, at Tenant's sole cost and expense. Within fifteen (15) days
of the execution of this Lease, Tenant shall submit a drawing of a proposed
sign to Landlord for written approval, which shall not unreasonably be
withheld. Upon Landlord's approval of its drawing, Tenant shall employ a
qualified contractor to fabricate and install the sign beneath the canopy in
strict compliance with the approved drawing and the Sign Criteria, such work to
be completed in sixty (60) days. It shall be Tenant's responsibility to obtain
all necessary building permits and/or approvals for the installation of the
sign.
C. Restrictions: Other than as set forth above, Tenant shall place no signs,
awnings, curtains, shades or exterior lighting on any show window or any part
of the exterior of the demised premises, or in the interior of the demised
premises if visible from the exterior of the demised premises, without the prior
written consent of Landlord. Tenant shall not paint any brick work, cornice
work, mill work or metal work on the front of the demised premises without the
prior written consent
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of Landlord. For the purposes hereof, "signs" includes window or door
lettering, placards, and other items, whether located inside or outside the
demised premises, if visible from the exterior of the demised premises. In the
event Landlord chooses to upgrade, rehabilitate, remodel or renovate the facade
of the Shopping Center, or the portion thereof in which the demised premises
are located, at Landlord's cost and expense, Tenant agrees to cooperate in such
renovation by removing its existing signs and replacing them, upon thirty (30)
days' notice from Landlord, at Tenant's sole cost and expense, with signs on
the vertical sign area of the canopy and beneath the canopy in accordance with
any revised Sign Criteria established by Landlord. Tenant's signs shall in no
way diminish the rights or ability of other tenants in the Shopping Center to
maintain or erect signs identifying their businesses. Any permits which are
required shall be obtained and paid for by Tenant.
ARTICLE NINE: USE OF THE DEMISED PREMISES
A. Tenant's Use: Tenant covenants and agrees that during the term of this
Lease the demised premises will be used only for the purpose of: BUSINESS
RELATED SCHOOL OF BUSINESS ONLY AND COMPUTER PROGRAMS. Tenant specifically
covenants and agrees that the demised premises will not be used for any purpose
other than as stated herein.
B. Commencement of Business: Tenant agrees to open for business to customers
from the demised premises ON OR BEFORE NOVEMBER 1, 1989 OR SUBSTANTIAL
COMPLETION OF LANDLORD IMPROVEMENTS WHICHEVER OCCURS LAST. During the term of
this Lease, Tenant agrees to operate under the trade name of: "College and/or
Dominican Business,) and further agrees not to change the foregoing trade name
without first obtaining Landlord's written consent, which shall not unreasonably
be withheld.
C. Minimum Hours of Operation: Tenant agrees:
1. After having initially opened for business as required in Paragraph B
above, to thereafter open for business during the entire term
of this Lease on all days of the week, subject to local restrictions,
if any.
2. To open for business MON. - FRI. not later than 10:00 a.m., and to
remain open until at least 6:00 p.m., AND SAT. 9:00 am - 12 NOON.
3. To keep the store front of the demised premises and the exterior signs
adequately lighted until 9:00 p.m. every day throughout the
entire term of this Lease.
E. Prohibited Uses: Tenant agrees that it will not suffer or permit the
demised premises to be used for any unlawful or immoral purpose and that it will
not suffer or permit any article to be brought on or any act to be done on the
demised premises which shall render the demised premises, the Shopping Center
or any part thereof uninsurable. Tenant, in the conduct of its business, will
at its own expense obtain all occupancy permits for the demised premises and
will fully and completely comply with all applicable laws, ordinances, rules
and regulations of any and all governmental authorities having jurisdiction of
the Shopping Center or the demised premises (including, without limitation,
rules and regulations concerning cleanliness, health, safety, occupational,
environmental and use laws and regulations), now existing or hereafter adopted,
and the requirements of all insurance underwriters, mortgagees or lessors of
the Shopping Center. Tenant agrees that in no event shall it knowingly use the
demised premises for purposes which are prohibited by zoning or similar laws
and regulations or covenants, conditions or restrictions of record. Tenant
further agrees that Tenant will not permit the use or display of pinball, video
game or similar type game machines in the demised premises without the written
consent of Landlord, and will not sell or
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display drug paraphernalia or pornographic materials in the demised premises,
and will neither sell nor display any items which in Landlord's reasonable
judgment adversely affect the image of the Shopping Center. Landlord warrants
that to its knowledge, Tenant's contemplated use of the demised premises is not
in violation of any applicable zoning or similar laws, ordinances or
regulations, and that the current zoning classification is as shown on the site
plan of the project as approved by Roanoke County.
F. No reduction in Tenant's Business Activity: Tenant shall not diminish its
ability to transact its normal volume of business by any action including, but
not limited to, removing substantial amounts of inventory, reducing personnel,
or reducing the hours of operation. The foregoing covenant shall not be deemed
to restrict Tenant's exercise of its reasonable business judgment regarding
purchases or stocking of inventory, releasing and hiring of personnel, or
similar matters.
G. Parking:
1. Deliveries: Tenant agrees that all deliveries or shipments of any
kind to and from the demised premises, shall be made only by way of the rear of
the demised premises or at other locations which may be designated by Landlord,
and only at such times as may be designated for such purposes by Landlord.
Tenant agrees that if deliveries are undertaken or permitted by Tenant other
than as set forth in this Paragraph, Tenant will pay Twenty-Five Dollars
($25.00) for each such infraction, as and for liquidated damages.
2. Parking: Tenant agrees that Tenant and its employees shall park
their vehicles only in those portions of the parking areas, if any, as
may be designated for that purpose by Landlord. Such designated parking areas
may, at Landlord's discretion, be adjacent to the Shopping Center, at the
periphery of the parking lot, or anywhere in between. Tenant shall furnish
Landlord with the license numbers of all vehicles used by Tenant and its
employees within five (5) days after opening for business from the demised
premises, and Tenant shall thereafter notify Landlord of any changes in license
numbers and/or additions or deletions to its staff within five (5) days of such
events. Tenant agrees that if Tenant or its employees fail to park their
vehicles in designated parking areas, Landlord may charge Tenant, as and for
liquidated damages, Twenty-Five Dollars ($25.00) per day for each day or
partial day for each car parked in any areas other than those designated.
Tenant hereby authorizes Landlord to remove from the Shopping Center any of
Tenant's vehicles or vehicles belonging to Tenant's employees and/or to attach
violation stickers or notices to such vehicles, and Tenant hereby waives and
releases Landlord and agrees to hold Landlord harmless from any and all claims,
liabilities, costs and expenses which may result or arise therefrom. Tenant's
customers shall have the non-exclusive right to park in the Shopping Center
parking lot without any charge (either to Tenant or such customers).
3. Fire Lanes & Access: Tenant agrees, for itself and for its employees,
to comply with all access and fire lane restrictions which may be imposed upon
the parking areas by Landlord and/or by governmental authorities.
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F. Lease Year: As used in this Lease, the term "lease year" means that period
beginning on the lease commencement date and terminating on the last day of the
twelfth full calendar month thereafter (or the first twelve (12) full calendar
months of this Lease if this Lease commences on the first day of a month), and
each succeeding period of twelve (12) full calendar months, during the entire
lease term and any renewals or extensions thereof, provided, the last lease
year may consist of less than twelve (12) full calendar months and shall expire
on the expiration date of the term of this Lease.
ARTICLE ELEVEN: MAINTENANCE AND REPAIRS
A. Landlord Responsibility: Landlord will keep the roof and the exterior
walls of the demised premises (excluding the store front, interior
non-structural portions of the exterior walls, and any plate glass, windows,
window frames, doors and door frames) in proper repair, provided that in each
case Tenant shall have given Landlord prior written notice of the necessity of
such repair. Except for (i) damage caused by fire and casualty, (ii) damage
covered by Landlord's insurance, and (iii) damage or maintenance necessitated
by the negligence or willful misconduct of Landlord or Landlord's agents,
contractors, employees or assigns, Landlord shall not be responsible for
repairing any damage to, or performing any maintenance of, the demised
premises. Notwithstanding any other provision of this lease, in no event shall
Landlord be responsible for repairing any damage to, or performing any
maintenance of, the demised premises when any such damage and/or maintenance
is caused or necessitated by (i) any act or omission of Tenant or any of
Tenant's employees, agents, customers, invitees or licensees, (ii) the
functioning or malfunctioning of any fixtures, equipment or other item
installed in or placed in the demised premises by Tenant, or (iii) any use of
the demised premises not permitted under the terms of this Lease. Except for
defaults which cannot reasonably be cured within a five (5) day period, Tenant
may, but need not, perform any covenant to be performed by Landlord hereunder
if Landlord fails or neglects to do so within a reasonable time, not exceeding
five (5) days, after Tenant has given Landlord written notice specifying
Landlord's default and Tenant's intention of so doing, and Landlord shall pay
to Tenant the reasonable cost and expense thereof, upon five (5) days' demand
in writing. In the event Landlord fails or neglects to make such payment as
aforesaid (or any other payment due under this Lease from Landlord to Tenant),
Tenant shall be entitled to its costs of collection thereof, including
reasonable attorneys' fees incurred in any action to recover such sums in which
Tenant prevails. In the event Tenant employs any persons to perform any work as
a consequence of the foregoing, liability, if any, for the acts or omissions
of such person shall be borne by Tenant, irrespective of the fact that Tenant
may seek reimbursement for the costs of such work from Landlord.
B. Tenant Responsibilities:
1. Maintenance: Except for the repairs Landlord is obligated to make
pursuant to Paragraph A, above, Tenant shall, at its own cost and expense, make
all necessary repairs and perform all maintenance on, in and to the demised
premises that is necessary or appropriate to keep the demised premises in good
condition and repair and in a safe and tenantable condition. All such repairs,
and
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maintenance shall be accomplished in a good and workmanlike manner and in
compliance with all applicable requirements of law, and Tenant shall use
materials equal in quality and kind to the materials used by Landlord in the
original construction of the demised premises. Tenant's obligations shall
include, but are not limited to, the maintenance, repair and replacement of the
store front, Tenant's signs, all mechanical, plumbing, and electrical systems,
and all other fixtures, appliances and facilities furnished by Landlord or
installed by Tenant. Tenant not permit the accumulation of garbage, rubbish or
other waste in or around the demised premises. Landlord may, but need not,
perform any covenant to be performed by Tenant hereunder if Tenant fails or
neglects to do so within a reasonable time, not exceeding five (5) days, after
Landlord has given Tenant written notice specifying Tenant's default and
stating Landlord's intention of so doing, and Landlord may charge to Tenant the
reasonable cost and expense thereof, which cost and expense shall be treated as
additional rent, due and payable upon five (5) days' demand in writing.
Tenant agrees that the plumbing facilities shall not be used by Tenant,
Tenant's employees, agents, customers, invitees or licensees for any other
purpose than that for which they were intended, and no foreign substance of any
kind shall be thrown or deposited therein, and the expense of curing and
repairing any breakage, stoppage or damage resulting from a violation of this
provision shall be paid by Tenant, as additional rent, upon five (5) days'
demand by Landlord. In the event Landlord employs any persons to perform any
work as a consequence of the foregoing, liability, if any, for the acts of such
person shall be borne by Landlord, irrespective of the fact that Landlord may
seek reimbursement for the costs of such work from Tenant. Walk through to be
at completion of work with all utilities in good working order.
3. Condition of Interior: Tenant will keep the and interior of the
demised premises in a clean, orderly, and attractive condition at all times.
Tenant will not cut or drill into, or secure any fixture, apparatus or
equipment of any kind to any part of the demised premises, without obtaining
Landlord's prior written consent.
4. Plate Glass Replacement: Tenant shall, at its own cost and expense,
maintain and replace, as required, all glass, doors and windows, and all
portions thereof, in the demised premises.
5. Subsequent Alterations by Tenant: Prior to any work, installations or
alterations by Tenant in the demised premises, Tenant shall submit to Landlord
(i) an insurance certificate evidencing the insurance coverages which Tenant is
required to provide pursuant to this Lease, and (ii) plans and specifications
covering all work which Tenant proposes to perform in the demised premises
including, without limitation, the interior store layout, fixtures and decor.
Such plans and specifications shall be prepared in such detail as Landlord may
require and Tenant agrees not to commence work upon any of the aforesaid
Tenant's work until Landlord has approved such plans and specifications.
Landlord agrees to act with reasonable promptness with respect to approval of
such plans and specifications. Upon approval of said plans and specifications
by Landlord, Tenant shall make, at its own cost and expense, the approved
alterations or changes to the demised premises in a good and workmanlike manner
and in compliance with all applicable requirements of law, including any local
requirements with respect to approval of plans and building permits. All
alterations, once commenced, shall be diligently pursued to completion.
Notwithstanding anything to the contrary in the foregoing, Tenant shall have
no right to make any structural change, alteration or addition to the demised
premises.
6. Utility Charges: Tenant shall promptly pay all charges for utilities
furnished or rendered to the demised premises, including, but not limited to,
heat, water, gas, oil and electricity. In no event shall Landlord be liable in
damages or otherwise for any interruption or failure in the supply of any
utilities to the demised premises, or for damages resulting from the bursting
of pipes or conduits. Notwithstanding the foregoing, in the event there is a
failure or interruption in the furnishing of utilities to Tenant which
continues uninterrupted for a period of THIRTY (30) days, and the same
materially interferes with Tenant's use and occupancy of the demised premises
during such period, Tenant shall have the right to terminate this Lease by
notice in writing delivered to the Landlord prior to the resumption of such
utilities; provided, that there shall be no such right of termination if the
failure or interruption in the furnishing of utilities arises out of or relates
to the negligence or wrongful act of Tenant or Tenant's employees, agents and
contractors, or the failure of Tenant to pay utilities bills when due.
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TENANT SHALL HAVE THE RIGHT TO CURE ANY DEFAULT BY LANDLORD ON PAYMENT OF
UTILITY BILLS BY PAYING SAID BILLS TO PREVENT DISCONTINUING SERVICE AND
DEDUCTING SAID PAYMENT FROM ANY RENT DUE LANDLORD BY TENANT.
6B. Utility Payments By Tenant To Landlord: Tenant to pay 100% of
any and all utility bills until first floor is fully occupied. Upon occupancy
of any parts of the first floor and the remainder of the second floor not
occupied by said tenant then any and all utilities shall be prorated on a sq.
ft. basis. Prorating shall be based on the pro-rata share of the (sq. ft. of
said tenant) against the 37,000 sq. ft. total gross leaseable area of building
#1. The invoice submitted by the utility company6 for said service will have
been already paid by the landlord. Tenant will pay to the landlord the
requested bill within 5 business days of receipt of said bill. LANDLORD SHALL
NOT FURNISH ANY OTHER HVAC TO THE REMAINDER OF THE DEMISED PREMISES UNTIL SUCH
TIME LANDLORD LEASES ANY PORTION OF REMAINING SECOND FLOOR OR FIRST FLOOR.
7. Condition of Premises at Expiration or Termination: At the
expiration or earlier termination of this Lease, Tenant will quit and
surrender the demised premises in as good condition and repair as when this
Lease was entered into, reasonable use and wear thereof, and alterations,
installations or improvements permitted pursuant to Paragraph 5, above,
excepted. All alterations, installations or improvements (including, in all
events, all heating, ventilating and air-conditioning equipment and systems) on
or in said demised premises at the expiration or earlier termination of this
Lease, except furniture or trade fixtures installed at the expense of Tenant,
shall be and become a part of the demised premises and shall remain upon and be
surrendered with the demised premises. Notwithstanding the foregoing, if
Landlord shall have notified Tenant to do so no later than thirty (30) days
following the expiration date or earlier termination of this Lease, Tenant
shall restore the premises to the condition they were in upon the lease
commencement date, or prior to Tenant's alterations, installations and
improvements, and remove said furniture and trade fixtures. Should Tenant fail
to cause such restoration or remove said items, Landlord shall have such
restoration performed at Tenant's expense, and any un-removed items shall be
considered as abandoned and become the property of Landlord, or Landlord may
have them removed and disposed of at Tenant's expense. All damage done in the
course of removing any property as aforesaid shall be repaired at Tenant's
expense. The provisions of this Paragraph shall survive the expiration of the
term of this Lease.
8. Liens: Tenant will not permit or suffer any lien to attach to
the demised premises, or to the Shopping Center, or to the interest of Landlord
or Landlord's lessor therein, and nothing contained in this Lease shall be
deemed to constitute or imply any agreement by Landlord to subject its interest
or estate (or Landlord's lessor's interest or estate) to any lien. Tenant
covenants and agrees to save and hold harmless Landlord from and against any
such lien or claim of lien. In the event that any lien is filed against the
demised premises or the Shopping Center, or the interest of Landlord or
Landlord's lessor therein as a result of utilities furnished to the demised
premises, or of maintenance, additions, alterations, repairs, installations or
improvements made or claimed to have been made by Tenant or anyone holding any
part of the demised premises through or under Tenant, or any other work, act or
failure to act of any of the foregoing, Tenant shall fully pay or discharge the
same within ten (10) days from the filing thereof. If Tenant fails to discharge
by payment, bond (with surety satisfactory to Landlord) or court order, any
such lien, Landlord, at its option, in addition to all other rights or remedies
provided in this Lease, may bond said lien or claim (or pay off said lien or
claim if it cannot with reasonable effort be bonded), without inquiring into
the validity thereof, for the account of Tenant, and all expenses incurred by
Landlord in so discharging said lien shall be paid by Tenant to Landlord as
additional rent on five (5) days' demand.
ARTICLE TWELVE: INSURANCE; INDEMNITY
A. Insurance Coverages to be Obtained by Tenant: At all times during the
term hereof, Tenant shall obtain and shall keep in force, at its sole expense,
with companies acceptable to Landlord, policies of insurance which name
Landlord (and, upon notice from Landlord, its agents, mortgagees and lessors)
as an additional insured, as follows:
1. Fire Insurance: Fire and extended coverage, vandalism,
malicious mischief insurance and extended coverage insurance in an amount at
least equal to the full replacement costs of Tenant's betterments,
improvements, fixtures and contents in or to the demised premises, and with a
deductible not exceeding One Thousand Dollars ($1,000.00).
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2. Public Liability Insurance: Public liability and property damage
insurance under which the insurer agrees to indemnify and hold Landlord, and
those in privity of estate with Landlord, harmless from and against all cost,
expense and/or liability arising out of or based upon any and all claims,
accidents, injuries and damages in the broadest form of such coverage from time
to time available in the jurisdiction in which the demised premises are
located. The minimum limits of liability of such insurance shall be One Million
Dollars ($1,000,000.00) for bodily injury (or death) to any one person, Two
Million Dollars ($2,000,000.00) for bodily injury (or death) to more than one
person, and Two Hundred Thousand Dollars ($200,000.00) with respect to damage
to property. On or after the third anniversary of the lease commencement date,
the minimum limits of liability specified herein may be increased, upon thirty
(30) days' prior written notice by Landlord to Tenant, to amounts then
customarily required by Landlord in new leases covering premises similar to the
demised premises; provided, Landlord shall not increase the minimum limits of
liability more often than once every four (4) years thereafter. TENANT MAY AT
IT'S OPTION CARRY MINIMUM INSURANCE LIMITS, BUT PROVIDE ABOVE COVERAGE UNDER A
TWO (2) MILLION DOLLAR UMBRELLA POLICY.
B. Tenant-Caused Increase in Insurance Costs: Tenant agrees that it will not
keep, use, sell or offer for sale in or upon the demised premises any articles
which may be prohibited by the standard form of fire and extended coverage
insurance policy. Tenant agrees to pay, on ten (10) days' written demand, and as
additional rent, any increase in premiums for fire and extended coverage,
boiler, rent loss, and liability and property damage insurance with all its
endorsements that may be charged during the term of this Lease on the amount of
such insurance which may be carried by Landlord on the demised premises, the
Shopping Center, or any part thereof resulting from the type of merchandise sold
by Tenant or the activities carried on by Tenant in or at the demised premises,
whether or not Landlord has consented to the same. In determining whether
increased premiums are the result of Tenant's use of the demised premises, a
schedule, issued by the organization making the insurance rate on the demised
premises, showing the various components of such rate, shall be conclusive
evidence of the several items and charges which make up the insurance
rate on the demised premises and the Shopping Center.
C. Evidence of Coverage: Tenant will furnish to Landlord, no later than the
lease commencement date (and thereafter, no later than thirty (30) days prior
to the expiration of any policy), copies of policies or certificates of
insurance evidencing the coverages required by this Lease and such evidence of
payment of the premiums therefor as Landlord may request. In the event Tenant
fails to furnish Landlord with such evidence of coverage and payment of
premiums, such failure shall be considered a default under this Lease, and, in
addition to the other remedies Landlord may have for Tenant's default, Landlord
shall have the right, but not the obligation, to procure, on behalf of Tenant,
insurance coverage for any such matter, and Landlord's cost therefor shall be
deemed additional rent, payable by Tenant on five (5) days' demand by Landlord.
All policies required hereunder shall contain an endorsement providing that
the insurer will not cancel or materially change the coverage of said policy or
policies or change the parties named as insureds without first giving thirty
(30) days' prior written notice thereof to Landlord.
D. Indemnification: To the fullest extent this agreement may be effective
according to law, Tenant covenants and agrees that it will protect and save and
keep Landlord forever harmless and indemnified against and from any penalty or
damage or charges imposed for any violation of any law or ordinance, whether
occasioned by the neglect of Tenant or those holding under Tenant, and that
Tenant will at all times protect, indemnify and save and keep harmless Landlord
against and from all claims, loss, cost, damage or expense arising out of or
from any act, omission or negligence of Tenant, or Tenant's contractors,
licensees, agents, servants, employees or invitees, or arising from any
accident or other occurrence on or about the demised premises causing injury to
any person or property whomsoever or whatsoever, and will protect, indemnify,
save and keep harmless Landlord against and from any and all claims and against
and from any and all loss, cost, damage or expense arising out of any failure
of Tenant in any respect to comply with and perform all the requirements and
provisions of this Lease. Tenant agrees that the foregoing agreement to
indemnify and hold Landlord harmless shall extend to reasonable attorneys' fees
incurred by Landlord in the defense of any claim (whether or not such claim is
reasonable) through counsel selected by Landlord. Notwithstanding any provision
of this Lease to the contrary,
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8/87 ed.
<PAGE> 44
and to the fullest extent allowable by applicable law, Landlord agrees to
indemnify and hold harmless Tenant from and against any and all claims, loss,
cost, damage or expense (including court costs and attorneys' fees) arising out
of, caused by or relating to any act, omission, negligence or willful
misconduct of Landlord, and Landlord's contractors, licensees, agents,
servants or employees. The foregoing indemnification shall extend to
reasonable attorneys' fees incurred by Tenant in the defense of any claim
(whether or not such claim is reasonable) through counsel selected by Tenant.
No provision of this Lease shall be construed to release Landlord from
liability for the negligence or willful misconduct of Landlord and Landlord's
agents, employees, contractors and assigns.
E. Limited Waiver of Subrogation: Notwithstanding any provision of this Lease
to the contrary, Landlord and Tenant waive all rights to recover against each
other or against the officers, directors, shareholders, partners, joint
venturers, employees, agents, guarantors, customers, invitees or business
visitors of each other for any loss or damage arising from any cause, to the
extent such loss or damage is covered by any insurance required to be carried
by each of them pursuant to this Lease or any other insurance actually carried
by each of them. Landlord and Tenant will cause their respective insurers to
issue appropriate waiver of subrogation rights endorsements to all policies of
insurance carried in connection with the Shopping Center and demised premises
or the contents of either of them.
ARTICLE THIRTEEN: DAMAGE TO PERSONAL PROPERTY
All personal property, fixtures, goods, wares and merchandise in the demised
premises shall be and remain at Tenant's sole risk and Landlord shall not be
liable for any damage thereto, or loss thereof, arising from any acts of
negligence of any other tenants or persons, nor from the bursting, overflowing
or leaking of the roof or downspouts, or of water, sewer or steam pipes, or
from heating or plumbing fixtures, or from electric wires or fixtures, or from
any other cause whatsoever including snow, wind or ice.
ARTICLE FOURTEEN: DAMAGE
Landlord will maintain standard fire and extended coverage insurance on the
Shopping Center. If the demised premises shall be damaged by fire or other
casualty of the kind insured against under the policies of fire insurance and
extended coverage obtained by Landlord, but are not thereby rendered
untenantable in whole or in part, Landlord shall promptly, at its own expense,
cause such damage to be repaired, and the fixed minimum rent and all additional
rent shall not be abated or reduced. If by reason of such occurrence, the
demised premises shall be rendered untenantable only in part, Landlord shall
promptly, at its own expense, cause the damage to be repaired, and the fixed
minimum rent only shall be reduced during the period of such untenantability
proportionately, based on the ratio of the number of square feet of floor area
of the demised premises rendered untenantable to the total number of square
feet of floor area of the demised premises; in such case, there shall be no
reduction in the additional rent due under Article Three or otherwise under
this Lease. If the demised premises shall be rendered wholly untenantable by
reason of such occurrence, Landlord shall promptly, at its own expense, cause
such damage to be repaired and the fixed minimum rent shall be abated during
the period of such untenantability, however, in such case, there shall be no
reduction in the additional rent due under Article Three or otherwise under
this Lease. Notwithstanding anything to the contrary in the foregoing, if the
demised premises shall be destroyed or damaged to the extent of fifty percent
(50%) or more of their replacement value above foundation walls or rendered
wholly untenantable after the beginning of the last three (3) years of the then
current term of this Lease (or twenty-five percent (25%) during the last two
(2) years of the then current term of this Lease), or fifteen percent (15%)
during the last year of the then current term of this Lease), or, if at any
time forty percent (40%) or more of the buildings and improvements comprising
the Shopping Center shall be damaged or destroyed or rendered substantially
untenantable by any such casualty, Landlord may terminate this Lease by notice
to Tenant, said notice to be given within sixty (60) days of the event giving
rise to such damage or destruction. Any such termination as aforesaid shall not
affect any rights theretofore accrued to Landlord because of prior defaults of
Tenant. During the course of repairing the demised premises or the Shopping
Center after any such
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<PAGE> 45
damage, Landlord shall be entitled to use the common areas for storage of
materials and staging, and may temporarily deny pedestrian or vehicular access
as Landlord deems necessary. The time required by Landlord to repair any said
damage as aforesaid shall be extended by such time as is reasonably required by
Landlord to settle any insurance claim arising out of the damage to the demised
premises or the Shopping Center. Landlord's obligation to repair any such
damage shall in any event be limited to the proceeds actually received by
Landlord from insurance coverage, and shall be limited to the basic building,
store front (other than Tenant decoration or modification thereof), and
interior structural work existing as of the lease commencement date, and in no
event shall include repair of any alterations, improvements or betterments made
by Tenant in or about the demised premises; provided that in the event Landlord
(i) fails to restore the demised premises and Shopping Center to their
pre-existing condition, or (ii) fails to substantially complete such
restoration within NINETY (90) days after such casualty, then in any of such
events, Tenant may, at its option, terminate this Lease upon thirty (30) days
written notice and suffer no further liability hereunder. Unless Tenant so
terminates, Tenant, after the occurrence of any such fire or other casualty
shall, at its own cost and expense, promptly repair and restore the portion of
the demised premises Landlord is not obligated to restore, as well as Tenant's
fixtures, equipment and appurtenances.
ARTICLE FIFTEEN: CONDEMNATION
In the event that any portion of the demised premises shall be taken or
condemned for public use, Landlord shall, to the extent of the condemnation
award available to Landlord, rebuild and restore the remaining portion thereof
so as to make an architecturally complete unit, and the fixed minimum rent
shall be reduced in the proportion which the actual floor area of the demised
premises taken bears to the entire floor area of the demised premises, but
there shall be no abatement or reduction in additional rent due under this
Lease. However, in the event that twenty-five percent (25%) or more of the
total floor area of the demised premises shall be so taken, either Tenant or
Landlord may cancel and terminate this Lease by serving upon the other party a
written notice of its intention so to do within thirty (30) days after the
condemnation judgment shall be entered, in which event Landlord shall not be
required to restore or rebuild the demised premises. Moreover, in the event
twenty-five percent (25%) or more of the floor area of the Shopping Center
shall be so taken, Landlord shall have the right to cancel and terminate this
Lease by serving upon Tenant a written notice of its intention to do so within
thirty (30) days after the condemnation judgment shall be entered. It is
agreed, however, that if a portion of the demised premises or the Shopping
Center is taken and the Lease is not canceled or terminated by either party
hereto as permitted above, then the demised premises shall be restored as
aforesaid. Tenant shall have no right or claim for any portion of Landlord's
condemnation award, and shall have no right or claim based on the condemnation
of the demised premises or the improvements thereto or of Tenant's leasehold
interest therein. Landlord's obligation to restore the demised premises shall
be limited, in any event, to the basic building, store front (other than Tenant
decoration or modification thereof), and interior structural work existing as
of the lease commencement date, and in no event shall include restoration of
any alterations, additions or betterments made by Tenant in or about the
demised premises. Notwithstanding the foregoing, Tenant shall have the right to
make a claim for a separate award for: Tenant's loss of business; injury to or
taking of Tenant's improvements; removal or taking of Tenant's trade fixtures,
equipment and furnishings; or as a result of any modification, alteration or
repair reasonably required by Tenant to place the remaining part of the demised
premises in suitable condition for continued occupancy.
ARTICLE SIXTEEN: LANDLORD'S INSPECTION RIGHTS
Landlord shall have the right at all reasonable times to enter upon the demised
premises for the purpose of inspecting same, making necessary or emergency
repairs, or showing same to potential purchasers or mortgagees.
Landlord shall have the further right during the last six (6) months of the
lease term to bring prospective tenants into the demised premises for the
purpose of showing same and during such period, Landlord may display "For Rent"
signs in the windows of the demised premises. Landlord shall have the further
right to enter upon the demised premises, and to an easement upon the demised
premises, for the purposes of installing, maintaining and repairing pipes or
other utility or similar service to
8/87 ed.
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<PAGE> 46
or for other premises located in the Shopping Center, provided the same does
not unreasonably disturb or limit the rights of Tenant to the use and enjoyment
of the demised premises.
ARTICLE SEVENTEEN: LANDLORD'S RIGHTS ON TENANT'S DEFAULT
A. Default and Remedies: In the event that: (1) Tenant shall fail to pay any
installment of fixed minimum rent, additional rent, or any other charge
provided in this Lease, or any portion thereof, when due and payable, and the
same shall remain unpaid for a period of ten (10) days thereafter; or
(2) Tenant shall be in default under any other provisions of this Lease and so
remain for a period of thirty (30) days after Landlord, by written notice, has
informed Tenant of such default (in the case of a default which cannot with due
diligence be cured within a period of thirty (30) days, Tenant shall have such
additional time to cure same as may reasonably be necessary, provided Tenant
proceeds promptly and with due diligence to cure such default after receipt of
said notice); or (3) (a) Tenant, or Guarantor if any, shall file in any court a
petition in bankruptcy or insolvency or for reorganization or arrangement under
the applicable Federal or State bankruptcy laws, or for the appointment of a
receiver or trustee of all or a portion of Tenant's or Guarantor's property; or
(b) an involuntary petition of the kind referred to in (3) (a) of this
Paragraph A shall be filed against Tenant, or Guarantor if any, and such
petition shall not be vacated or withdrawn within sixty (60) days after the
date of filing thereof; or (c) Tenant, or Guarantor if any, shall make an
assignment for the benefit of creditors other than in the ordinary course of
business; or (d) Tenant, or Guarantor if any, shall be adjudicated a bankrupt;
or (4) Tenant shall vacate or abandon the demised premises and leave same
vacated or abandoned for a period of fourteen (14) days; or (5) Tenant shall
assign or sublet the demised premises in violation of Article Eighteen of this
Lease, then Landlord may elect by written notice to Tenant to terminate
Tenant's right to possession only, without terminating this Lease, and Landlord
may, at Landlord's option, enter into the demised premises and take and hold
possession thereof, without terminating the Lease or releasing Tenant, or
Guarantor if any, in whole or in part, from Tenant's obligation to pay rent
hereunder for the full stated term at the time and in the manner provided in
this Lease.
B. Additional Remedies: Upon and after entering into possession without
terminating the Lease pursuant to the foregoing Paragraph A, Landlord may, but
need not, relet the premises or any part thereof for the account of Tenant to
any person, firm or corporation, other than Tenant, for such rent, for such
time and upon such terms as Landlord, in Landlord's sole discretion, shall
determine, and Landlord shall not be required to accept any tenant offered by
Tenant, or to observe any instruction given by Tenant about such reletting.
Landlord agrees, however, to use such efforts as may be deemed reasonable by
Landlord to mitigate its damages in the event of Tenant's default hereunder. In
any such case, Landlord may alter the demised premises and make repairs,
redecorations and remodellings to the extent deemed by Landlord necessary or
desirable, and Tenant shall, upon demand, pay the costs thereof, together with
Landlord's expense of obtaining possession of the demised premises and the
expense of reletting (including brokerage fees or commissions and reasonable
attorneys' fees). If the consideration collected by Landlord upon such
reletting for Tenant's account, if any, is not sufficient to pay the monthly
installment of fixed minimum rent and any additional rent required under this
Lease (including, without limitation, additional rent required under Articles
Three, Four and Five of this Lease), Tenant shall pay to Landlord the amount of
each monthly deficiency immediately upon demand. TENANT MUST RETURN BUILDING TO
ORIGINAL CONDITION LESS NORMAL WEAR AND TEAR.
C. Default; Landlord's Right to Cure at Tenant's Expense: Except for defaults
which cannot reasonably be cured within a five (5) day period, and
notwithstanding anything herein contained to the contrary, if Tenant shall be in
default in the performance of any of the terms or provisions of this Lease and
if Landlord shall give to Tenant notice in writing of such default, specifying
the nature thereof, and if Tenant shall fail to cure such default within five
(5) days after the date of such notice, or immediately if such default requires
emergency action, Landlord may, in addition to its other legal and equitable
remedies, cure such default for the account of and at the cost and expense of
Tenant and the sums so expended by Landlord shall be deemed to be additional
rent, and shall be paid by Tenant to Landlord on five (5) days' written demand
by Landlord.
8/87 ed.
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<PAGE> 47
D. Landlord's Lien: Tenant hereby grants to Landlord a lien and security
interest (hereinafter, collectively the "lien") as security for payment of
fixed minimum rent, additional rent or any other charges payable by Tenant
hereunder, upon all property, equipment, fixtures and inventory (and the
proceeds thereof) at any time placed on or in the demised premises, including
all improvements, fixtures, merchandise and other personal property, to the
full extent of Tenant's and/or any assignee's or subtenant's interest therein.
Such lien shall include the right to prevent removal of said property from the
demised premises and may be enforced, upon non-payment of rent or other charges
as aforesaid, by the re-entry, taking and sale of such property. Sale shall be
either public or private after at least ten (10) days' written notice to Tenant
at his last known address, and Landlord shall have the right and privilege to
be a purchaser at any such sale. The duty to notify Tenant's creditors in the
event of such sale shall rest solely with Tenant after notice as aforesaid,
except as otherwise required by law. The duty to notify all other interested
parties shall rest with Landlord. Tenant shall and hereby agrees to provide,
upon request, a complete and accurate list of creditors and indebtedness, and
otherwise to do whatever may be necessary or appropriate, to pass good and
legal title under such sale. Any and all proceeds obtained at such sale shall be
applied first to the cost of such sale, including reasonable attorneys' fees
and costs, and then to any interest or late charges accrued and payable under
the terms of this Lease for non-payment of rent and/or any other charges, and
any balance to the reduction of any principal sum due hereunder for rent and/or
other charges. Sale or retention under this lien shall not be deemed to waive,
alter, limit or affect in any manner whatsoever, but shall be in addition to,
any other remedies available to Landlord upon non-payment of rent or other
charges under this Lease or otherwise. Tenant shall execute any financing
statement or other documents requested by Landlord in order to evidence or
perfect the foregoing lien. Upon the written request of Tenant, Landlord agrees
to subordinate the foregoing lien(s) with respect to such items as may be
specifically identified as subject to an acquisition lien (for purposes of this
Lease, defined as any lien upon an item, granted by Tenant for the purpose of
financing the acquisition of such item), and upon evidence of the demand of
Tenant's lender to subordinate Landlord's lien to such acquisition lien.
E. Landlord's Right to Terminate: In addition to the right of Landlord to
terminate Tenant's right to possession only, Landlord shall also have the
right, at any time after default, to cancel and terminate this Lease, by
serving written notice to such effect on Tenant, and to pursue any remedy at
law or in equity that may be available to Landlord. Should Landlord at any time
terminate this Lease for any breach, in addition to any other remedies it may
have, it may recover from Tenant all damages it may incur by reason of such
breach, including (i) the cost of recovering the demised premises, (ii)
reasonable attorneys' fees incidental thereto, and (iii) the worth at the time
of such termination of the excess, if any, of the amount of fixed minimum rent,
additional rent and charges equivalent to rent due under this Lease for the
remainder of the stated term over the then TENANT OBLIGATION rental value of
the demised premises for the remainder of the stated term, all of which amounts
shall be immediately due and payable by Tenant; however, there shall be
credited against the amount described in clause (iii) any amounts paid to
Landlord pursuant to Paragraph B, above, which relate to the period after such
termination. For the purposes of this Paragraph E, in computing the amount of
the additional rent under Article Three payable by Tenant, there shall be
included the average additional rent payable under Article Three by Tenant
during the period from the lease commencement date to the time of default, or,
if shorter, during the thirty-six (36) month period immediately preceding the
default.
F. No Waiver: No waiver by Landlord of a breach of any covenant, agreement,
obligation or condition of this Lease shall be construed to be a waiver of any
future breach of the same or any other covenant, agreement, obligation or
condition hereof. No receipt of money by Landlord from Tenant after notice of
default, or after the termination of this Lease, or after the commencement of
any suit or after final judgment of possession of the demised premises, shall
reinstate, continue or extend the term of this Lease or affect any notice,
demand or suit. The rights and remedies hereby granted are cumulative and the
use of one remedy shall not exclude or waive Landlord's right to use another.
In the event Landlord commences any proceedings for non-payment of fixed
minimum rent or additional rent, Tenant shall not interpose any counterclaim of
whatever nature or description in such proceedings; this shall not, however, be
construed as a waiver of Tenant's right to assert such claims in any separate
action brought by Tenant. 8/87 ed.
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<PAGE> 48
ARTICLE EIGHTEEN: ASSIGNMENT AND SUBLETTING
A. Material Inducement: Tenant acknowledges that in entering into this Lease,
Landlord has relied, in material part, upon Landlord's understanding of the
reputation, business expertise, line of operation and financial net worth of
Tenant, the contribution which Tenant would make to the tenant mix of the
Shopping Center, and upon the continuing interest which Tenant will have in the
Lease and in the enterprise to be operated in the demised premises. Tenant
further acknowledges that its operations in the leased premises will have a
material impact on the value of the Shopping Center, Landlord's investment
therein, and the business and investment of other tenants of the Shopping
Center.
B. No Assignment or Sub-Lease Without Landlord's Consent: Neither Tenant, nor
any of its permitted successors or assigns, shall transfer, assign, mortgage,
encumber, or, by operation of law or otherwise, pledge, hypothecate, or assign
all or any part of its interest in the Lease, or sublet or permit the demised
premises, or any part thereof, to be used by others, including, but not by way
of limitation, concessionaires or licensees of Tenant, without the prior
written consent of Landlord in each instance, which consent Landlord shall not
unreasonably withhold or delay. Any such subletting or assignment shall be
referred to as a "transfer," and the person to whom Tenant's interest is
transferred shall be referred to as a "transferee." The foregoing prohibition
against transfer without the prior written consent of Landlord shall apply,
without limitation, to the following circumstances, each of which shall be
deemed a transfer: (i) if Tenant or any Guarantor of this Lease is a
corporation (other than a corporation, the outstanding voting stock of which is
listed on a "National Securities Exchange," as defined in the Securities Act of
1934), and if shares of such corporation are transferred by sale, assignment,
bequest, inheritance, operation of law or otherwise (including, without
limitation, a transfer to or by a receiver or trustee in Federal or State
bankruptcy, insolvency or other proceeding), so as to result in or make
possible a change in the present control of such corporation; (ii) if Tenant or
any Guarantor of this Lease is a partnership, a change in control or ownership
of such partnership; (iii) any transfer by sale, assignment, bequest,
inheritance, operation of law or other disposition of all or substantially all
of the assets of Tenant or any Guarantor which results in or makes possible a
change in the present control of the business of Tenant or any such Guarantor;
(iv) any other change in the ownership of Tenant, or of any Guarantor of this
Lease, or the business operated by Tenant; or (v) any subletting or assignment
which occurs by operation of law, merger, consolidation, or reorganization or
any change of Tenant's corporate or proprietary structure.
C. Notice to Landlord to Intent to Transfer: In the event Tenant desires to
effect a transfer hereunder, Tenant shall give Landlord written notice
(hereinafter, the "assignment notice") thereof. The assignment notice shall
specify the proposed transferee, and the proposed terms of the transfer, and
contain such information about the proposed transferee, its experience, its
financial situation, its methods of operation, its contribution to the tenant
mix of the Shopping Center, and its impact on the Shopping Center, as a prudent
businessman would require in making the transfer decision. Tenant specifically
agrees to apprise Landlord of any adverse or negative information in its
possession concerning the proposed transfer and the proposed transferee. Within
thirty (30) days of the receipt of the assignment notice Landlord shall, by
written notice to Tenant, elect: (i) to permit the proposed transfer; (ii) to
terminate the Lease (but not in the case of a "Sale of the Business," as
defined in Paragraph F below, and only in cases where Tenant seeks to assign or
sell its entire interest in the demised premises); or (iii) to deny consent to
the proposed transfer, in which event Tenant shall continue to occupy the
leased premises and comply with all of the terms and conditions hereof. In the
event Landlord fails to give Tenant written notice of its election hereunder
within the specified thirty (30) day period, Landlord shall be deemed to have
denied its consent to the proposed transfer.
D. Conditions on Consent to Transfer: It is specifically understood that any
transfer by Tenant consented to by Landlord in accordance with this Article
Eighteen shall be only for the permitted use and for no other purpose. If
Landlord consents to a transfer, the permitted transferee shall assume by
written instrument all of Tenant's obligations under the Lease and such
transferee, at least thirty (30) days prior to the effective date of the
permitted transfer, shall deliver to Landlord the proposed sublease, assignment
and assumption agreement, or other instrument evidencing the transfer and the
transferee's undertaking of Tenant's obligations under the Lease, which
instrument shall require Landlord's acceptance in order to
8/87 ed.
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<PAGE> 49
be effective. In the event of a permitted transfer, Tenant shall continue to be
liable under this Lease, and shall not be released from performance hereunder,
unless affirmatively so released in writing by Landlord. Following a permitted
transfer of this Lease pursuant to which Tenant is affirmatively released by
Landlord from its obligations hereunder, Landlord shall not be required to send
the named Tenant any notice to the approved assignee.
E. Void Transfers: Any transfer without Landlord's consent, whether as a
result of any act or omission of Tenant, or by operation of law or otherwise,
shall not be binding upon Landlord, and shall confer no rights upon any third
person. Any such unpermitted transfer shall, without notice or grace period of
any kind, constitute a default by Tenant under this Lease. The acceptance by
Landlord of the payment of rent following any transfer prohibited by this
Article Eighteen shall not be deemed to be a consent by Landlord to any such
transfer, an acceptance of the transferee as Tenant, a release of Tenant from
the performance of any covenants herein contained, or a waiver by Landlord of
any of its remedies under this Lease or at law, although amounts actually
received shall be credited by Landlord against Tenant's rent obligations.
Consent by Landlord to any one transfer shall not constitute a waiver of the
requirement for consent to any other transfer. No reference in this Lease to
assignees, concessionaires, subtenants or licensees shall be deemed to be a
consent by Landlord to the occupancy of the demised premises by any such
assignee, concessionaire, subtenant or licensee.
F. Division of Profits: In the event of any subletting of the demised premises
or any part thereof, the profits resulting therefrom (as defined below) shall
be apportioned Fifty percent (50%) to Landlord and Fifty percent (50%) to
Tenant. As used herein, the term "profits" with respect to any sublease of the
demised premises shall mean the excess, if any, of any and all sums actually
collected by Tenant under or in connection with such sublease, over (i) the
total sums Tenant is obligated to pay to Landlord under this Lease (prorated to
reflect the obligations applicable to that portion of the demised premises
subject to such sublease), (ii) rental or other payments received that are
attributable to the amortization over the term of the sublease of the cost of
leasehold improvements made to the sublet portion of the demised premises by or
for Tenant and at Tenant's expense, and (iii) Tenant's reasonable costs in
subleasing the space (including reasonable commissions and reasonable legal
fees and expenses) or in enforcing the terms of the sublease or pursuing any
remedies against the subtenant, including reasonable legal fees and expenses.
It is expressly understood and agreed that the term "profit" shall not include
all or any part of the consideration received by Tenant in connection with the
sale of its business (either by asset sale, stock sale, merger, or otherwise,
herein, a "Sale of Business") to a purchaser which operates the same type of
business thereafter in the demised premises, whether or not Tenant and such
purchaser allocate part of the purchase price paid in such Sale of Business to
the purchaser's acquisition or assignment of Tenant's rights under this Lease.
The preceding sentence shall not relieve Tenant of its obligation to obtain
Landlord's reasonable consent to any assignment, sublease or other transfer
entered into as part of a Sale of Business, provided Landlord shall not have
the right to terminate this Lease in lieu of granting or denying such consent.
8/87 ed.
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ARTICLE TWENTY: ATTORNEYS' FEES AND RELATED MATTERS
A. Attorneys' Fees and Court Costs: In the event it becomes necessary for
Landlord to obtain the services of an attorney in connection with any default
hereunder or a breach of any covenant, agreement or condition herein set forth
on the part of Tenant, Tenant covenants and agrees that such attorneys' fees,
if reasonable, shall be payable as additional rent upon ten (10) days' demand
by Landlord, and that in any event any court shall have the power, in any
action in which Landlord prevails, and in addition to all other relief allowed
by this Lease or by law, to require Tenant to pay reasonable attorneys' fees as
set by such court (based on statements supplied by such attorney), plus the
clerk's fee, the marshal's fee and any and all other additional costs that may
be incurred.
B. Interest and Late Fee: Tenant agrees that to the fullest extent allowed by
law, all fixed minimum rent, all additional rent payable hereunder, and all
other sums or charges payable by Tenant either which are not paid when due,
shall bear and accrue interest at the lower of the highest rate allowed by law,
or two percent (2%) over the annual prime rate charged from time to time by
Chase Manhattan Bank, N.A. (adjusted daily) from the date when such payment is
due until the date paid. Moreover, in the event Tenant's payment of any monthly
installment of fixed minimum rent and/or additional rent is received
post-marked after the TENTH day of the month, Tenant shall include therewith,
as additional rent, a service charge of THREE percent (3%) of the amount of the
past-due installment.
ARTICLE TWENTY-ONE: HOLDING OVER
In the event that Tenant shall hold over after the expiration of this Lease,
the tenancy created by such holding over shall be month-to-month, but in all
other respects shall be governed by the terms of this Lease; provided, however,
if such holding over is without the express prior written consent and approval
of Landlord, the fixed minimum rent shall be two times (2x) the fixed minimum
rent during the last full twelve (12) month period of this Lease; and provided,
further, in all cases, thirty (30) days' notice shall be required to terminate
the tenancy created by such holding over. Nothing in this Article Twenty-Two
shall be deemed, interpreted or construed as Landlord's consent to any such
holding over after the expiration of the term of this Lease, unless Landlord
has given its prior written consent and approval to such holding over.
ARTICLE TWENTY-TWO: PROMOTION FUND
A. Promotion Fund: Landlord will maintain a bank account, separate from all
of its other bank accounts, into which Landlord shall deposit contributions
paid by Tenant pursuant to Paragraph B below, together with such contributions
paid by other tenants of the Shopping Center (the aggregate of such funds on
hand from time to time being referred to herein as the "Promotion Fund"). The
Promotion Fund shall be used by Landlord to pay all costs and expenses
associated with the formulation and carrying out of an ongoing program for the
promotion of the Shopping Center, which program may include, without
limitation, special events, shows, displays, signs, marquees, decor, seasonal
events, institutional advertising for the Shopping Center, promotional
literature to be distributed within the Shopping Center area and other
activities within the Shopping Center designed to attract customers. In
addition, Landlord may use the Promotion Fund to defray the reasonable costs of
administration of the Promotion Fund, including, without limitation, the salary
of a promotion and advertising director and related administrative personnel,
rent and insurance. Upon reasonable notice, Landlord shall make available for
Tenant's inspection, during normal business hours at the office of the
Promotion Fund, Landlord's records relating to the contributions to and
disbursements from the Promotion Fund. In no event shall Landlord use all or
any part of the Promotion Fund specifically to promote the leasing of space in
the Shopping Center or the sale of any ownership interest in the Shopping
Center.
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B. Tenant's Contributions to Promotion Fund: During each calendar year during
the term of this Lease, Tenant shall pay to Landlord Fifty Cents (50 cents) per
square foot of Tenant's floor area (hereinafter, Tenant's "Annual Promotion
Fund Contribution"). Tenant shall pay its Annual Promotion Fund Contribution in
monthly installments in such amounts as are designated and billed by Landlord,
each installment being due on the first day of each month. The Annual Promotion
Fund Contribution shall be adjusted annually, as of the first day of each
calendar year during the term of this Lease, in the same proportion as the
Consumer Price Index, as hereinbefore defined, most recently reported as of
such adjustment date bears to the Consumer Price Index reported as of one year
earlier. If, during the term of this Lease, the Consumer Price Index is changed
or discontinued, Tenant and Landlord shall agree upon a comparable index,
formula or other means of measurement of the relative purchasing power of the
dollar and such substitute index, formula or other means shall be utilized in
place of the Consumer Price Index as if it had been originally designated in
this Lease. Amounts due under this Paragraph shall be adjusted proportionately
for partial calendar years which fall within the term of this Lease.
C. Landlord's Contributions to Promotion Fund: During each calendar year,
Landlord shall contribute to the Promotion Fund an amount equal to one-fourth
(1/4) of the aggregate contributions made by the other contributors to the
Promotion Fund during such year.
D. Promotion of Shopping Center: Tenant agrees to use the name and logo of
Roanoke-Salem Plaza Shopping Center prominently as part of its address in all
its advertising and promotional literature, and further agrees that the name
will not be used at any location other than the demised premises. THE LOGO WILL
BE USED IN ADVERTISING MATERIAL WHEN APPROPRIATE BUT TENANT RESERVES THE RIGHT
TO NOT USE THE LOGO WHEN INAPPROPRIATE EXCEPT FOR THIRTY ($30,000) THOUSAND IN
ADVERTISING.
ARTICLE TWENTY-THREE: LANDLORD'S TITLE & COVENANT OF QUIET ENJOYMENT
A. Landlord's Warranty: Landlord covenants that it has full right and power
to execute this Lease. Subject to the provisions of Article Twenty-Five,
Landlord further covenants that it has the full right and power to perform this
Lease, and that Tenant, provided it is not in default hereunder, shall
peaceably and quietly have, hold and enjoy the demised premises and all rights,
easements, appurtenances and privileges thereunto belonging or in any way
appertaining, during the full term of this Lease, and any extension or
renewals hereof.
B. Termination of Landlord's Warranty: Anything herein to the contrary
notwithstanding, and so long as any transferee of Landlord's interest in the
demised premises assumes Landlord's obligations hereunder, Landlord shall not
be liable for any breach of the covenant of quiet enjoyment occurring after
Landlord shall have transferred ownership of Landlord's interest in the demised
premises. It is expressly understood and agreed that despite such assignment,
Landlord shall, subject to the provisions of this Lease, remain liable for any
breach of the covenant of quiet enjoyment occurring before Landlord shall have
transferred ownership of the demised premises. TRANSFERS SHALL ASSUME
RESPONSIBILITY FOR QUIET ENJOYMENT.
C. Limitation: Tenant agrees that Landlord shall not be personally liable
under this Lease, but that Tenant shall look solely to Landlord's interest in
the Shopping Center, including Landlord's interest in any leases and rents, and
in any insurance proceeds, for any recovery of a money judgment from Landlord
in any action or claim arising from or related to this Lease.
ARTICLE TWENTY-FOUR: RENTAL AGENT; BROKERS
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B. Tenant's Agent: Landlord and Tenant acknowledge and agree that LAWSON
ASSOCIATES is acting as sole agent for Tenant in this transaction. Landlord
agrees to pay said agent a commission.
C. No Other Agents: Except for the agents whose names, if any, are set
forth in Paragraphs A and B, above, Landlord and Tenant warrant and represent
to each other that no other broker, finder or agent has acted for or on their
behalf in connection with the negotiation, execution or procurement of this
Lease, and that no commissions or fees are payable to any other broker, finder
or agent.
ARTICLE TWENTY-FIVE: SUBORDINATION, ATTORNMENT & NON-DISTURBANCE
1. Subordination: Tenant agrees that this Lease is and shall be subject
and subordinate to all ground or underlying leases and to all mortgages and/or
deeds of trust which may now or hereafter affect such Lease or the real
property of which the demised premises form a part, and to all renewals,
modifications, consolidations, replacements and extensions thereof. This clause
shall be self-operative and no further instrument of subordination shall be
required by any mortgagee, trustee or Landlord. In confirmation of such
subordination, Tenant shall execute within ten (10) days' receipt of same, any
certificate or instrument to such effect that Landlord may request.
2. Attornment: Tenant agrees that in the event of a sale, transfer or
assignment of Landlord's interest in the Shopping Center ( or the real estate
of which the Shopping Center is a part), or any part thereof, including the
demised premises, or in the event any proceedings are brought for foreclosure
or to exercise the power of sale under any deed of trust made by Landlord
covering the Shopping Center (or the real estate of which the Shopping Center
is a part), or any part thereof, including the demised premises, to attorn to
and to recognize such transferee, purchaser or mortgagor as Landlord under this
Lease.
3. Non-Disturbance: Notwithstanding the foregoing, Tenant's agreement
to subordinate, to attorn to any holder of the reversionary interest in the
real estate of which the demised premises forms a part or to any successor to
Landlord's interest of such real estate, its waiver of rights, and its
obligation to execute an attornment certificate, to the extent contemplated by
this Lease, shall not take effect unless and until Tenant receives the holder's
or successor's (as the case may be) agreement in writing that so long as Tenant
is not in default hereunder: (i) Tenant shall not be named or joined as a party
defendant in any action or proceeding which may be instituted or taken by the
holder of such reversionary interest or Landlord's successor in interest, as the
case may be; and (ii) Tenant shall not be evicted from the demised premises,
nor shall Tenant's leasehold estate or possession under this Lease be
terminated or disturbed, nor shall any of Tenant's rights under this Lease be
affected in any way, by reason of any default under any mortgage or ground
lease with respect to the Shopping Center (or the real estate of which the
Shopping Center is a part), that until such time as a subsequent holder of a
reversionary interest in the real estate aforementioned (or Landlord's
successor in interest) shall become the actual owner or holder of the Shopping
Center and land, neither such holder or successor in interest shall have any
obligation for the performance of any obligations of Landlord under this Lease.
In any case, such Landlord or successor under such ground or underlying lease
shall not be bound by any prepayment on the part of Tenant of any rent for more
than one (1) month in advance, so that rent shall be payable under this Lease
in accordance with its terms, from the date of the termination of the ground or
underlying lease, as if such prepayment had not been made.
ARTICLE TWENTY-SIX: TRANSFER OF LANDLORD'S INTEREST
A. Fee Interest; Release from Obligations: So long as Landlord's interest
in the demised premises is a fee interest, the term "Landlord," as used in this
Lease, is defined as the then-current owner or mortgagee in possession of the
demised premises. In the event of any sale or sales by the then-current
Landlord hereunder of the demised premises, or in the event said demised
premises are leased by the then-current Landlord hereunder to any party
(subject to this Lease), and provided the transferee of, assignee of, or lessee
of, Landlord's interest assumes all of Landlord's obligations under this Lease
then, from and after the closing of such sale or lease transaction, Landlord
whose interest is thus sold
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<PAGE> 53
or leased shall be and hereby is completely released and forever discharged
from and of all covenants, obligations and liabilities of Landlord hereunder.
B. Leasehold Interest; Release from Obligations: So long as Landlord's
interest in the demised premises is a leasehold interest, the term "Landlord"
as used in this Lease is defined as the current owner for the time being of the
leasehold estate demised by the lessor under the Lease. In the event of any
transfer or assignment by then the current Landlord hereunder of Landlord's
interest under said Lease, and provided the transferee of, assignee of, or
lessee of, Landlord's interest assumes all of Landlord's obligations under this
Lease then, from and after the closing of such transfer or assignment
transaction, Landlord whose interest is thus assigned or transferred shall be
and hereby is completely released and forever discharged from and of all
covenants, obligations and liabilities of Landlord hereunder.
ARTICLE TWENTY-SEVEN: CHANGES REQUIRED BY LENDER
In the event that any lender providing either the renovation financing or the
permanent financing for the Shopping Center requires, as a condition of such
financing, that modifications to this Lease be obtained, and provided that such
modifications: (i) are reasonable, (ii) do not adversely affect Tenant's use of
the demised premises as herein permitted, (iii) do not materially alter the
mutually approved working plans and specifications, if any, and (iv) do not
increase the rents and other sums required to be paid by Tenant hereunder; then
and in such event, Landlord may submit to Tenant a written amendment to this
Lease incorporating such required changes, and Tenant hereby covenants and
agrees to execute, acknowledge (if necessary), and return such amendment to
Landlord within ten (10) days of Tenant's receipt thereof from Landlord.
ARTICLE TWENTY-EIGHT: STATUS OF LEASE
A. Generally: Recognizing that both parties may find it necessary
to establish to third parties, such as accountants, banks, mortgagees or the
like, the then-current status of performance hereunder, either party, on the
written request of the other made from time to time, will furnish a written
statement on the status of any matter pertaining to this Lease within ten (10)
days' receipt of such request.
B. Estoppel Letters: Without limiting the generality of the foregoing,
each party specifically agrees, at the other's request, promptly upon the
commencement of the term hereof, to notify the other in writing of the date of
the commencement of the term and to acknowledge satisfaction of the
requirements with respect to construction and other matters, save and except
for such matters as such party may wish to set forth specifically in said
statement. Moreover, at any time within ten (10) days after request is made,
either party shall execute, acknowledge and deliver to the other, or the
other's designee, a certificate evidencing whether or not:
(1) This Lease is in full force and effect;
(2) This Lease has been amended in any way;
(3) There are any existing defaults by Landlord and Tenant
hereunder and specifying the nature of such defaults, if any;
(4) The other party has performed all improvements or other work,
if any, required under this Lease;
(5) The date to which rent, including additional rent, has been
paid;
(6) There is any security deposit held by Landlord; and
(7) The address to which notices are to be given.
Landlord and Tenant agree that this Lease shall not be recorded but that, upon
request by Landlord, a short form lease of even date herewith, shall be
executed and recorded in accordance with the laws of the Commonwealth of
Virginia.
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<PAGE> 54
ARTICLE TWENTY-NINE: MORTGAGEE'S RIGHT TO CURE LANDLORD'S DEFAULT
Tenant agrees that in the event Landlord is in default under this Lease, any
mortgagee of Landlord's interest in the demised premises, and the lessor under
any ground or underlying lease which includes the demised premises, shall be
permitted (but not required) to enter the demised premises during normal
business hours for the purpose of correcting or remedying such default, and
Tenant agrees to accept performance by such mortgagee or ground or underlying
lessor in lieu of performance by Landlord. Tenant further agrees that, from
and after specific written request by Landlord to do so (which request sets
forth the name and address of any mortgagee or ground or underlying lessor),
Tenant will, simultaneously with the giving any notice to Landlord as required
or permitted hereunder, give a copy of such notice to such mortgagee or ground
or underlying lessor and that any such notice to Landlord shall not be
effective unless Tenant has simultaneously given such notice to such mortgagee
or ground or underlying lessor.
ARTICLE THIRTY: RENOVATION
In the event Landlord chooses to upgrade, rehabilitate, remodel or
renovate the Shopping Center at Landlord's sole cost and expense and without
any capital expenditure on the part of Tenant, Tenant agrees to pay Landlord,
commencing upon the first day of the first full calendar month after the date
of notice from Landlord to Tenant that said improvement program has been
substantially completed, and for the duration of the term of this Lease, an
annual sum equal to One Dollar ($1.00) per square foot of the floor area of the
demised premises. Said sum shall be deemed additional rent and shall be due
and payable in twelve (12) equal consecutive monthly installments, payable on
the first day of each calendar month commencing with the next calendar month.
Landlord agrees that Tenant shall not be responsible for its share of any
renovation assessment for a period of EIGHT (8) years after the lease
commencement date, nor shall Tenant be assessed with respect to any renovation
unless the total cost of such renovation exceeds Five Hundred Thousand Dollars
($500,000).
ARTICLE THIRTY-ONE: NOTICE
All notices given or required to be given hereunder must be by registered or
certified mail, return receipt requested, postage prepaid (or, in the event of
postal strike or interruption, by personal delivery), to the respective
addresses hereinafter set forth.
TO LANDLORD AT:
Roanoke-Salem Plaza Limited Partnership
14014B Sullyfield Circle
Chantilly, VA 22021
TO TENANT AT:
Beta Services, Incorporated
John C. Horne Jr., President
4142 Melrose Ave.
Roanoke, VA 24017
OR: The Demised Premises
Such addresses may be changed from time to time by serving notice as above
provided. Any such notice shall be deemed given, if mailed as aforesaid, upon
the date of deposit in the United States mail, or, if given by personal
delivery, upon receipt.
ARTICLE THIRTY-TWO: RELATIONSHIP OF PARTIES
Anything in this Lease to the contrary notwithstanding, it is agreed that
Landlord shall in no event be deemed to be a partner of, or engaged in a joint
venture with,
-24-
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<PAGE> 55
or be an associate of Tenant for any purpose whatsoever; nor shall Landlord be
liable for any debts incurred by Tenant in the conduct of its business or
otherwise. Nothing contained in this Lease shall be deemed or construed to
confer upon Landlord any interest in the business of Tenant. The relationship
of the parties during the term of this Lease shall at all times be only that of
Landlord and Tenant.
ARTICLE THIRTY-THREE: RULES AND REGULATIONS
Tenant agrees to comply with and observe the rules and regulations attached to
this Lease as Exhibit C and all reasonable amendments or supplements thereto
which Landlord may adopt. Tenant's failure to keep and observe said rules and
regulations shall constitute a breach of the terms of this Lease in the same
manner as if they were contained herein as covenants. Landlord shall use
reasonable efforts to ensure that other Tenants in the Shopping Center will
not, by virtue of violating the rules and regulations, or breaching the terms
of their leases with Landlord, materially interfere with Tenant's use and
occupancy of the demised premises.
ARTICLE THIRTY-FOUR: SPECIAL PROVISIONS CONCERNING DELIVERY OF POSSESSION
If Landlord shall be unable to deliver possession of the demised premises
(including delivery on the lease commencement date), by reasons of holding over
or retention of possession of any occupant, or for any reason, Landlord shall
not be subject to any liability for failure to deliver possession; under such
circumstances, the fixed minimum rent and all other rent reserved and
covenanted to be paid herein shall be abated until possession of the demised
premises is delivered by Landlord to Tenant, and no such failure to deliver
possession shall in any other manner affect the validity of this Lease or the
obligations of Tenant hereunder. Notwithstanding anything to the contrary in
this Lease, if the term of this Lease shall not have commenced within twelve
(12) months of the date hereof for reasons reasonably beyond the control of
Landlord, then this Lease shall, at the option of Landlord, become void and
both parties hereto shall be relieved of all obligations; moreover, if the term
of this Lease shall not have commenced within three (3) years of the date
hereof for any reason, then this Lease shall automatically become void and both
parties hereto shall be relieved of all obligations.
LANDLORD SHALL USE ITS BEST EFFORTS TO DELIVER IN SUBSTANTIALLY COMPLETED AS
PER EXHIBIT D1 DEMISED PREMISES WITHIN SIXTY (60) DAYS FROM THE DATE LANDLORD
RECEIVES BUILDING PERMIT.
ARTICLE THIRTY-FIVE: MISCELLANEOUS
A. Complete Agreement: It is understood and agreed that this Lease Agreement
and the exhibits, addenda and riders, if any, attached hereto, contain the
entire agreement between the parties, which shall not be modified in any manner
except by an instrument in writing executed by the parties hereto.
B. Successors and Assigns: The conditions and agreements contained herein are
binding on, and may be legally enforced by the parties hereto, their heirs,
executors, administrators, successors and assigns, subject to the provisions
hereof regarding assignment and subletting of this Lease or the demised
premises by Tenant.
C. Meaning of Certain Terms; Gender: Feminine, neuter and masculine pronouns,
the plural and the singular, and the words "lease" and "agreement" shall be
construed to be and shall be interchangeable in any place or places herein
in which the context may require such interchange. The headings, titles and
captions contained herein are for convenience and reference only, and shall not
be deemed to explain, modify, amplify, expand, limit or define the terms and
provisions of this Lease. The words "term of this lease" or "lease term," or
words of like impart, shall refer to the original term of this Lease set forth
in Article One, and validly exercised extensions, if any, under the provisions
of this Lease. The word "including" shall be deemed to mean "including but not
limited to."
D. Joint and Several Obligation: If Tenant consists of two or more
individuals or entities, said individuals or entities shall be jointly and
severally liable for the performance of all obligations, covenants and
agreements of Tenant in this Lease.
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<PAGE> 56
GUARANTY:
IN CONSIDERATION of Ten Dollars ($10.00) and other valuable consideration paid,
the receipt whereof is hereby acknowledged, the Undersigned (if two or more
persons, jointly and severally), hereby absolutely and unconditionally
guarantee to Landlord and its successors and assigns, (i) the full payment of
the fixed minimum rent and all additional rent as provided for in the foregoing
and annexed Lease Agreement, and (ii) the performance and observance of all
agreements and conditions contained in said Lease on the part of Tenant to be
performed or observed. The Undersigned hereby agrees that he shall in no way
be released from his obligations under this Guaranty by any assignment of the
Lease or any subletting of the demised premises, or any waiver of default or
any extension of time or other favor or indulgence granted by Landlord to
Tenant or by failure to receive notice of any of said actions. The Undersigned
hereby waives presentment, demand for payment and notice of non-payment or any
other default in the performance or observance of any agreement or condition
contained in the foregoing Lease on the part of Tenant to be performed or
observed, and notice of acceptance of this Guaranty. In the event Tenant
defaults in the payment of any fixed minimum rent or additional rent or any
other sum payable by Tenant under the Lease, or defaults in the performance or
observance of any of the other terms, covenants or conditions contained in the
Lease on Tenant's part to be performed or observed, Landlord may, after the
expiration of any applicable cure period provided for the Lease, proceed
directly against the Undersigned for the full amount due under this Guaranty
without being required first to institute suit against Tenant. The Undersigned
agrees to pay to Landlord reasonable attorneys' fees incurred by Landlord in
the event any action or suit is brought under this Guaranty for enforcement of
the provisions thereof, in which Landlord prevails. This guaranty only shall
become null and void at the last day of the 36th month of said lease.
IN WITNESS WHEREOF the Undersigned has executed this Guaranty under seal this
19th day of September, 1989.
GUARANTOR:
/s/ Kenneth C. Horne, Jr.
---------------------------
Signature
Kenneth C. Horne, Jr.
3301 Tartan Lane
Birmingham, Ala. 35243
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<PAGE> 57
EXHIBIT A
[ROANOKE-SALEM PLAZA FLOORPLAN]
ROANOKE, VIRGINIA
Store #1
Second Floor 12,000 s.f.
<PAGE> 58
EXHIBIT A-1
12,000 sq. ft. Leased
(Leased Floor Plan 2nd. Floor only)
<PAGE> 59
EXHIBIT B1
[ROANOKE-SALEM PLAZA FLOORPLAN]
ROANOKE, VIRGINIA
1. All signs must meet city code and have both Landlords approval and all city
permits.
2. All signs to be furnished and installed by Tenant at Tenants expense
including electrical wiring and electricity.
3. Must be rope bound canvas sign for ninety (90) day period only.
Place sign in existing hang down under canopy can at front door of building
<PAGE> 60
EXHIBIT "C"
-----------
RULES AND REGULATIONS
---------------------
1. LOADING
All loading and unloading of goods, merchandise, supplies and fixtures
shall be done only at such times, in the areas, and through the
entrances, designated for such purposes by Landlord.
2. TRASH
All garbage and refuse shall be kept in the kind of container specified
by Landlord, and shall be placed outside of the premises prepared for
collection in the manner and at the times and places specified by
Landlord. If Landlord shall provide or designate a service for picking
up refuse and garbage, Tenant shall use same at Tenant's cost. Tenant
shall pay the cost of removal of any of Tenant's refuse or rubbish.
Tenant shall not burn any trash or garbage of any kind in or about the
demised premises, or the Shopping Center.
3. ANTENNAS
No radio or television antenna or other similar device shall be
installed without first obtaining in each instance Landlord's consent
in writing. No aerial shall be erected on the roof or exterior walls
of the demised premises, or on the grounds, without obtaining, in each
instance, the prior written consent of Landlord. Any aerial so
installed without such written consent shall be subject to removal
without notice at any time.
4. NOISE
No loudspeakers, televisions, phonographs, radios or other devices
shall be used in a manner so as to be heard outside of the demised
premises.
5. ADJACENT AREAS
The outside areas immediately adjoining the demised premises shall be
kept clean and free from snow, ice, dirt and rubbish by Tenant to the
satisfaction of Landlord, and Tenant shall not place or permit any
obstruction or merchandise in such areas.
6. PARKING
Tenant and Tenant's employees shall park their cars only in those
portions of the parking area designated for that purpose by the
Landlord.
7. PLUMBING
The plumbing facilities shall not be used for any other purpose than
that for which they are constructed, and no foreign substance of any
kind shall be thrown therein, and the expense of any breakage,
stoppage, or damage resulting from a violation of this provision shall
be borne by Tenant.
8. EXTERMINATION
Tenant shall use at Tenant's cost such pest extermination contractor
as Landlord may direct and at such intervals as Landlord may require.
9. SALES
No auction, going out of business or bankruptcy sales shall be
conducted on the demised premises.
10. SALES AREAS
The lobbies, vestibule, sidewalks and driveways contiguous to the
demised premises shall not be used for outdoor displays or sales areas.
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11. STORAGE
The demised premises shall not be used as storage or warehouse space
for any other store owned or operated by Tenant.
12. ADDITIONAL RULES
Landlord reserves the right to make such reasonable amendments
or additions to these Rules and Regulations as is deemed necessary to
the proper administration and care of the Shopping Center.
13. CONFLICT
In the event of conflict between these Rules and Regulations
and the terms and provisions of the Lease, the terms and provisions of
the Lease shall control; and, in the event the Lease provides for more
stringent provisions or restrictions regarding any subject matter
described in these Rules and Regulations, the provisions or
restrictions set forth in the Lease shall control.
-2-
<PAGE> 62
EXHIBIT D1
Tenant accepts building as-is condition except for items specifically outlined
in Landlord improvements EXCEPT FOR MECHANICAL SYSTEMS SHALL BE IN GOOD WORKING
ORDER AT LEASE COMMENCEMENT DATE.
Landlord agrees to do the following:
1. To add two additional restrooms on second level to meet all codes.
2. To furnish and install 2x4 suspended ceilings in the 12,000 sq. ft. area
occupied by the said Tenant.
3. To supply 2x4 lay-in lighting with tubes in the 12,000 sq. ft. area leased
by the Tenant, with lighting to be 75 footcandles 36 inches from the floor.
4. Shall bring sprinkler system up to code with heads covering the 12,000 sq.
ft. leased area.
5. Furnish any additional exits from second floor required by State, Local, or
Federal laws.
6. Heating and air conditioning maintenance and repair shall be at Landlord
expense including rooftop units.
7. Plans and specifications for front entrance on ground level to esculators
are all to be prepared for Landlords approval by Tenant at Tenant's expense.
Construction of said work to be done by Landlord at Landlord expense.
See Exhibit D2-A
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EXHIBIT D2
TENANT WORK
1. Shall design and build (finished on both sides) the demising wall
separating Tenant's 12,000 sq. ft. from remainder of second floor of
building #1.
2. All other improvements within the 12,000 sq. ft. space shall be DONE BY
TENANT at Tenant's expense with Landlord's prior approval EXCEPT AS NOTED ON
EXHIBIT D1.
3. Tenant is to furnish and pay for all signs with Landlord's prior approval.
4. Plans and specifications to be prepared by Tenant at Tenant's expense for
Landlords approval as shown on Exhibit D2-A. Note: One (1) store front with
aluminum mullions and clear glass to meet Boca code (Kawneer or equivalent
manufacturer).
5. Tenant shall be responsible for all service and maintenance and repairs AND
REPLACEMENT of the esculator during the full term of this lease and
maintain in FULL force a liability insurance policy to hold Landlord
harmless of any claims due to accidents or injury to any person, using
esculator, elevator, or stairs. BOTH ESCULATOR AND ELEVATOR ARE TO BE
TURNED OVER TO TNEANT IN WORKING CONDITION AT THE POSSESSION OF SAID
PREMISES BY TENANT.
7. Tenant must supply service area access to portion of 2nd floor not leased
by said Tenant, from the esculator and the stairwell at all times.
5A- If after dilegent effort on the part of both landlord and tenant to find
necessary repair parts has failed, tenant may do as outlined in items
#5 (above) or if it is economically unfesiable to continue maintenance and
repair of said escalator tenant at its option may remove the existing
escalator including all equipment therewith attached and replace same with
a standard stair tread containing all the requirements of a standard public
stairwell required by state code. Tenant must furnish a drawing of said
stairwell for landlord prior approval, landlord cannot unreasonably
withhold prior approval. The above work in items 5A shall be done at the
tenants expense.
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EXHIBIT D3
Tenant shall have the right of first refusal to lease the remaining square
footage on the second floor only of said building number one (1), at the same
terms and conditions existing (except) rental schedule shall be as follows.
If deal is made in the first twenty-four (24) months of existing lease term:
$4.00 sq. ft. if leased in the first 24 months of the original lease.
$5.00 sq. ft. if leased in the 25th through the 36th month of original lease.
$6.50 sq. ft. if leased in the 37th through the 48th month of original lease.
$7.50 sq. ft. if leased in the 49th throught the 84th month of original lease.
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<PAGE> 65
Exhibit E
Construction Payment Agreement
This Agreement, entered into this 18th day of September, 1989, by and between
Roanoke Salem Plaza Limited Partnership, hereinafter referred to as Landlord,
and Beta Services, Incorporated, hereinafter referred to as Tenant, is agreed
to the following payment schedule and schedule for releasing of contracts for
construction.
1. Plans included as Exhibit A-1 are approved as of the signing of the
Lease. Any additions or deletions must have Landlord's prior approval.
2. Landlord will review any contracts submitted to the Tenant for said
construction.
3. Tenant will enter into any and all contracts as sole agent to the
contractor for the complete construction and finish of both Landlord's
and Tenant's work to the demised premises.
4. All invoices will be billed to the Tenant from the contractors. Tenant
will submit Tenant's invoices to the Landlord, with proof of
contractor's invoicing of Tenant, on the following basis:
a. First invoice upon completion of thirty (30) days into
construction
b. Second invoice upon completion of sixty (60) days into
construction
c. Final invoice upon completion of job, not to exceed 120 days
5. Landlord agrees to pay Tenant in full within ten (10) days of receipt
of Tenant's invoice by Landlord.
6. All work to be done by a Virginia licensed and bonded General
Contractor, except for carpet, decorating and furniture.
7. Furnish and install duct work per quote of $8,800.00 from Charles
Knapp. Will be paid on same conditions as set forth above in item #4;
not to exceed $8,800,00.
When work is completed and invoiced, then Beta Services will pay said
invoice and re-bill as follows:
Roanoke Salem Limited Partnership: Not To Exceed $4,800.00
Beta Services, Incorporated: Not To Exceed $2,500.00
Lawson Associates: Not To Exceed $1,500.00
---------
$8,800.00
Accepted by:
Landlord_______________________ Tenant___________________________
Lawson Associates___________________________________
ROANOKE SALEM LIMITED PARTNERSHIP
WALT ROBBINS, INCORPORATED: GENERAL PARTNER
_______________________________________________
Tenant
BETA SERVICES, INCORPORATED
_______________________________________________
<PAGE> 66
[DIAGRAM]
<PAGE> 67
------
MOVE OUT/MOVE IN
TO: Bob McSherry, Ron Robbins, Walt Robbins
FROM: Monica Loughridge
DATE: February 7, 1990
SUBJECT: Tenant Name- Beta Services Inc.
Shopping Center Address 41421 Melrose Ave., Nw Roanoke, VA 24017
Other Data:
Lease Commencement- September 5, 1989
Lease Termination- September 4, 1996 (84 months)
MOVE IN
- -------
The above referenced tenant moved into the premises on ________________.
Notes: The following utility accounts have been transferred to the
tenant's account and should no longer be paid by Roanoke-Salem
Plaza Limited Partnership.
A/C # Meter # Reading
Electricity 4719
Gas 00665
75412
Water 7571000
OTHER COMMENTS
- --------------
<PAGE> 68
Page 1 of 2 ADDENDUM NUMBER 1
The foregoing attached Lease Agreement (the "Lease") dated September 5,
1989, by and between Roanoke-Salem Plaza Limited Partnership, ("Landlord"), and
Beta Services, Incorporated ("Tenant"), is modified, amended, and/or
supplemented as hereinafter set forth, and any language of, or provision in,
said Lease which is inconsistent or in conflict with the following, shall be
deemed appropriately, amended or modified.
1. Article One Paragraph "A" shall be amended to reflect a store size of
12,500 square feet.
2. Article Two Fixed Minimum Rent: The amount of fixed minimum rent shall
be amended as follows to reflect the increase in square footage.
<TABLE>
<CAPTION>
Month Monthly Payment
- ----- ---------------
<S> <C>
01-06 0
07-18 $2,083.33
19-36 $4,166.67
37-48 $6,770.83
49-84 $7,812.50
</TABLE>
3. Article Four: Common Area Maintenance: Paragraph "C" shall be amended
to specify an initial monthly installment of $1,145.83.
4. Article Five: Real Estate Taxes: Paragraph "D" shall be amended to
specify an initial monthly installment of $135.42.
5. Exhibit D1: Section shall be amended as follows: Tenant shall pay the
various vendors, contractors, subcontractors and laborers on behalf of Landlord
to complete obligations under Landlord improvements on page 29. Landlord
agrees to apply Tenants monthly rental obligations towards the amount paid on
behalf of Tenant, until such time that these amounts are exhausted. The amount
paid on behalf of Landlord is agreed to be $42,035. The attached Exhibit D1A
shows the application of rental payments towards this balance. Tenant shall
make first payment to Landlord on February 1, 1991 in the amount of $2,187.50.
6. Exhibit D3: Language shall be amended to the following: Lessee shall
have the right on or before December 15, 1990 to exercise an option to lease
the adjoining approximately 4,000 square feet of space for one year at a base
rental of $4.00 per square foot. This option is good on an annual basis not to
exceed the term of the base lease, i.e., February 7, 1990 to February 6, 1997.
The base rental for each successive year shall be 103% of the prior year as
furthermore defined in the payment schedule below:
<TABLE>
<CAPTION>
Term Fixed Minimum Rent
- ---- ------------------
<S> <C>
2/7/91 - 2/6/92 $4.00 per sq. ft.
2/7/92 - 2/6/93 $4.12 per sq. ft.
2/7/93 - 2/6/94 $4.24 per sq. ft.
2/7/94 - 2/6/95 $4.37 per sq. ft.
2/7/95 - 2/6/96 $4.50 per sq. ft.
2/7/96 - 2/6/97 $4.64 per sq. ft.
</TABLE>
Tenant must notify Landlord at least one hundred twenty (120) days prior to the
expiration of each year of its intent to extend the lease for an additional
year. The additional space shall be subject to the same terms and conditions
as the base Lease except that Tenant shall receive as an inducement free rent
for the first two months of each year. All other terms and conditions shall be
the same as in the Lease Agreement dated Sept 5, 1989 except as noted above.
<PAGE> 69
Page 2 of 2
Except as herein amended, all terms and conditions of the Lease dated September
5, 1989 shall remain in full force and effect.
In WITNESS WHEREOF, Landlord and Tenant have caused these presents to be signed
and sealed, on the day and date set forth above.
Accepted and Agreed:
Date: 12-13-90 LANDLORD:
ROANOKE SALEM LIMITED
PARTNERSHIP
BY: WALT ROBBINS,
INCORPORATED
General Partner
BY:
Its: Ex. Vice President
Date: 12-4-90 TENANT:
BETA SERVICES, INCORPORATED
BY: Kenneth C. Home
Its: President
<PAGE> 70
EXHIBIT B
Description of Roanoke-Salem Plaza Shopping Center, Roanoke, Virginia
BEGINNING at a point on the present southerly line of Melrose Avenue, NW,
on the west corporate limit line of the City of Roanoke and being opposite
the center of a concrete bridge over Peters Creek, said beginning point
bears S 14 degrees 47' W, 12.00 feet from the beginning point of the
original description, designated Corner No. 1; thence along the present
southerly line of Melrose Avenue, as previously widened 12 feet, S 75
degrees 04' E, 727.47 feet to an iron stake; thence N 14 degrees 56' E,
12.00 feet to an iron stake on the original southerly line of Melrose
Avenue (100 feet wide); thence with the same S 75 degrees 04' E, 326.86
feet to an iron stake at point of curve, being original Corner No. 2;
thence with a line curving to the right whose radius is 3769.83 feet and
whose chord bearing and distance is S 73 degrees 41' E, 182.38 feet, an arc
distance of 182.40 feet to an iron stake; thence leaving Melrose Avenue and
with the westerly boundary line of Washington Heights subdivision S 6
degrees 02' W, 422.80 feet to an iron stake; thence with the westerly lines
of the property conveyed to J. R. and L. B. Perfater by Giant Food
Properties, Incorporated, S 22 degrees 00' W, 88.01 feet to an iron stake;
thence with a line curving to the right whose radius is 75.00 feet and
whose chord bearing and distance is S 38 degrees 30' 05" W, 42.61 feet an
arc distance of 43.20 feet to an iron stake; thence S 20 degrees 09' E,
5.00 feet to an iron stake; thence with the boundary line of said Perfater
property, S 69 degrees 51' W, 65.72 feet to an iron stake; thence S 54
degrees 19' 40" W, 110.73 feet to an iron stake; thence S 11 degrees 10' E,
9.01 feet to an iron stake, being the northeasterly corner of Lot 3, Block
2, Section 3 of the South Washington Heights Map; thence with the northerly
line of lots 3 and 2, S 70 degrees 14' W, 100.45 feet to an iron stake;
thence with the dividing line between Lots 1 and 2, S 11 degrees 10' E,
162.20 feet to an iron stake on the northerly side of Michigan Avenue, NW;
thence with the same, S 78 degrees 50' W, 60.49 feet to and iron stake;
thence with the westerly side of Polk Street, N.W., S 9 degrees 25' E,
432.00 feet to an iron stake; thence S 18 degrees 55' E, 56.02 feet to an
iron stake; thence S 23 degrees 12' E, 11.0 feet to an iron stake in
concrete; thence leaving Polk Street and with the northerly line of the
property of C. W. Francis & Son, Inc., S 80 degrees 43' W, passing an iron
stake on line at 173.40 feet in all a total distance of 524.00 feet to a
corner in the center of Peters Creek; thence up the center of said creek N
6 degrees 50' W, 72.00 feet, N 6 degrees 00' E, 110.00 feet; thence leaving
the original location of said creek and up the center of the new location
of same, and with new boundary lines as established in those said
conveyances between Giant Food Properties, Incorporated and J. C. Mowles,
et als and E. F. Nichols, N 0 degrees 37' 20" E, 126.00 feet, N 17 degrees
10' W, 103.00 feet, N 28 degrees 05' W, 93.56 feet, N 52 degrees 01' W,
68.90 feet, N 49 degrees 10' W, 41.5 feet, N 72 degrees 15' W, 6.00 feet, N
77 degrees 16' W, 80.55 feet, N 64 degrees 00' W, 65.0 feet to corner in
the original centerline location of Peters Creek; thence up the center of
said creek as originally located N 40 degrees 08' W, 45.15 feet, N 24
degrees 14' W, 100.00 feet, N 8 degrees 49' W, 126.00 feet, N 53 degrees
24' W, 48.00 feet, N 22 degrees 04' W, 83.00 feet, N 6 degrees 34' W,
122.00 feet, N 4 degrees 20' E, 73.00 feet, N 13 degrees 59' E, 130.65
feet, N 4 degrees 41' E, 100.00 feet, N 1 degrees 19' W, 65.0 feet, N 4
degrees 04' W, 100.00 feet, N 5 degrees 12' E, 62.5 feet, N 14 degrees 47'
E, 121.49 feet to the place of BEGINNING and containing a net area of
31.632 acres as more particularly shown on plat prepared by Buford T.
Lumsden & Associates, P. C., Engineers-Surveyors, Roanoke, Virginia, dated
18 June, 1964, and updated 25 November, 1985 and 20 March, 1986.
<PAGE> 1
EXHIBIT 10.37
ASSET PURCHASE AGREEMENT
Agreement dated as of September 6, 1996 among EDUCATIONAL MEDICAL,
INC., a Delaware corporation ("EMI"), SACMD Acquisition Corp., a Delaware
corporation wholly owned by EMI ("Buyer"), San Antonio College of Medical and
Dental Assistants, Inc., a Texas corporation ("San Antonio"), Career Centers of
Texas - El Paso, Inc., a Texas corporation ("El Paso") ("San Antonio and El
Paso collectively are called the "Sellers"), and Mr. Comer Alden
("Shareholder").
PRELIMINARY STATEMENT
San Antonio is the owner of a postsecondary educational institution
with a main campus located at 4205 San Pedro Avenue (the "San Antonio Main
Location") in San Antonio, Bexar County, Texas, with an additional location
(the "San Antonio Additional Location") located at 4011 San Pedro Avenue with a
campus located at 3900 North 23rd Street (the "McAllen location) in McAllen,
Hidalgo County, Texas (collectively, called the "San Antonio School") and El
Paso is the owner of a postsecondary education institution located at 8375
Burnham Road (the "El Paso Main Campus") in El Paso, El Paso County, Texas
with an additional location (the "El Paso Additional Location") located at
10767 Gateway West (collectively called the "El Paso School") (the San Antonio
School and the El Paso School are collectively called the "Schools"). The
Shareholder owns all of the capital stock of the Sellers. The Buyer wants to
buy the Schools. Subject to the terms and conditions contained in this
Agreement, the Sellers want to sell the Schools to the Buyer.
This Agreement provides for the sale and purchase of the Schools. It
contains the terms pursuant to which Sellers have agreed to sell to Buyer
substantially all of the School Related Assets (as defined in Section 1(f)(1)
below), and Buyer has agreed to assume certain related Stated Liabilities (as
defined in Section 1(f)(2) below) of Sellers. In addition, the Shareholder has
agreed not to compete with EMI and its schools. EMI has entered into this
Agreement to reflect that it is jointly and severally liable with the Buyer
with regard to the obligations of the Buyer provided for in it.
IN CONSIDERATION OF THE COVENANTS CONTAINED IN THIS AGREEMENT, AND THE
OTHER CONSIDERATION PROVIDED FOR IN IT, THE PARTIES, EACH INTENDING TO BE
LEGALLY BOUND, AGREE AS FOLLOWS:
1. THE PURCHASE PRICE; CONVEYANCE OF THE ASSETS; ASSUMPTION OF
STATED LIABILITIES; CERTAIN DEFINITIONS; EFFECTIVE DATE OF TRANSACTION.
(a) The Purchase Price and Sellers' Cash Distribution. The
purchase price for the School Related Assets is $2,500,000 (the "Purchase
Price"). The Purchase Price will be allocated as follows: (i) $2,400,000 to
tangible and intangible assets, and (ii) $100,000 to the Non-Competition
Agreement (the "Non-Competition Agreement") contained in Section 7 of this
Asset Purchase Agreement. On or before the Closing Date, Buyer and Sellers
shall agree on the proportion of the consideration to be allocated to each of
the Assets purchased pursuant to this Agreement as shall have been proposed by
Buyer and reasonably approved by Sellers, and Buyer and Sellers agree that they
shall not thereafter take any position or action inconsistent with such
allocation in the filing of any Federal income tax returns. Upon execution of
this Agreement the Sellers shall distribute an aggregate amount to the
Shareholder equal to (x) the Shareholder's Cash Distribution (as defined in
Section 1(f)(1) below), minus (y) an aggregate of $300,000 (the "Undistributed
Portion of the Shareholder's Cash Distribution") of which $150,000 shall be
retained by each Seller for working capital. The Shareholder shall deposit
$250,000.00 of such amount (the "Escrow Agreement") into the escrow account
(the "Contingent Liability Escrow Account") established by the escrow agreement
(the "Contingent Liability Escrow Agreement") the form of which is attached to
this Agreement as EXHIBIT 1.(1) UPON EXECUTION
<PAGE> 2
OF THIS AGREEMENT THE BUYER SHALL PAY TO THE SELLERS AND SHAREHOLDER, JOINTLY,
$50,000, WHICH AMOUNT SHALL BE A FULLY REFUNDABLE DEPOSIT (THE "REFUNDABLE
DEPOSIT") ON ACCOUNT OF THE INITIAL PAYMENT (AS DEFINED IN SUBSECTION (D) OF
THIS SECTION 1).
(b) Conveyance of Assets. Upon the earlier to occur of (i)
receipt by the Buyer of all approvals from all applicable regulatory
authorities, including without limitation the Texas Education Agency (or its
successor, the Texas Workforce Commission -- Proprietary Schools Section)
which, in the opinion of Buyer's counsel must be received prior to the
acquisition of the Schools' assets, or (ii) such date as the parties may
specify (the "Closing Date"), but no later than January 31, 1997, the Seller
shall convey to Buyer all of its School Related Assets (the "Closing").
(c) Assumption of Stated Liabilities and the Texas Mandated
Assumed Liabilities. On the Closing Date, the Buyer shall assume and agree to
discharge when due all of the Stated Liabilities. To the extent not included
in Stated Liabilities the Buyer shall assume for the benefit of the relevant
third party(ies), but not the Sellers: (1) all of the Sellers' refund
liabilities which may have arisen during the operation of the Schools by the
Sellers or any former owner, and (2) the Sellers' liabilities, duties, and
obligations under the enrollment contracts between the students and each
respective Seller which such Seller is obligated to provide on or after the
Effective Date, as defined in Section 1(g) of this Agreement (the "Texas
Mandated Assumed Liabilities").
(d) Cash Payments by the Buyer and Shareholder's Cash
Distribution. On the Closing Date (1) the Buyer shall pay to Sellers, jointly,
$50,000 (which amount, together with the Refundable Deposit, is called the
"Initial Payment"), by wire transfer or otherwise in immediately available
funds, and (2) simultaneously with the Closing, the Sellers shall distribute
the Remaining Portion of the Shareholder's Cash Distribution Payment (as
defined in Section (f)(1) of this Agreement) to the Shareholder.
(e) Delivery of Second Payment Note, the Purchase Money
Promissory Note, and the Pledge Agreement by the Buyer. On the Closing Date the
Buyer shall deliver to Sellers, jointly:
(1) its Promissory Note for $1,150,000 (the "Second
Payment Note") in the form attached to this Agreement as EXHIBIT 2(2), payable
to the Sellers jointly, without interest, on the earlier of the last business
day within the first 30 calendar days following the date on which the
Prerequisite Student Aid Approvals are obtained, but no later than twelve
months from the date of Closing. "Prerequisite Student Aid Approvals" mean
approvals by the United States Department of Education and all other applicable
private and governmental agencies and organizations of the change in control
resulting from the change in ownership of the Schools resulting from the sale
of the Schools pursuant to this Asset Purchase Agreement which are a
prerequisite to receipt of federal and state aid by the Schools' students;
(2) its Promissory Note for $1,250,000, amortizing
in equal annual principal payments over 5 years with interest at 8% per annum
accruing and payable annually along with the applicable principal payment, such
Note to be in the form attached to this Agreement as EXHIBIT 3(3) (the "Purchase
Money Promissory Note").
(3) A pledge agreement in the form attached to this
Agreement as EXHIBIT 4(4) (the "Pledge Agreement") pursuant to which EMI secures
the payment of the Second Payment Note, and the related interest by a pledge of
all of the outstanding capital stock (the "Buyer's Stock") of the Buyer.
-2-
<PAGE> 3
(f) Definitions of School Related Assets and Stated
Liabilities.
(1) "School Related Assets" shall mean: (i) the
assets reflected in the Sellers' Most Recent Balance Sheets (as defined in
Section 2(c)(1) below) and included in the Sellers' Financial Statements,
together with the related goodwill and rights of each of the Sellers as a going
concern, tangible and intangible, used in connection with the operation of the
Schools, together with any other assets acquired by each of the Sellers
subsequent to the date of such balance sheet in connection with the operation
of the Schools, other than cash and cash equivalents on hand in an amount equal
to that presented on the Sellers' Most Recent Balance Sheets, less an amount
equal to current liabilities (other than deferred tuition income) as of such
date (the "Shareholder's Cash Distribution"), and (ii) Sellers' respective
rights to use the names "San Antonio College of Medical and Dental Assistants"
or and "Career Centers of Texas" and SUCH OTHER TRADE NAMES USED BY EITHER
SCHOOL IN THE CONDUCT OF ITS BUSINESS, in each case either alone or in
conjunction with other words or names in the context of the operation of a
school or other learning institution, but shall not include "Excluded Assets."
Excluded Assets are (i) assets, including without limitation, all properties,
interests and interests in properties, which have been or will be sold,
consumed or otherwise disposed of in the ordinary course of business subsequent
to the date of the Most Recent Balance Sheets and prior to the Closing Date,
(ii) those assets listed on EXHIBIT 5(5) attached to this Agreement and (iii)
judgment awards.
(2) "Stated Liabilities" shall mean the liabilities,
duties and obligations of the Sellers related to the operations of the Schools
(i) which are disclosed as non-contingent liabilities on the Sellers' Most
Recent Balance Sheets including the liability for deferred tuition, but
excluding profit sharing expenses and the guarantee of bank debt incurred by
the Shareholder in connection with the purchase of the Central Facility at the
San Antonio Main Location and the guarantee of bank debt incurred by the
Shareholder in connection with the purchase of the El Paso Main Campus as
described in Notes 6 and 7, respectively to the San Antonio and El Paso
December 31, 1995 Balance Sheets included in the Audited Financial Statements
(as defined in Section 2(c)(1), below), (ii) provided for in agreements made or
entered into in the ordinary course of business after the date of the Sellers'
Most Recent Balance Sheets to the Closing Date, including accounts payable
arising in the ordinary course of business, from transactions with trade
creditors and suppliers, regardless of whether any such agreement is in
writing, and accrued but unpaid payroll and other payroll related liabilities
such as payroll taxes (the "Closing Date Liabilities"), and (iii) provided for
in the agreements disclosed on Exhibits 12, 17, and 18 attached to this
Agreement, provided, in the case of liabilities, duties and obligations
described in clauses (ii) and (iii) of this sentence. Stated Liabilities shall
only include the liability, duty or obligation to (x) pay money if, and to the
extent, such obligation is provided for in such agreement and/or (y) perform
any service or take any action to the extent provided for in such agreement.
Stated Liabilities shall exclude, without limitation, any contingent
liabilities not specifically assumed, whether arising prior to or after the
Effective Date and regardless of whether disclosed to Sellers, including
without limitation, (x) any employee benefits other than for accrued wages as
provided for in clause (ii) of this Subsection (1)(f)(2), (y) liabilities
arising from failure to comply with any law or regulation relating to the
administration of any kind of student aid or grant, or record keeping or
reporting required in connection with such administration, including without
limitation the Potential Title IV Notification Liability (as defined in
Subsection 2(c)(2) of this Agreement), and (z) any liabilities arising out of
the action instituted by (i) Beau Simons, et al, Plaintiff, vs. San Antonio
College of Medical and Dental Assistants, Inc., Defendant, No. 96-CI-02433,
225th Judicial District Court, Bexar County, Texas, and (2) Viola Garcia, et
al, Plaintiff, vs. San Antonio College of Medical and Dental Assistants, Inc.
and Becho, Defendants, No. C-929-94-E, 275th Judicial District Court, Hidalgo
County, Texas.
-3-
<PAGE> 4
(g) Effective Date. In the event the Closing occurs, the
effective date of this transaction for all accounting purposes shall be August
31, 1996, and the operations of the Schools be deemed to have been on behalf of
the Buyer at all times following the Effective Date, provided that the
selection of such effective date shall not impose on the Buyer any liability of
the Sellers other than with respect to the assumption of Stated Liabilities.
2. REPRESENTATIONS OF THE SELLER AND THE SHAREHOLDER.
Each of the Sellers and the Shareholder, severally and not jointly,
make the following representations and warranties to Buyer.
(a) No Misstatements. The representations of each of the
Sellers and the Shareholder and the information supplied by Sellers, or the
Shareholder in each case contained in this Agreement, the Exhibits attached to
it and the documents incorporated into it by reference do not contain any
untrue statement of a material fact or omit to state any fact necessary to make
such representations or information not materially misleading.
(b) Validity of Actions. Each Seller (i) is duly
organized, validly existing and in good standing under the laws of its
organization, (ii) has all requisite corporate and other appropriate
authorization to conduct its business as currently conducted, (iii) is
qualified to do business in all jurisdictions in which such qualification is
necessary, other than those jurisdictions where the failure to so qualify would
not have a material adverse effect upon the business assets or operations of
such Seller, and (iv) has full power and authority to enter into this Agreement
and to carry out all acts contemplated by it. This Agreement has been duly
executed and delivered on behalf of each of the Sellers and the Shareholder,
has received all necessary corporate authorization and is a legal, valid and
binding obligation of each of the Sellers and the Shareholder, enforceable
against each of them in accordance with its terms. Entering into this Asset
Purchase Agreement and the consummation of the transactions contemplated by it
will not (i) violate any provision of the Articles of Incorporation or Bylaws
of Sellers or, (ii) conflict with or result in any breach of any of the
provisions of any material agreement to which each of the Sellers or the
Shareholder is a party or by which any of them or any of their respective
assets are bound, or (iii) cause a breach of any applicable law, governmental
regulation, order, or other decree of any court or governmental agency. The
Articles of Incorporation and Bylaws of Sellers, as presently in effect, are
attached to this Agreement as EXHIBIT 6(6).
(c) Sellers' Financial Statements
(1) Attached as EXHIBIT 7(7) to this Agreement
are each of the Sellers' audited balance sheets at December 31, 1993, 1994 and
1995, and statements of income and expense and cash flows for the years then
ending (the "Sellers' Audited Financial Statements"). Attached as EXHIBIT 8(8)
to this Agreement are each of the Sellers' unaudited balance sheets at June 30,
1996 (the Sellers' Most Recent Balance Sheets") and statements of income and
expense and cash flow for the period then ending (collectively the "Sellers'
Unaudited Financial Statements"). The Sellers' Unaudited Financial Statements
have been reviewed by a certified public accountant and accompanied by a
certificate of such accountant describing the scope of such review. The
Sellers' Audited and Unaudited Financial Statements are collectively called the
"Sellers' Financial Statements."
(2) The Sellers' Financial Statements: (i)
accurately represent the transactions appearing on the books and records of
each of the Sellers, and (ii) fairly present in all material respects Sellers'
financial condition and its results of operations at the times and for the
-4-
<PAGE> 5
periods presented, including normal adjustments consistent with year end
adjustments to properly reflect accruals through the end of the period;
provided, however that Sellers' Unaudited Financial Statements do not contain
footnotes and the related disclosures. The Sellers' Audited Financial
Statements have been prepared on the accrual basis in accordance with generally
accepted accounting principles consistently applied ("GAAP"), except as
otherwise disclosed in the reports accompanying them or in the notes attached
to them and except with respect to potential liability to refund Title IV funds
received by students attending the El Paso Additional Location prior to August
2, 1996 arising on account of El Paso's possible failure to comply with
applicable DOE regulations concerning notification of the commencement of
operations at such campus (the "Potential Title IV Notification Liability").
(3) There have been no material adverse changes
in the financial condition or in the operations, properties or assets of each
of the Sellers since each of the Sellers' Most Recent Balance Sheets.
(d) Liabilities of Sellers. Neither Seller has any
liabilities, contingent or otherwise, including, without limitation,
liabilities for state or Federal income, withholding, sales, or other taxes,
except to the extent reflected, reserved against, or provided for, in each of
the Sellers' Most Recent Balance Sheets, except for taxes, trade payables and
other obligations incurred after the date of each of the Sellers' Most Recent
Balance Sheets in amounts consistent in all material respects, with those
incurred in prior periods in the ordinary course of business, including without
limitation liabilities for unearned tuition, and the Potential Title IV
Notification Liability.
(e) Assets of Sellers. Each Seller has good title to all
of its School Related Assets. Except as otherwise disclosed in the Sellers'
Financial Statements or the related notes accompanying them or in the Exhibits
to this Agreement, all of the School Related Assets are owned free and clear of
any adverse claims, security interests, or other encumbrances or restrictions,
except liens for current taxes not yet due and payable, landlords' liens as
provided for in the relevant leases or by applicable law, or liens or similar
security interests granted as part of personal property financing agreements
made in the ordinary course of business and which in the aggregate are not
material.
(f) Facility and Facility Operations.
(1) Attached to this Agreement as EXHIBIT 9(9) are
the leases (the "School Facility Leases") relating to each of the Sellers'
locations (the "School Facilities"). The Schools' operations are conducted
solely at the School Facilities and all of the tangible School Related Assets
used in connection with such operations are located at the School Facilities.
All of the improvements to the best of Sellers' and Shareholder's knowledge and
belief located at the School Facilities are in good operating condition and
repair, subject only to ordinary wear and tear. There is no pending or, to the
knowledge of each of the Sellers, threatened condemnation proceeding with
respect to the School Facilities.
(2) Attached as EXHIBIT 10(10) to this Agreement
is a schedule of all of the furnishings, fixtures and equipment with values in
excess of the baseline used in determining such inventory, located on, or used
in connection with, the operation of the School Facilities as of the date
indicated on such inventory, subject to immaterial omissions occurring in
course of compiling such inventory.
(3) Except for (i) environmental law compliance
(which is addressed in
-5-
<PAGE> 6
Section 2(f)(4) below) and (ii) accreditation, recruitment, admissions, student
loan and funding matters compliance (which are addressed in Sections 2(h) and
2(i) below) as to which no representation or warranty is made in this Section
2(f), all activities at, and the physical condition of, the School Facilities
are in compliance with all legal and regulatory requirements applicable to the
Sellers, the conduct of their business, and the use of each School Facility,
and neither of the Sellers has received any actual notice to the contrary.
Each of the Sellers has paid for and obtained all licenses, permits, and other
authorizations material to the conduct its business and the use of the School
Facilities (the "Permits"). All Permits currently in effect and pertaining to
the each of the Sellers, the School Facilities or either of the Sellers'
activities are listed on EXHIBIT 11(11) to this Agreement. The representations
contained in this Subsection 3 shall not apply to incidental instances of
non-compliance occurring in the ordinary course of business without the actual
knowledge of the each of the Sellers or the Shareholder, which are immaterial
to the operation of the Schools and capable of being cured without
significantly disrupting such School's operations.
(4) To the best of the knowledge of each of the
Sellers and the Shareholder, there are no Hazardous Substances1 in, on or under
the School Facilities except for those which are used by Sellers in compliance,
in all material respects, with applicable law, and each of the Sellers is not
now engaged in any litigation, proceedings or investigations, nor knows of any
pending or threatened litigation, proceedings or investigations regarding the
presence of Hazardous Substances in, on or under either of the School
Facilities.
(g) Equipment Leases and Financing Agreements. Except
for the School Facility Leases, all of the leases and financing agreements to
which each of the Sellers is a party are described
__________________________
(1) The term "Hazardous Substance" shall include without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any
Texas Statute and in the regulations promulgated pursuant to any Texas
Statute;
(iii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 andamendments thereto) or by
the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or
which are classified as hazardous or toxic under federal, state, or
local laws or regulations; and
(v) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C) polychlorinated biphenyl, (D) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act,
33 U.S.C. Section Section 1251 et seq. or listed pursuant to Section
307 of the Clean Water Act, (E) flammable explosive, or (F)
radioactive materials.
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<PAGE> 7
in EXHIBIT 12(12) to this Agreement (the "Financing and Related Agreements").
Copies of the Financing and Related Agreements are attached to such Exhibit or
have been provided to the Buyer. Except as reflected in such Exhibit, there
have been no modifications to any of the Financing and Related Agreements;
neither Seller is in default in any material respect with respect to them; and
none of the interests of either Seller in any of them is subject to any
restriction except as stated in the applicable document or as provided by
applicable law.
(h) Accreditation and Compliance with Title IV
Requirements. Attached as EXHIBIT 13(13) to this Agreement is a list of all
Federal, state or other licenses and approvals, including without limitation
all accreditations and certifications, granted to each Seller with respect to
the conduct of its educational or training business (the "Accreditations and
Certifications"), and the governmental body or agency or other entity granting
such Accreditation or Certification. Included in such Exhibit are copies of
all such Accreditations and Certifications.
(1) Except for the Permits and the Accreditations
and Certifications, no license or approval is material to the conduct of each
of the Sellers' business as it is now being conducted, and neither Sellers nor
the Shareholder has received notice that any other license or approval is
necessary for the continued conduct of such business or that any such license
or approval will not be renewed.
(2) Each of the Sellers is accredited by the
Accreditation Commission of Career Schools and Colleges of Technology and have
programmatic accreditation with respect to their Medical Assistant Program by
the Accreditation Bureau of Health Education Schools. In addition, the El Paso
School is accredited by the Council on Occupational Educational Institutions.
Each of the Sellers' operations is and has been conducted in all material
respects in accordance with all relevant standards imposed by applicable
accrediting agencies, or agencies administering state government student aid
programs in which the Sellers or any students attending the Schools
participate, or other applicable laws or regulations.
(3) Each of the Sellers is an institution
certified by the United States Department of Education (the "Department of
Education"). Each of the Sellers is a party to, and is and at all times has
been in compliance with, a valid program participation agreement with the
Department of Education with respect to the operations being conducted by the
Schools. Neither Seller has received any notice, not previously complied
with, with respect to any alleged violation of the rules or regulations of such
agency or any applicable accrediting agency in respect of the Schools or the
terms of any program participation agreement to which it is or was a party. If
any such notices have been received and complied with, Sellers have disclosed
their receipt and disposition to Buyer prior to the execution of this Agreement
in writing by a letter making specific reference to this Section of this
Agreement. Except with respect to the Potential Title IV Notification
Liability, each of the Sellers is and at all times has been, in compliance with
all of the provisions of the Higher Education Act of 1965 ("HEA") and the
regulations promulgated by the Department of Education thereunder (the "DOE
Regulations") necessary to establish and maintain its eligibility to
participate in the Title IV funding programs provided for therein, including
without limitation, the demonstration of financial and administrative
responsibility as provided for in the DOE Regulations. Sellers have submitted
audited financial statements to the Department of Education for the fiscal year
ended December 31, 1995 (the "DOE Financial Statements").
(4) Neither Sellers nor the Shareholder is aware
of any investigation or review of student financial aid programs (including
without limitation Title IV Programs) in which it or
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<PAGE> 8
its students participate, or any review of any of its Accreditations or
Certifications whether by a party to any relevant agreement, the issuer of such
Accreditation or Certification or otherwise.
(i) Recruitment; Admissions Procedures; Attendance;
Reports. Attached as EXHIBIT 14(14) to this Agreement are copies of all of the
Sellers' policy manuals and other statements of procedures or instruction
relating to recruitment of students, including procedures for assisting in the
application by prospective students for direct or indirect state or Federal
financial assistance; admissions procedures, including any descriptions of
procedures for insuring compliance with state or Federal or other appropriate
standards or tests of eligibility; procedures for encouraging and verifying
attendance, minimum required attendance policies, and other relevant criteria
relating to course completion and certification (collectively referred to as
the "Policy Guidelines"). Sellers' operations have been conducted in all
material respects in accordance with the Policy Guidelines.
Each of the Sellers has submitted all reports, audits, and other
information, whether periodic in nature or pursuant to specific requests
("Compliance Reports"), to all agencies or other entities with which such
filings are required relating to its compliance with (i) applicable
accreditation standards governing its activities or (ii) laws or regulations
governing programs pursuant to which the Sellers or students attending the
Schools receive funding, including, without limitation, the Perkins Loan
Program, the Stafford Student Loan Program, the Pell Grant Program and the
Supplemental Educational Opportunity Grant Programs, or the Federal Direct
Student Lending Program, all of which are provided for pursuant to Title IV of
the HEA.
Complete and accurate records in all material respects for all present
and past students attending each of the Schools have been maintained consistent
with the operations of a school business. All forms and records have been
prepared, completed, maintained and filed in all material respects in
accordance with all applicable federal and state laws and regulations, and are
true and correct in all material respects. All financial aid grants and loans,
disbursements and record keeping relating to them have been completed in
compliance in all material respects with all federal and state requirements,
and there are no material deficiencies in respect thereto. No student has been
funded prior to the date for which such student was eligible for funding and
such student's records have been processed in all material respects in
accordance with all applicable federal, state and relevant third party funding
source requirements. All appropriate reports and surveys have been accurately
prepared, taken and filed prior to delinquency.
(j) Default. Attached as EXHIBIT 15(15) is a schedule
indicating the cohort default rate, as calculated by the United States
Department of Education, of all students attending the each of the Schools
receiving assistance pursuant to the Stafford Loan and Supplemental Loans for
Students Programs (or their applicable predecessor programs) for the federal
fiscal years ended September 30, 1992, 1993 and 1994. To the best of the
knowledge of the Sellers and the Shareholder, such Schedule is materially
accurate in all respects.
(k) Trademarks, etc. Attached to this Agreement as EXHIBIT
16(16) is a list of all trade names, trademarks, service marks, copyrights and
the registrations for them owned or used by Sellers. Neither Seller has
infringed and is not now infringing, any trademark, trade name, service mark,
or copyright belonging to any other person. Except as set forth on such
exhibit, neither Seller is a party to any license, agreement or arrangement,
whether as licenser, licensee or otherwise, with respect to any trademark,
trade name, service mark, or copyright used by such Seller. Each of the
Sellers may conduct its business without license by others for the use of any
trade name, trademark, service mark, or copyright.
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<PAGE> 9
(l) Material Contracts. Attached as composite EXHIBIT
17(17) to this Agreement is (i) a schedule identifying all material contracts
relating to the Schools' operations not otherwise specifically identified in
the other Exhibits to this Agreement, including, without limitation, all
agreements relating to state or Federal funding of educational services
provided by the Sellers through grants, loans or direct payments either to the
Sellers, individual students or otherwise, and any agreements relating to the
placement of students following their completion of relevant educational
programs provided by the Sellers other than agreements with students involving
the teaching of standard courses, for standard prices as set forth in the
Sellers' catalogs or in the enrollment agreement for such students (the
"Contracts"); (ii) a summary of all material provisions of the Contracts that
are oral and not reduced to written documents; and (iii) a copy of all written
Contracts. Except as disclosed in Exhibit 17: (i) all of the Contracts remain
unmodified and in full force and effect, and (ii) neither Seller is in default
of any material nature (nor, to the best knowledge of Sellers and the
Shareholder, does any state of facts exist which, with the giving of notice,
the passing of time, or otherwise, would constitute a default of any material
nature by either Seller) with respect to any of the Contracts.
(m) Maintenance and Employment Agreements. Attached to
this Agreement as composite EXHIBIT 18(18) is (i) a schedule of all written
agreements between the Sellers and independent contractors, employees and
agents who are employed or engaged in the management or operation of the
Schools or the School Facilities; (ii) the names of all parties entitled to
payments from each of the Sellers under any such agreements or arrangements;
(iii) the amounts payable by either Seller under the terms of all such
agreements and arrangements, including without limitation, the terms of
employment and compensation, including vacation and other employee benefit
provisions and the cost of all employee benefits and payroll taxes; and (iv) a
copy of all written contracts for such services. There are no material oral
agreements in effect for any such services. Except as disclosed on such
Exhibit: (x) there are no written agreements between any of such contractors,
employees or agents and either Seller; (y) there is no party entitled to
compensation or remuneration for any such services arising from Sellers'
operations after the Closing; and (z) Sellers' agreements and arrangements
providing for the services described on Exhibit 18 may be terminated by the
relevant Seller at any time, with or without cause, and without any obligation
to pay any of said parties any amounts whatsoever except as may be required by
law (including, without limitation, severance pay or accrued vacation pay or
other benefits).
(n) Employee Benefit Plans. Sellers maintain employee
benefit plans as listed on EXHIBIT 19(19) to this Agreement (the "Employee
Benefit Plans"). Copies of such plans are attached to such Exhibit. Except as
listed on such Exhibit, neither Seller maintains any profit sharing, pension or
other employee benefit plan. Neither Seller has an unfunded obligation
pursuant to any insurance, retirement, pension, profit sharing or deferred
compensation plan or program.
(o) Labor. There is no existing labor dispute affecting
Sellers' businesses. None of Sellers' employees are covered by any union or
collective bargaining agreement.
(p) Insurance. A schedule of all of the policies of
insurance maintained by either Seller in connection with the operation of its
business is attached as EXHIBIT 20(20) to this Agreement. The insurance
coverage provided by such policies complies in all material respects, with all
agreements to which each respective Seller is a party, and applicable legal
requirements to which it is subject. All such policies are currently in
effect. As of Closing, Sellers and Shareholder shall cease to be covered with
respect to any occurrence after the Closing under the insurance policies
obtained and maintained by Sellers and Shareholder covering the business,
property and employees of Sellers and Shareholder.
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<PAGE> 10
Following the Closing, Buyers and EMI shall give to Sellers and
Shareholder prompt notice of the assertion by any person of any claim against
Sellers and Shareholder which might be subject to the insurance coverage.
Buyers and EMI shall cooperate with Sellers and Shareholder and any applicable
insurance carrier in any investigation by Sellers and Shareholder or any
applicable insurance carrier of any such claim and shall give to Sellers and
Shareholder and any applicable insurance carrier reasonable access to the
books, records and personnel formerly of Sellers and Shareholder to the extent
reasonably necessary to enable Sellers and Shareholder and any applicable
insurance carrier to investigate such claim.
(q) Taxes. Complete and accurate copies of all of the
Sellers' Federal, state and other income tax returns for the years ended
December 31, 1993, 1994 and 1995 are attached as composite EXHIBIT 21(21) to
this Agreement. Each of the Sellers has filed timely all Federal, state and
local tax returns which it is required to file and has no outstanding liability
for any Federal, state or local taxes or interest or penalties thereon, whether
disputed or not, except taxes not yet payable which have been provided for in
accordance with GAAP and are disclosed in the Most Recent Balance Sheets or
have subsequently accrued in the normal course of business. None of the above
Sellers' Federal income tax returns have been audited by the Internal Revenue
Service; there is not now in force any extension of time with respect to the
date on which any tax return was or is due to be filed by or with respect to
either Seller, or any waiver or agreement by it for the extension of time for
the assessment of any tax.
(r) Actions Pending. Except as disclosed in EXHIBIT
22(22) to this Agreement: (i) there are no actions, suits, proceedings or
claims pending or (to Sellers' or Shareholder's knowledge) threatened against
Sellers or the Shareholder which, if determined adversely to Sellers or the
Shareholder, would (A) have a material adverse effect on the Sellers, the
School Related Assets, or the business of either Seller when taken as a whole,
or (B) prevent or delay the consummation of any of the transactions
contemplated by this Agreement; (ii) neither Seller is (to its knowledge or the
knowledge of the Shareholder) the subject of any pending or threatened
investigation relating to any aspect of Sellers' operations, including the
operations of the School Facilities, by any Federal, state or local
governmental agency or authority; (iii) neither Seller is and has not been (to
its knowledge or the knowledge of the Shareholder) the subject of any formal or
informal complaint, investigation or inspection under the Equal Employment
Opportunity Act or the Occupational Safety and Health Act (or their state or
local counterparts) or the HEA or by any other Federal, state or local
authority.
(s) Accounts Receivable. Each of the accounts receivable
of Sellers constitutes a valid claim in its full amount against the debtor
charged on Sellers' books and has arisen in the ordinary course of Sellers'
business. Neither Seller has knowledge that each such account receivable is
not fully collectible to the extent of the face value thereof, except to the
extent of the normal allowance for doubtful accounts with respect to accounts
receivable computed on a basis consistent with Sellers' prior practices as
reflected on the Most Recent Balance Sheets. No account debtor has asserted
any right to any setoff, deduction or defense with respect thereto.
(t) No Guaranties. None of Sellers' obligations or
liabilities is guaranteed by any other person, firm or corporation except as
described in Sellers' Financial Statements, nor has either Seller guaranteed
the obligations or liabilities of any other person, firm or corporation.
(u) Bank Accounts and Deposit Boxes. Attached to this
Agreement as EXHIBIT 23(23) are the names and addresses of all banks or
financial institutions in which either Seller has an account, deposit or safety
deposit box with the names of all persons authorized to draw on these accounts
or
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deposits or to have access to the boxes, and an indication of which accounts or
deposits or boxes contain financial aid funds.
(v) Records. With respect to the years ended December
31, 1993, 1994 and 1995 and all subsequent periods, the books of account of
Sellers are complete and correct in all material respects, and there have been
no transactions involving the business of Sellers which properly should have
been set forth therein and which have not been accurately so set forth, to the
best of Sellers' and Shareholders knowledge and belief.
(w) Transactions With Certain Persons. Neither Seller
owes any amount to, nor has any contract with or commitment to, the
Shareholder, other than compensation for current services not yet due and
payable and reimbursement of expenses arising in the ordinary course of
business and the agreement to make the Shareholder's Cash Distribution. Sellers
have made no distributions or other payments to the Shareholder subsequent to
the date of the Seller's Most Recent Balance Sheets except for compensation for
services paid in the ordinary course of business and the reimbursement of
expenses incurred in the ordinary course of business or with respect to the
Shareholder's Cash Distribution.
3. REPRESENTATIONS AND WARRANTIES OF EMI AND BUYER. Each of EMI
and Buyer represents to each of the Sellers and the Shareholder as follows:
(a) No Misstatements. The representations and the
information supplied by it contained in this Agreement and the documents
incorporated by reference into it do not contain any untrue statement of a
material fact or omit to state any fact necessary to make such representations
or information not materially misleading.
(b) Validity of Actions. It is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the authority to carry on its business as currently conducted, and is qualified
to do business in all jurisdictions in which such qualification is necessary.
It has full power and authority to enter into this Agreement and to carry out
all acts contemplated by it. This Agreement and each of the documents provided
for in it to be delivered as part of this transaction, have been duly executed
and have or will be delivered pursuant to all appropriate corporate
authorization on its behalf and is, or will be, its legal, valid and binding
obligation and is enforceable against it in accordance with its terms. The
execution and delivery of this Agreement, and each of the documents to be
executed and delivered by EMI and the Buyer pursuant to its terms, and the
consummation of the transactions contemplated by them will not violate any
provision of their respective Certificates of Incorporation or Bylaws or,
violate, conflict with or result in any breach of any of the terms, provisions
of or conditions of, or constitute a default or cause acceleration of any
indebtedness under, any indenture, agreement or instrument to which it is a
party or by which it or its assets may be bound, or, cause a breach of any
applicable law or governmental regulation, or any applicable order, judgment,
writ, award, injunction or decree of any court or governmental instrumentality.
(c) Actions Pending. There are no actions, suits,
proceedings or claims pending or to the knowledge of EMI or the Buyer,
threatened against either of them which, if determined adversely to either of
them would (A) have a material adverse effect on their operations, or (B)
prevent or delay the consummation of any of the transactions contemplated by
this Agreement. Neither EMI nor Buyer is the subject of any pending or (to its
knowledge) threatened investigation relating to any aspect of its operations.
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<PAGE> 12
(d) EMI's Financial Statements
(1) Attached as EXHIBIT 24(24) to this Agreement
are (A) EMI's audited balance sheets at March 31, 1994, 1995, and 1996, and the
most recent internally prepared financial statements and statements of income
and expense and cash flows for the years then ending ("EMI's Financial
Statements").
(2) EMI's Financial Statements: (i) have been
prepared on the accrual basis in accordance with generally accepted accounting
principles consistently applied ("GAAP"), except as otherwise disclosed in the
reports accompanying them or in the notes attached to them, and (ii) fairly
present EMI's financial condition and its results of operations at the times
and for the periods presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects,
properties of assets of EMI since the date of EMI's Financial Statements.
(e) Buyer's Financial Condition. The Buyer is a newly formed
corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
4. COVENANTS OF THE PARTIES.
(a) Conduct of Business Prior to the Closing. Pending
consummation of the transactions contemplated in this Agreement or prior to
termination of this Agreement, Sellers and the Shareholder agree, without prior
written consent of Buyer, given in a letter which specifically refers to this
Section of the Agreement:
(1) not to (i) perform any act or omit to take
any act that would make any of their respective representations made in Section
2 above, inaccurate in any material respect or materially misleading as of the
Closing Date, or (ii) allow either Seller to make any payment or distribution
except for the payment of liabilities provided for in Sellers' Financial
Statements or incurred in the ordinary course of business;
(2) to cause each respective Seller to conduct
its businesses in the ordinary and regular course, maintain the School
Facilities and carry on its business practices, protect its Accreditation
Certifications and Permits, and keep its books of account, records and files in
substantially the same manner as at present; and
(3) to cause each Seller to make all tuition
refunds within the time frames provided for in the Regulations and any
applicable state or accrediting agency regulations, and to pay all accounts
payable as they become due.
(b) Notice. Pending the consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, each
party agrees that it will promptly advise the others of the occurrence of any
condition or event which would make any of its representations contained in
this Agreement inaccurate, incorrect, or materially misleading.
(c) Access. Prior to the Closing, each Seller shall
afford to the Buyer (and its officers, attorneys, accountants and other
authorized representatives), upon reasonable notice, free
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<PAGE> 13
and full access during usual business hours to its offices, personnel, the
School Facilities, books and records and other data, financial or otherwise,
so that Buyer may have full opportunity to make such investigation as it shall
desire of the School Related Assets, business and operations of each Seller,
provided that such investigation shall not unreasonably interfere with such
Sellers' operations. The scope of the investigation will include, but not be
limited to, a verification of Sellers' Financial Statements and a review of
Sellers' control procedures, regulatory compliance, the School Facilities,
material contracts, litigation and tax returns for prior years. Duly
authorized representatives of the Buyer shall also be entitled to discuss with
officers of each Seller, its counsel, employees and independent public
accountants, all of its books, records and other corporate documents,
contracts, pricing and service policies, commitments and future prospects.
Representatives of Sellers will furnish to Buyer and such other persons, copies
of all materials relating to the business affairs, operations, the School
Facilities, School Related Assets and liabilities of Sellers which may be
reasonably requested from time to time and will cause representatives and
employees of Sellers to assist Buyer in its investigation of the matters
relative to each Seller. All information obtained by Buyer, EMI or any of
their officers, directors, employees, lender, investors, agents and other
representatives (the "Buyer's Representatives") in connection with the
transactions contemplated by this Agreement or in the course of their
investigations of the Sellers, whether obtained before or after the date of
this Agreement (the "Evaluation Material") shall be used only in connection
with this Agreement and the subsequent operation of the Schools, and each of
Buyer and EMI shall assure that all Evaluation Material will be otherwise kept
strictly confidential by each of them and the Buyer's Representatives.
(d) Additional Documents. At the request of any party,
each party will execute and deliver any additional documents and perform in
good faith such acts as reasonably may be required in order to consummate the
transactions contemplated by this Agreement and to perfect the conveyance and
transfer of any property or rights to be conveyed or transferred or perfect the
assumption of any liabilities assumed under the terms of this Agreement.
(e) Employee Notification, Termination of Employee
Benefit Plans, Etc. With respect to any employees employed by the Sellers prior
to the Closing, Sellers will comply with the terms of all applicable Federal
and state laws and regulations, including without limitation the provisions of
the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section
Section 2101 et. seq. or the Consolidated Omnibus Budged Reconciliation Act
("COBRA"). Sellers will terminate all Employee Benefit Plans in accordance with
all applicable laws and regulations as of a date no later than the Closing
Date. The above section is subject to the contracts between Administaff and
Sellers. Copies are attached hereto as EXHIBIT 18.
(f) Filing of Returns; Additional Information. Each
Seller and the Shareholder will file on a timely basis all tax returns, notices
of sale and other documentation required by law in connection with the
transactions provided for in this Agreement or otherwise required by law,
regulation or pursuant to the terms of any agreement to which it is a party.
Each Seller and the Shareholder will supplement any previous filing made by it
in accordance with legitimate requests made by applicable agencies or parties
to the extent required by the relevant law, regulation or agreement.
(g) Delivery of Financial Statements. Prior to September 15,
1996, the Sellers shall deliver to the Buyer unaudited financial statements for
each Seller for the two month period ended August 31, 1996, which shall include
a statement of income and expense and a statement of cash flows for the period
then ending and a balance sheet as of such date, all of which shall be prepared
in accordance with, and subject to the same representations contained in,
Section 2(c)(2) and (3) of this Agreement (the "Effective Date Financial
Statements"). The Shareholder's Cash Distribution shall be
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<PAGE> 14
increased or decreased based on a comparison of balance sheets included in the
Effective Date Financial Statements with the Seller's Most Recent Balance
Sheet. If as a result the amount of the Seller's Cash Distribution is
increased, Buyer shall make a payment to the Shareholder equal to such amount
within 10 business days. If the amount is decreased, the Shareholder shall
make a payment to the Buyer equal to such amount within 10 business days. With
respect to each succeeding month, within 15 days of such month's conclusion,
the Sellers shall deliver to the Buyer monthly unaudited financial statements
for each Seller which shall include statement of income and expense and a
statement of cash flows for the month then ended and a balance sheet for the
month then ended, all of which shall be prepared in accordance with, and
subject to the same representations contained in, Section 2(c)(2) and (3) of
this Agreement.
(h) Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the Closing Date, each of
the parties to this Agreement will execute such documents and take such other
actions as reasonably may be appropriate to fulfill the conditions to Closing
provided for in Section 5 of this Agreement.
5. CONDITIONS TO CLOSING BY THE RESPECTIVE PARTIES.
The obligation of EMI and Buyer, on the one hand, and Sellers and
the Shareholder on the other hand, to consummate the transactions contemplated
by this Agreement shall be subject to compliance with or satisfaction of the
following conditions by the other, to the extent applicable:
(a) Bring Down. The representations and warranties set
forth in this Agreement shall be true and correct in all material respects on
and at the Closing Date as if then made by the relevant party (except for those
representations and warranties made as of a given date, which shall continue to
be true and correct as of such given date).
(b) Compliance. Each party shall have complied with all
of the covenants and agreements in this Agreement on its or their part,
respectively, to be complied with as of or prior to the Closing Date.
(c) No Material Adverse Changes. Since the date of the
Sellers' Most Recent Balance Sheets, there shall not have occurred any material
adverse change in the condition (financial or otherwise) of the Schools, School
Facilities, or the School Related Assets of either of the Sellers. Since March
31, 1996, there shall not have occurred any material adverse change (financial
or otherwise) of EMI.
(d) Buyer Certificates. There shall be delivered to the
Sellers and the Shareholder:
(1) a certificate executed by the President and
Secretary of each of Buyer and EMI, dated the Closing Date, certifying that the
conditions to be fulfilled by each of them set forth in this Section 5 have
been fulfilled;
(2) a certificate of incumbency for each of them
executed by its President or any Vice President and by the Secretary or any
Assistant Secretary of such entity, listing the officers of such entity
authorized to execute (to the extent applicable) the Agreement and the other
documents, certificates, schedules and instruments to be delivered on behalf of
such entity, and their respective offices, and containing the genuine signature
of each such person set forth opposite his name; and
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<PAGE> 15
(3) good standing certificates and certified
charter documents of each of them of recent date, from the Secretary of the
State of the jurisdiction of incorporation of such entity (the Certificates
described in 1, 2 and 3 above are hereafter referred to collectively as the
"Buyer's Certificates").
(e) Sellers' Certificates. There shall be delivered to
the Buyer and EMI:
(1) a certificate executed by the President and
Secretary of each Seller, dated the Closing Date, certifying that the
conditions to be fulfilled by it as set forth in this Section 5 have been
fulfilled;
(2) a certificate of incumbency for each Seller
executed by its President or any Vice President and by the Secretary or any
Assistant Secretary of such Seller, listing the officers of such entity
authorized to execute (to the extent applicable) the Agreement and the other
documents, certificates, schedules and instruments to be delivered on behalf of
such entity, and their respective offices, and containing the genuine signature
of each such person set forth opposite his or her name; and
(3) good standing certificates and certified
charter documents of each Seller of recent date, from the Secretary of the
State of the jurisdiction of incorporation of such entity (the Certificates
described in 1, 2 and 3 above are hereafter referred to collectively as the
"Sellers' Certificates").
(f) No Suits. No action or proceeding shall have been
instituted in any court or before any Federal, state or local governmental
agency against any party seeking to restrain or prohibit the consummation of
the transactions contemplated by this Agreement, or which could have a material
adverse effect on any of the parties, which shall not have been dismissed or
withdrawn prior to the Closing Date.
(g) Change of Sellers' Names. At least five (5) days
prior to the Closing, each Seller shall deliver to Buyer a duly executed and
acknowledged certificate of amendment to each Seller's articles of
incorporation or other appropriate document required to change each Seller's
corporate name to a new name bearing no resemblance to its present name so as
to make each Seller's present name available to Buyer. Buyer is hereby
authorized to file such certificate or other documents, at Sellers' expense, in
order to effectuate such change of name at or after the Closing.
(h) Documents. All documents required to be delivered to
Buyer or Sellers or the Shareholder pursuant to this Agreement at or prior to
Closing shall have been so delivered.
(i) Authority. There shall be in full force and effect
on the Closing Date resolutions of the Boards of Directors of the Buyer, EMI
and the Sellers approving this Agreement, the other documents executed and
delivered by each of them in connection with this Agreement and the
transactions contemplated in it. At or prior to the Closing, each party will
deliver to the other a copy of the resolutions of its Board of Directors and,
in the case of the Sellers, the resolutions or consent of the Shareholder,
together with any and all required resolutions or consent of the Shareholder
thereof, approving the execution and delivery of this Agreement and the other
documents to be delivered pursuant to this Agreement and the consummation of
all of the transactions contemplated hereby, duly certified by an appropriate
officer.
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(j) Opinions of Counsel. Each party shall receive the
opinion of counsel to the other party reasonably satisfactory in form and
content to the party receiving such opinion.
(k) Current Insurance Coverage. Payments will have been
made as of the Closing Date with respect to all of Sellers' insurance policies,
and all insurance coverage concerning Sellers' assets and operations shall be
continued in force through at least 10 days subsequent to the Closing Date,
unless canceled subsequent to the Closing Date by Buyer.
(l) Bankruptcy, Dissolution, etc. No petition or other
commencement of proceedings in bankruptcy or proceedings for dissolution,
termination, liquidation or an arrangement, reorganization or readjustment of
any party's debts under any state or Federal law enacted for the relief of
debtors or otherwise, whether instituted by or against a party, has been
effected or commenced by or against any party.
(m) Leases. The Buyer and the landlords shall have
entered into lease agreements with respect to the School Facilities and the
Sellers' obligations pursuant to the School Facility Leases with respect to all
periods after the Closing Date shall be released in full.
(n) Texas Education Agency. All necessary approvals by
the Texas Education Agency (or its successor, the Texas Workforce Commission --
Proprietary Schools Section) have been obtained and delivered to Buyer.
6. CLOSING AND POST CLOSING AGREEMENTS.
(a) Closing Date and Place; Effective Date. The closing
of the transactions provided for in this Agreement shall take place at the time
provided for in Section 1(b) of this Agreement and shall be effective as
provided in Section 1(f).
(b) Deliveries by Buyer to Seller. At the Closing, Buyer
and EMI shall deliver to Seller:
(1) Initial Payment;
(2) The Second Payment Note;
(3) An assumption agreement (the "Assumption
Agreement" in substantially the form attached
to this Agreement as EXHIBIT 25(25);
(4) The Purchase Money Promissory Note;
(5) The Pledge Agreement; and
(6) The Buyer's Certificates.
(c) Deliveries by Sellers to Buyer and the Shareholder.
At the Closing, Sellers shall deliver to Buyer:
(1) The Bill of Sale (the "Bill of Sale") in
substantially the form attached to this
Agreement as EXHIBIT 26(26); and
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<PAGE> 17
(2) Assignments of all of Sellers' Bank
Accounts;
(3) The Sellers' Certificates;
(4) Escrow Agreement; and
(5) Such other instruments of conveyance in form
and substance reasonably satisfactory to
Buyer's counsel, as shall be effective to
vest in Buyer good title to the School
Related Assets.
Sellers shall deliver to the Shareholder:
(5) The Undistributed Portion of the
Shareholder's Cash Distribution.
(d) Delivery of Post Closing Financial Statements of the
Sellers to the Buyer. Prior to the expiSeptember 19, 1996ration of 15 Calendar
days following the Closing, the Sellers shall deliver to the Buyer unaudited
financial statements for each Seller which shall include a statement of income
and expense for the month ending immediately prior to the Closing (if not
previously delivered pursuant to Section 4(g) of this Agreement) and for the
partial monthly period ending immediately prior to the Closing Date and a
balance sheet as of the end of such periods, all of which shall be prepared in
accordance with, and subject to the same representations contained in, Section
2(c)(2) and (3) of this Agreement.
(e) Filing of Tax Returns and Other Reports. The Sellers
and Shareholder shall timely file all federal and state income tax and other
returns or reports relating to the transactions provided for in this Agreement
and relating to all periods during which each of the Sellers owned their
respective School Related Assets, and to the extent required by law or
regulation, all reports with the Department of Education or any other
applicable state of federal regulatory or accrediting agency relating to such
periods including without limitation the Financial Aid Audits for the federal
fiscal year ended June 30, 1996 to be filed by each of the Schools with the
Department of Education pursuant to applicable regulations.
(f) Further Documents or Acts. The parties will also
execute, deliver, record (where appropriate) and/or perform at Closing and from
time to time thereafter, at the request of Buyer, EMI, Sellers or the
Shareholder, all other documents or acts required to consummate any of the
transactions contemplated by this Agreement or otherwise carry out the purposes
of this Agreement, including without limitation, any and all instruments or
other documents of transfer, conveyance, assignment and assumption as may be
reasonably necessary to effect or evidence the transfer of the School Related
Assets and the assumption of the Stated Liabilities.
7. CONFIDENTIALITY AND JOINT NON-COMPETITION AGREEMENT.
(a) Shareholder acknowledges that, as a result of his
ownership of the Sellers and, if applicable, employment by Sellers, he has had
access to and knowledge of confidential or proprietary information developed by
Sellers and of a special and unique nature and value to Sellers, including, but
not limited to, Sellers' methods and systems, the names and addresses of its
students and sources of referral, tuition charged and paid by Sellers or its
customers, curricula, related memoranda, research reports, designs, records,
student files, services, and operating procedures, and other information, data,
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and documents now existing or later acquired by Shareholder or Sellers,
regardless of whether any such information, data, or documents, qualify as a
"trade secret" under applicable Federal or state law (collectively
"Confidential Information"). Confidential Information does not include
information that (i) becomes generally available to the public other than as a
result of disclosures by Sellers or the Shareholder in violation of the terms
of this Agreement, or (ii) becomes available to Sellers or the Shareholder on a
non-confidential basis from a source that is not bound by a confidentiality
agreement with Buyer or its directors, officers, employees, agents or
representatives. As a material inducement to Buyer to enter into this
Agreement, each of the Shareholder and the Sellers, jointly and severally,
covenants and agrees not at any time following the Closing Date directly or
indirectly, to divulge or disclose for any purpose whatsoever, any Confidential
Information which is in the possession of Sellers or which has been obtained by
or disclosed to such Shareholder as a result of employment by Sellers,
ownership of Sellers, or otherwise as a result of the relationship between such
Shareholder and Sellers. In accordance with the foregoing, the Shareholder and
the Sellers agree at no time to retain or remove from the School Facilities
records of any kind or description whatsoever (other than those which
constitute Excluded Assets) for any purpose whatsoever unless authorized by
Buyer. Notwithstanding the foregoing provisions of this Section 7(a), Sellers
and the Shareholder may disclose Confidential Information (i) to its employees,
counsel, accountants and agents on a need-to-know basis (provided that any such
person shall be informed of the confidential nature of such information and
directed not to disclose or make public such Confidential Information), (ii) to
the extent required by applicable law, rules and regulation, and (iii) in any
action, suit or proceeding between the parties, provided that in connection
with disclosures permitted by clauses (ii) and (iii) above, Sellers or
Shareholder shall provide Buyer with at least three (3) days notice of such
intent so that an appropriate protective order may be sought by Buyer if
desired.
(b) As a material inducement to Buyer to enter into this
Agreement, the Shareholder and the Sellers, jointly and severally, covenant and
agree for a period of ten years (10) years after the Closing of the
transactions provided for in this Agreement not to (i) directly or indirectly
engage in competition with any school owned or operated by EMI (the "Prohibited
Activities") anywhere within 50 miles of the location of any school listed on
EXHIBIT 27(27) or any post secondary education school which EMI subsequently
operates (the "Area") (the "Prohibited Activities"); (ii) become associated as
manager, supervisor, employee, consultant, advisor, stockholder owning more
that 5% of the outstanding stock of a company or participating in the
management or direction of a company or otherwise with any person, corporation
or entity engaging in Prohibited Activities anywhere within the Area; (iii)
call upon any of Buyer's students, teachers or referral sources for the purpose
of promoting any Prohibited Activities for any person, person, corporation or
entity within the Area; or (iv) divert, solicit or take away any of Buyer's
teachers or other personnel for the purpose of engaging in any Prohibited
Activities regardless of the location of such activities.
(c) In the event of a breach or threatened breach by the
Shareholder of any of the provisions of this Section 7, Buyer, in addition to
and not in limitation of any other rights, remedies, or damages available to
Buyer at law or in equity, shall be entitled to a permanent injunction in order
to prevent or to restrain any such breach by Sellers or any Shareholder, or by
such Shareholder's partners, agents, representatives, servants, employers,
employees and/or any and all persons directly or indirectly acting for or with
him.
(d) Each of the Shareholder and the Sellers covenants and
agrees that, if such Seller or Shareholder shall violate any of his covenants
or agreements provided for in this Section 7, Buyer shall be entitled to an
accounting and repayment of all profits, compensation, commissions,
remuneration, or benefits which Sellers or such Shareholder, directly, or
indirectly, has realized and/or
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<PAGE> 19
may realize as a result of, growing out of, or in connection with any such
violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Buyer may be entitled to
at law or in equity or under this Agreement.
(e) Each of the Shareholder and the Sellers has carefully
read and considered the provisions of this Section 7, and agrees that the
restrictions set forth above (including without limitation the time period and
geographical areas of restriction) are fair and reasonable and are reasonably
required for the protection of the interest of the Buyer. In the event that,
notwithstanding the foregoing, any of the provisions of this Section 7 are held
invalid or unenforceable, the remaining provisions shall continue to be valid
and enforceable. In the event that any provision of this Section 7 relating to
time period and/or areas of restriction are declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period or areas of restriction shall be
deemed to become, and thereafter be, the maximum time period and/or area which
such court deems reasonable and enforceable.
(f) If the obligations of the parties are terminated and
the closing does not occur Buyer and EMI agree to return all information
furnished to them by Sellers and Shareholder or any of their officers,
directors, employees, lenders, investors, agents and other representatives.
Buyer and EMI acknowledge that they have had access and knowledge of
confidential and/or proprietary information developed by Sellers and of a
special and unique nature and value to Sellers, including, but not limited to ,
Sellers' methods and systems, the names and addresses of its students and
sources of referral, tuition charged and paid by Sellers or its customers,
curricula, related memoranda, research reports, designs, records, student
files, services, and operating procedures, and other information, data, and
documents now existing or later acquired by Shareholder or Sellers, regardless
of whether any such information, data, or documents, qualify as a "trade
secret" under applicable Federal or state law (collectively "Confidential
Information"). Confidential Information does not include information that (i)
becomes generally available to the public, (ii) becomes available to Buyer or
EMI on a non-confidential basis from a source that is not bound by a
confidentiality agreement with Sellers or its directors, officers, employees,
agents or representatives. Buyer and EMI further agree not to use or disclose
said information as stated above and will hold same in strict confidence unless
compelled to disclose by requirements of law.
In the event of a breach or threatened breach by the Buyer or EMI of
any of the provisions as stated above in this Section 7(f), Sellers and
Shareholder, in addition to and not in limitation of any other rights,
remedies, or damages available to Seller and Shareholder at law or in equity,
shall be entitled to a permanent injunction in or to prevent or to restrain any
such breach by Buyer or EMI or by such Buyer or EMI's partners, agents,
representatives, servants, employers, employees and/or any and all persons
directly or indirectly acting for or with him.
8. INDEMNIFICATION.
(a) Each of Sellers and the Shareholder, severally and
not jointly, agrees to defend, indemnify and hold harmless the Buyer and EMI
and their directors, officers, employees and agents from and against any loss,
liability, damage, settlement or expense (including without limitation,
attorneys' fees and disbursements) incurred by Buyer or EMI arising from or
related to (1) the inaccuracy or breach of any of the representations,
warranties, covenants or agreements of Sellers or the Shareholder, as the case
may be, contained in this Agreement or in any document incorporated by
reference into this Agreement, (2) the Potential Title IV Notification
Liability (the "Potential Title IV Notification Liability Claims"), or (3)
Texas Mandated Assumed Liabilities (the "Texas Mandated Assumed Liability
Claims").
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<PAGE> 20
Without limiting the general right to indemnification provided for in the
previous sentence, Sellers and the Shareholder specifically agree that with
respect to Texas Mandated Assumed Liability Claims and Potential Title IV
Notification Liability Claims, the Buyer shall have the right FIRST to recover
the amount of such claims from the Contingent Liability Escrow Account, AND
THEN, to the extent such claims exceed the amount paid from such Escrow Account
to Buyer on account thereof, by offset against principal and interest, if any,
due with respect to Second Payment Note and Purchase Money Promissory Note,
such offset to be made against the most current payments due regardless of the
note to which such payment relates, AND THEREAFTER against the Sellers and the
Shareholder, jointly and severally.
(b) Buyer and EMI, jointly and severally, agree to
defend, indemnify and hold harmless each Seller and the Shareholder and their
directors, officers, employees and agents from and against any loss, liability,
damage, settlement or expense (including without limitation attorneys' fees and
disbursements) incurred by Sellers and/or the Shareholder and arising from or
related to: (i) the inaccuracy or breach of any of the representations,
warranties, covenants or agreements of Buyer or EMI contained in this Agreement
or in any document incorporated by reference into this Agreement.
(c) Buyer and EMI, jointly and severally, agree to
defend, indemnify and hold harmless each Seller and the Shareholder and their
directors, officers, employees and agents from and against any loss, liability,
damage, settlement or expense (including without limitation attorneys' fees and
disbursements) incurred by Sellers and/or the Shareholder and arising from acts
or omissions occurring subsequent to the closing relating to the Asset Purchase
Agreement and/or the operations of the Schools subsequent to the Closing.
(d) The party seeking indemnification pursuant to this
Section 8 (the "Indemnified Party") shall give (or cause to be given) to the
party or parties from whom indemnification is sought hereunder (the
"Indemnifying Party") notice of any claim or matter for which indemnity is (or
will be) sought under this Section 8. Such notice shall be given promptly
after the Indemnified Party receives actual notice or knowledge of the claim or
matter that is subject to indemnification. With respect to any claim asserted
by a third party against an Indemnified Party for which indemnity is sought
hereunder, the relevant Indemnifying Party shall have the right to employ
counsel reasonably acceptable to the relevant Indemnified Party to defend
against such assertion and such Indemnifying Party shall have the right to
compromise or otherwise settle any such action or claim only with the prior
written consent of such relevant Indemnified Party, which consent shall not be
unreasonably withheld, provided, however, that upon the determination of any
applicable agency or court of law that any claim for which indemnification is
sought, including a determination by the Department of Education that amounts
are due from the Buyer on account of Potential Title IV Notification Liability
Claims, is due and payable (a "Liability Determination") the Indemnified Party
may pay such amount (a "Jeopardy Payment") and, in the case of the Buyer,
immediately be entitled to recovery of such amounts as provided for in the last
sentence of clause (a) of this Section 8, further provided, however, that the
Indemnified Party shall not be entitled to make such Jeopardy Payment during
the pendency of any appeals from such Liability Determination, so long as the
amount of such determination is not due either because of the pendency of such
appeal or because of the posting of applicable bonds. Notwithstanding the
foregoing, nothing in the previous sentence shall require the party seeking
indemnification with respect to any such Liability Determination to post any
bond or otherwise take any action to vacate or challenge a Liability
Determination. If such determination amount is paid by Buyer and thereafter
such determination is reversed or set aside, and the Jeopardy Payment is
returned or otherwise credited to Buyer, the Indemnifying Party shall be
reimbursed by Buyer for any sums recovered from the Contingent Liability Escrow
Account or by any Note offset or money recovered from
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<PAGE> 21
Sellers and/or Shareholder incident to the Jeopardy Payment.
9. EVENTS OF DEFAULT. If any one or more of the following events
occurs then, subject to the expiration of any specified grace period and the
giving of any prior notice required under this Section 9, such event shall
constitute an Event of Default by the party responsible for such event or
against whom it should be charged.
(a) Warranties or Representations. Any warranty or
representation by or on behalf of any party contained in this Agreement (or in
any document between the parties furnished in compliance with this Agreement at
Closing) is false or misleading in any material respect.
(b) Agreements. Any party fails to take any action
required of it to comply with its obligations contained in this Agreement, or
takes any action prohibited or inconsistent with its obligations under this
Agreement, and such failure to act or action is not cured prior to ten (10)
days after written notice thereof is given to the defaulting party.
(c) Refusal to Close. A party refuses to consummate the
transactions provided for (and subject to the terms and conditions specified)
in this Agreement by 5 p.m., Eastern Daylight Time on January 31, 1997 (the
"Termination Date"), except if the failure to close is based upon the failure
of the other party to meet a condition to Closing provided for in Section 5 of
this Agreement.
(d) Failure of Closing Condition. Any party is unable to
comply with the conditions of Closing provided for in Section 5 of this
Agreement, other than as a result of an Event of Default as described in
Sections 9(a), (b), or (c) above.
10. TERMINATION AND RIGHTS AND REMEDIES ON DEFAULT.
(a) Termination. This Agreement may be terminated and
the transactions contemplated hereby abandoned prior to the Closing: (i) by
the mutual consent of Buyer, EMI and Shareholder; (ii) by Buyer and EMI, if
any condition to their obligations to close set forth in Section 5 hereof
becomes impossible of performance or has not been satisfied in full (in each
case other than as a result of a breach of such party's obligations under this
Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; (iii) by Sellers and Shareholder
if any condition to their obligations to close set forth in Article 5 hereof
becomes impossible of performance or has not been satisfied in full (in each
case other than as a result of a breach of such party's obligations under this
Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; or (iv) by any party (other than a
party that is in breach of its obligations under this Agreement) if the Closing
shall not have occurred on or before the Termination Date. If this Agreement
is terminated pursuant to clause (i) of this Article 10, all obligations of the
parties hereunder shall terminate without any further liability or obligation
of either party to the other, except that the provisions of Section 11, Section
13(b) and the confidentiality provisions of Section 4(c) of this Agreement
shall survive and continue in full force and effect notwithstanding such
termination. Except as limited by the preceding sentence, the exercise by any
party of the right to terminate this Agreement shall not terminate or limit any
remedy that such party may have in this Section 10 as a result of an Event of
Default. If this Agreement is terminated pursuant to the provisions of this
Section 10 (except with respect to a termination by Sellers and Shareholder
pursuant to subclause (iii) of the first sentence of this Section) the
Refundable Deposit shall be returned to the Buyer immediately upon such
termination. If this Agreement is terminated pursuant to the provisions of
such subclause (iii), the Buyer shall lose all rights with respect to the
Refundable Deposit.
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(b) Rights and Remedies on Default. Upon and after an Event
of Default by any party, the other party shall have the following rights and
remedies:
(1) Default by Buyer and EMI. If, on the
termination Date, there exists an Event of Default as described in Section 9 of
this Agreement, chargeable against the Buyer or EMI, or which Sellers or
Shareholder is made specifically aware, Sellers or Shareholder may either (i)
specifically waive such default and close, in which Sellers or Shareholder
shall have the right to seek specific performance of the Agreement, including,
without limitation, or (ii) refuse to close, and, except in the case of an
Event of Default described in Section 9(d) above, seek money damages from
Buyer and/or EMI, including, without limitation, indemnification pursuant to
Section 8 of this Agreement. An election by Sellers or Shareholder to proceed
in accordance with subclause (i) of the preceding sentence shall constitute the
acknowledgment by Buyer, EMI, Sellers or Shareholder that Sellers or
Shareholder cannot be adequately compensated by money damages for the failure
to perform by Buyer and EMI, that such damages are indeterminate, and that a
court of competent jurisdiction may enter an order pursuant to which Buyer and
EMI are obligated to specifically perform their obligations to Sellers or
Shareholder pursuant to the terms of this Agreement.
(2) Default by Sellers or Shareholder. If, on
the Termination Date, there exists an Event of Default as described in Section
9 of this Agreement, chargeable against the Sellers or the Shareholder, or
which Buyer is made specifically aware, Buyer may either (i) specifically waive
such default and close, in which event Buyer shall have the right to seek
specific performance of this Agreement, including, without limitation, the
acquisition of the School Related Assets and the performance by the Sellers and
the Shareholder of the covenants provided for in this Agreement, or (ii) refuse
to close, and, except in the case of an Event of Default described in Section
9(d) above, seek money damages from Sellers and Shareholder, including, without
limitation, indemnification pursuant to Section 8 of this Agreement. An
election by Buyer to proceed in accordance with subclause (i) of the preceding
sentence shall constitute the acknowledgment by Buyer, Sellers and Shareholder
that Buyer cannot be adequately compensated by money damages for the failure to
perform by Sellers and Shareholder, that such damages are indeterminate, and
that a court of competent jurisdiction may enter an order pursuant to which
Sellers and Shareholder are obligated to specifically perform their obligations
to Buyer pursuant to the terms of this Agreement.
(3) Default Subsequent to Closing. If any party
breaches this Agreement subsequent to Closing, or if a default exists pursuant
to Sections 9(a) or 9(b) of this Agreement, the nondefaulting party(ies) shall
have the right to seek money damages from the defaulting party(ies), either
pursuant to Section 8 of this Agreement or otherwise. In addition, if, (i) as
a result of any action taken or not taken by the either Seller in violation of
any applicable law or regulation which (ii) has not been disclosed to the Buyer
in this Agreement, and which (iii) the occurrence or non occurrence of which
was known or reasonably should have been known to either Seller or the
Shareholder, the Prerequisite Student Aid Approvals are not received prior to 6
months from the date of the Closing, or, if received or offered, can only be
obtained on conditions imposing substantial financial burdens on the Buyer in
addition to those which would otherwise be imposed in connection which such
approval, the Buyer may elect to rescind the transactions provided for in this
Agreement and, upon such election, the parties will take such action as may be
reasonably required to restore the other party to its respective positions as
they existed prior to the Closing provided for in this Agreement.
(4) Nature of Remedies Cumulative. Except as
otherwise provided in this Agreement, all rights and remedies granted in this
Agreement or available under applicable law shall be deemed concurrent and
cumulative and not alternative or exclusive remedies, to the full extent
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permitted by law and this Agreement, and any party may proceed with any number
of remedies at the same time or in any order. The exercise of any one right or
remedy shall not be deemed a waiver or release of any other right or remedy,
and any party, upon the occurrence of an event of default by another party
under this Agreement, may proceed at any time, under any agreement, in any
order and with any available remedy.
(5) Limitation on Liability of Sellers and
Shareholder. Except in the case of a breach of the agreements contained in
Section 7 of this Agreement, or in connection with Texas Mandated Assumed
Liability Claims and Potential Title IV Notification Liability Claims, neither
Sellers nor Shareholder shall have any liability with respect to any claims of
Buyer or EMI for money damages, whether pursuant to this Section, Section 8 of
this Agreement or otherwise (a) until such time, if any, as the aggregate
amount of all such amounts otherwise subject to recovery by Buyer or EMI shall
exceed, in the aggregate, $10,000, and then only to the extent of such excess;
and (b) to the extent the total amount otherwise subject to recovery by Buyer
or EMI from the Sellers and/or the Shareholder exceeds the aggregate of all
amounts paid or payable to the Sellers pursuant to the terms of this Agreement
plus the Shareholder's Cash Distribution.
11. FINDERS FEES.
Each of the parties represents and warrants to the other that such
party has not employed any finder or broker in connection with transactions
contemplated by this Agreement. Each party agrees to indemnify and hold
harmless the others from and against any claim, damages, liabilities, and
expenses (including without limitation, attorneys' fees and disbursements)
arising from any claim or demand asserted by any person or entity on the basis
of its employment as a finder or broker by the respective party.
12. NOTICES. All notices or other communications required or
permitted under the terms of this Agreement shall be made in writing and shall
be deemed given upon (i) hand delivery or (ii) three days after deposit of same
in the Certified Mail, Return Receipt Requested, first class postage and
registration fees prepaid and correctly addressed to the parties at the
following addresses:
If to Buyer: SACMD Acquisition Corp.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 30076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, Florida 33401
Attn: Morris C. Brown
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
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<PAGE> 24
Roswell, Georgia, 33076
Attn: President
With a copy to: Honigman Miller Schwartz and Cohn
222 Lakeview Avenue
Suite 800
West Palm Beach, FL 33401
Attn: Morris C. Brown
If to Seller: San Antonio College of Medical and Dental
Assistants, Inc.
555 I-35 West, #320J
New Braunfels, TX 78130
Attn: Mr. Comer Alden
With a copy to: John A. Daniels, Esq.
Daniels & Daniels
1100 South Texas Building
603 Navarro
San Antonio, TX 78205-1837
With a copy to: Robert Alden, Esq.
919 Congress Avenue, Suite 610
Austin, TX 78701
If to Seller: Career Centers of Texas - El Paso, Inc.
555 I-35 West, #320J
New Braunfels, TX 78130
Attn: Mr. Comer Alden
With a copy to: John A. Daniels, Esq.
Daniels & Daniels
1100 South Texas Building
603 Navarro
San Antonio, TX 78205-1837
With a copy to: Robert Alden, Esq.
919 Congress Avenue, Suite 610
Austin, TX 78701
If to Shareholder: Comer Alden
555 I-35 West, #320J
New Braunfels, TX 78130
Attn: Mr. Comer Alden
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<PAGE> 25
With a copy to: John A. Daniels, Esq.
Daniels & Daniels
1100 South Texas Building
603 Navarro
San Antonio, TX 78205-1837
With a copy to: Robert Alden, Esq.
919 Congress Avenue, Suite 610
Austin, TX 78701
or to such other address as any of the parties hereto may designate by notice
to the others.
13. MISCELLANEOUS.
(a) Successors. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their respective successors
and permitted assigns. This Agreement may not be assigned prior to Closing
without the prior written consent of the other parties hereto.
(b) Expenses. Except as otherwise provided in this
Agreement, Buyer and Sellers and the Shareholder shall be responsible for any
and all of the respective fees, costs and expenses incurred by each, in
connection with the negotiation, preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by
this reference all Exhibits hereto and all documents executed and/or delivered
at Closing. This Agreement and the documents so incorporated into it contain
the parties' entire understanding and agreement with respect to the subject
matter hereof; and any and all conflicting or inconsistent discussions,
agreements, promises, representations and statements, if any, between the
parties or their representatives that are not incorporated in this Agreement
shall be null and void and are merged into this Agreement.
(d) Amendments Only in Writing. No amendment,
modification, waiver or discharge of this Agreement or any provision of this
Agreement shall be effective against any party, unless such party shall have
consented thereto in writing.
(e) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original, but all of
which together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement,
when requested by another party, shall give all reasonable and necessary
cooperation with respect to any reasonable matters relating to the transactions
contemplated by this Agreement.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas, and any suit,
action or proceeding arising out of or relating to this Agreement shall be
commenced and maintained in the District Court in Bexar County, Texas or the
appropriate United States District Court for the State of Texas and each party
waives objection to such jurisdiction and venue.
(h) Headings. The various section headings are inserted
for purposes of reference only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.
-25-
<PAGE> 26
(i) Gender; Number. All references to gender or number
in this Agreement shall be deemed interchangeably to have a masculine,
feminine, neuter, singular or plural meaning, as the sense of the context
requires.
(j) Severability. The provisions of this Agreement shall
be severable, and any invalidity, unenforceability or illegality of any
provision or provisions of this Agreement shall not affect any other provision
or provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
(k) Survival. Except as otherwise expressly provided in
this Agreement, the liabilities and obligations of each party with respect to
any and all of its representations, warranties, covenants and agreements set
forth in this Agreement and/or in any document incorporated into it shall not
be merged into, affected or impaired by the Closing under this Agreement. All
of the representations, warranties, covenants and agreements set forth in this
Agreement shall survive the Closing for the period of two years thereafter, so
that (except as otherwise provided below) any claim under this Agreement must
be asserted by notice given to the party claimed to be liable on or before the
second anniversary of the Closing Date. Notwithstanding the foregoing, the
time limitation shall not apply to: (i) the covenants related to
confidentiality and non-competition contained in Section 7 above; (ii) claims
arising out of a misrepresentation as to matters contained in Section 2(h) or
2(i) (which shall survive for a period ending on the seventh anniversary of the
Closing Date), (iii) fraud, Texas Mandated Assumed Liability Claims or (v)
Potential Title IV Notification Liability Claims. All obligations and
liabilities described in clauses (i) and (iii) of the previous sentence shall
survive the Closing for the period in which a claim can be asserted with
respect thereto under applicable law.
(l) No Third Party Beneficiaries. This Agreement has been
entered into solely for the benefit of the parties that have executed it, and
not to confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it.
(m) Intention to Cease Business. Buyer and EMI acknowledge
that the Sellers intend to cease operations at or shortly after the Closing
Date and, following the Closing, will cease to have any material assets.
(n) Access to Records. Following the effective Closing
Date, Buyer and EMI shall give to the Sellers and Shareholder free and
unrestricted access to (and the right to make copies at the expense of
Shareholder) the records and to the extent that such were purchased by Buyer
and EMI hereunder and relate to the business, operations, income, expenses and
assets of Seller corporation existing on, accruing or arising prior to or
occurring prior to effective time of closing, but any access shall be conducted
in such manner as not to interfere unreasonably with the operations of the
business following the effective Closing Date. Sellers and Shareholder's free
and unrestricted access to the records of Shareholder includes but is not
limited to all matters relating to litigation. Buyer and EMI shall also give
to the Sellers and Shareholder reasonable access to their former employees,
and/or their former employees contracted through Administaff in regard to
current and/or future litigation.
(o) Mediation. The parties hereto agree that it is a
precondition to filing of any action to enforce this Agreement, that the
parties will submit to non-binding mediation, except in the case where
immediate injunctive relief is sought. Unless the parties agree on some other
mediation forum, the parties will use the Bexar County Presuit Mediation
Service or the Bexar County Dispute Resolution Center. Upon any party giving
notice of a demand for mediation, both parties must make
-26-
<PAGE> 27
themselves available for mediation within thirty (30) days of that notice. All
mediation fees shall be split equally between the parties to the mediation.
(p) Judgment awards. Buyer and EMI acknowledge that
Sellers and Shareholder shall retain all interest in their judgment awards that
were obtained prior to the Closing Date of this Agreement
(q) Attorneys' Fees. 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
incurred by such party in connection herewith, including fees and disbursements
one or more appeals.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
SACMD ACQUISITION CORP. ("BUYER") SAN ANTONIO COLLEGE OF MEDICAL AND
DENTAL ASSISTANTS, INC. ("SELLER")
BY: /S/ GARY KERBER By: /S/ COMER ALDEN
------------------------------- -----------------------------------
Authorized Signatory Authorized Signatory
CAREER CENTERS OF TEXAS - EL PASO, INC.
("SELLER")
By: /S/ COMER ALDEN
----------------------------------
Authorized Signatory
EDUCATIONAL MEDICAL, INC.
By: /S/ GARY KERBER
----------------------------------
Authorized Signatory
SHAREHOLDER:
/S/ COMER ALDEN
---------------------------------------
Comer Alden
-27-
<PAGE> 28
EXHIBIT 1
September 6, 1996
Daniels & Daniels
1100 South Texas Building
603 Navarro
San Antonio, Texas 78205-1837
Re: Escrow Agreement
Gentlemen:
EDUCATIONAL MEDICAL, INC., a Delaware corporation ("EMI"), SACMD
Acquisition Corp., a Delaware corporation wholly owned by EMI ("Buyer"), SAN
ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC., a Texas corporation,
and CAREER CENTERS OF TEXAS - EL PASO, INC., a Texas corporation (hereinafter
referred to jointly as the "Sellers") and Mr. Comer Alden ("Shareholder") have
entered into an Asset Purchase Agreement dated September 6, 1996 (the "Asset
Purchase Agreement") pursuant to which the Sellers are selling certain of their
school operations. Pursuant to Section 1(a) of the Asset Purchase Agreement,
you will be receiving $250,000.00. Unless otherwise defined in this Agreement,
all capitalized terms used in this Agreement shall have the same meaning as set
forth in the Asset Purchase Agreement.
Subject to the terms of this Escrow Agreement:
1. (a) Establishment of the Escrow Account:
Upon the execution of the Asset Purchase Agreement,
the Shareholder shall deposit with you the sum of Two
Hundred Fifty Thousand Dollars ($250,000.00), (the
"Escrow Funds") which you shall deposit into an
interest bearing account at a bank (the "Selected
Bank") to be mutually agreed upon by Shareholder and
Buyer (the "Escrow Account").
(b) Purpose of the Escrow Funds:
The Escrow Account has been established to hold the
Escrow Funds, to the extent necessary, to serve as
security for and satisfy claims made by the Buyer
against the Sellers and/or the Shareholder pursuant
to Section 8 of the Asset Purchase Agreement (the
"Section 8 Claims"). The parties acknowledge that
the Sellers and the Shareholder have selected the
Escrow Agent and that the Sellers and the Shareholder
shall bear all of the risk of loss in the event of
the loss of some or all of the Escrow Funds.
(c) Investment of the Escrow Funds:
The Escrow Funds shall, at the direction of the
Shareholder, only be invested and reinvested in (a)
obligations issued or guaranteed by the United States
government or agencies thereof, with maturities of
less than one year from the date of such investment,
and (b) certificates of deposit at the Selected Bank
with maturity dates of less then one year from the
date of such investment, and (iii) money market
accounts at the Selected Bank. Income from all
investments and reinvestment of Escrow Funds shall be
paid upon termination of this Agreement to the
parties receiving the distribution of the Escrow
Funds in proportion to the amount of such
distributions. For Federal Income Tax purposes,
income from all investments and reinvestment of all
Escrow Funds
<PAGE> 29
Daniels & Daniels
September 6, 1996
Page 2
shall be recognized by the parties in
proportion to the amount of distribution of such
income.
(d) Disbursement of Escrow Funds: The Escrow Funds shall
be distributed to the Shareholder or the Buyer, as the case may be, as follows:
(i) upon joint written instruction from Buyer
and Shareholder;
(ii) to Shareholder, in 5 equal annual
installments of $50,000 along with all related
interest, commencing on the first anniversary of this
Agreement, provided that no Section 8 Claim has been
made with respect to such Escrow Funds and related
interest and remains unresolved; or
(iii) to Buyer, with respect to any Section 8
Claim, provided that the Buyer has delivered to the
Escrow Agent notification (the "Distribution
Request") as to the basis for such Claim, which
request shall specify the amount of the Section 8
Claim and the basis upon which such Claim is made. A
copy of the Distribution Request shall be
simultaneously delivered to the Escrow Agent, the
Sellers and the Shareholder. Within thirty (30) days
after such notice is given by the Buyer, either of
the Sellers or the Shareholder shall have the right
to file with the Escrow Agent written notice that
they intend to contest the Buyer's claim. If,
within such thirty (30) day period, the Escrow Agent
does not receive such notice from the Sellers or
Shareholder or receives notice from the Sellers or
Shareholder that such claim is uncontested, the
Escrow Agent shall deliver to the Buyer the specified
Distribution request.
If, however, within such thirty (30) day period, the
Escrow Agent shall receive notice the Sellers or
Shareholder of their intention to contest Buyer's
claim with respect to part or all of the Escrow
funds, then the Escrow Agent shall promptly give
Buyer a copy of such notice and continue to hold the
Escrow funds that are claimed by Buyer in its notice,
until the earlier of (a) Receipt of written notice
from the Sellers and Shareholder consenting to the
release to Buyer of such Escrow funds originally
claimed by Buyer; or (b) Receipt of a written final
decision of the Mediator chosen in accordance with
the provisions as stated in this Escrow Agreement
subject to the parties agreement to abide by the
decision of the Mediator; or (c) Receipt of a
certified copy of a final judgment, unappealed or
unappealable, of a court of competent jurisdiction,
or of the agreement of Sellers and Shareholder and
Buyer, that Buyer or Sellers or Shareholder are
entitled to all or part of the Escrow Funds.
2. The undersigned represent to you that the execution, delivery and
performance of this Agreement has been duly authorized, and does not violate or
conflict with any statute, regulation, order, judgment or writ that is binding
upon the representing party or any of its assets.
3. Unless sooner terminated pursuant to the terms of this Agreement,
this Agreement shall terminate and your responsibilities under this Agreement
shall cease upon distribution of the Escrow Funds and all related income as
provided for in Section 1.
4. To induce you to act as Escrow Agent hereunder, the undersigned
agree as follows:
(a) Except as otherwise provided in this Agreement, you
shall not in any way be bound or affected by any
notice or modification or cancellation of this
Agreement unless in writing, signed by the parties
indicated herein, nor shall you be bound by any
modification hereof unless the same shall be
satisfactory to you. You shall be entitled to rely
upon any judgment, certification, demand or other
writing without being required to determine the
authenticity or the
<PAGE> 30
Daniels & Daniels
September 6, 1996
Page 3
correctness of any fact stated therein, the propriety
or validity of the service thereof, or the
justification of the court issuing such judgment or
order in the premises.
(b) Any party to this Agreement may give the Escrow Agent
a notice requesting the Escrow Agent to make any
delivery or take any action with respect to the
Escrow Funds. If the notice describing any such
request is executed by all of the parties, the Escrow
Agent shall promptly comply with the request. If the
notice is given less than all of the parties, the
Escrow Agent shall promptly forward a copy of such
notice to the party(ies) that did not sign it.
Thereafter, the Escrow Agent shall refrain from
taking any action with respect to such request for
the lesser of 5 business days, or until the other
party(ies) authorizes the Escrow Agent in writing to
comply with such request. If the other party(ies)
fails to deliver written notice of objection to the
Escrow Agent within such 5-day period, the Escrow
Agent shall be fully protected in complying with such
request. This Section (b) is subject to the
provisions set forth in Section 1 (d) above.
(c) The Escrow Agent shall not in any way be bound or
affected by any notice or modification or
cancellation of this Agreement unless in writing,
signed by all parties hereto, nor shall the Escrow
Agent be bound by any modification hereof unless the
same shall be satisfactory to the Escrow Agent. The
Escrow Agent shall be entitled to rely upon any
judgment, certification, demand or other writing
(including but not limited to any instructions given
to it under (b), above) without being required to
determine the authenticity or the correctness of any
fact stated therein, the propriety of validity of the
service thereof, or the jurisdiction of the court
issuing such judgment or order.
(d) 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.
(e) 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 retained by
it, and the Escrow Agent shall not be liable for any
action taken, suffered or omitted by it in accordance
with the advice (whether written or oral) of such
counsel.
(f) This Agreement sets forth exclusively the Escrow
Agent's duties with respect to any and all matters
pertinent hereto. The Escrow Agent shall not be
bound by, the provisions of any other agreement.
(g) 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 further
obligations of Escrow Agent hereunder shall cease and
terminate. The Escrow Agent's sole responsibility
thereafter shall be to keep safely all property then
held by it and to deliver same to a person designated
by all parties hereto or in accordance with the
directions of a final order or judgment of a court of
<PAGE> 31
Daniels & Daniels
September 6, 1996
Page 4
competent jurisdiction. In addition, the Escrow
Agent shall be discharged from any further duties and
obligations hereunder upon its filing an impleader or
other appropriate proceeding in a court of competent
jurisdiction and depositing in such court all of the
funds and property then held by it hereunder. All
parties hereto hereby submit to the personal
jurisdiction of said court (but solely for the
purpose of implementing this Agreement) and waive all
rights to contest said jurisdiction.
(h) Each of the parties to this Agreement shall be
jointly and severally obligated to pay the Escrow
Agent its fees, and reimburse all of its costs and
expenses in connection herewith, including reasonable
counsel fees for counsel retained by the Escrow Agent
(even though the Escrow Agent is a practicing
attorney) and to indemnify it and hold it harmless
against any claim asserted against it or any
liability, loss or damage incurred by it in
connection herewith.
(i) 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.
(j) Each of the parties acknowledge that the Escrow Agent
is counsel of the Sellers and Shareholder, and agrees
that no action taken by the Escrow Agent under this
Agreement shall affect or impair the right of the
Escrow Agent to represent the Sellers and Shareholder
in any matter, including an interpleader action
pursuant to this Agreement.
5. This Agreement shall be binding on and inure to the benefit of the
respective parties hereto and their successors and assigns. This Agreement may
be executed in counterparts, each of which shall be deemed an original, but
both of which together shall constitute one and the same instrument. This
Agreement represents the entire understanding of the parties hereto, and
supersedes any and all other prior agreements between the parties relating to
the subject matter of this agreement. The terms and provisions of this
Agreement cannot be terminated or modified or amended except in writing and
signed by the party against whom enforcement is sought. This Agreement shall
be governed by and construed in accordance with the laws of the State of Texas,
and any suit, action or proceeding arising out of or relating to this Agreement
shall be commenced and maintained in the District Court of Bexar County, Texas
or the appropriate United States District Court for the State of Texas and each
party waives objection to such jurisdiction and venue. The provisions of this
Agreement are severable, and any invalidity, unenforceability or illegality in
any provision or provisions hereof shall not affect the remaining provisions of
this Agreement. As between the parties other than the Escrow Agent, 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. Mediation. If any notice given by any party under Section
1.(d)(iii) in this Escrow Agreement shall contain any demand for Mediation, the
parties hereto agree that the parties will submit to non-binding mediation.
Unless the parties agree on some other mediation forum, the parties will use
the Bexar County Presuit Mediation Service or the Bexar County Dispute
Resolution Center. Upon any party giving notice of a demand for mediation,
both parties must make themselves available for mediation within thirty (30)
days of that notice. All mediation fees shall be split equally between the
parties to the mediation.
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 specified in the Asset Purchase Agreement.
<PAGE> 32
Daniels & Daniels
September 6, 1996
Page 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
In the Presence of: EDUCATIONAL MEDICAL, INC.
- ----------------------------------
By:
- ---------------------------------- -----------------------------------
Authorized Signatory
SACMD ACQUISITION CORP.
- ----------------------------------
By:
- ---------------------------------- -----------------------------------
Authorized Signatory
SAN ANTONIO COLLEGE OF MEDICAL AND
DENTAL ASSISTANTS, INC.
- ----------------------------------
By:
- ---------------------------------- -----------------------------------
Authorized Signatory
CAREER CENTERS OF TEXAS - EL PASO, INC.
- ----------------------------------
By:
- ---------------------------------- -----------------------------------
Authorized Signatory
- ---------------------------------- --------------------------------------
COMER ALDEN
- ----------------------------------
<PAGE> 33
Daniels & Daniels
September 6, 1996
Page 6
ACCEPTANCE OF ESCROW AGENT
Daniels & Daniels acknowledges receipt of the foregoing
Agreement and agrees to act as Escrow Agent under its terms.
By:
------------------------------------
<PAGE> 34
EXHIBIT 2
NON-NEGOTIABLE
SECOND PAYMENT PROMISSORY NOTE
U.S. $1,150,000.00 ____________________
_______________, 1996
FOR VALUE RECEIVED, each of the undersigned, jointly and severally,
(each individually called a "Maker" and collectively called the "Makers")
hereby unconditionally promises to pay jointly to the order of SAN ANTONIO
COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC. and CAREER CENTERS OF TEXAS - EL
PASO, INC. (hereinafter referred to jointly as "Sellers"), or assigns
("Holder") at __________________________________________________, or at such
other place or to such other party as Holder may from time to time designate in
writing, the principal sum of One Million One Hundred Fifty Thousand and 00/100
Dollars (U.S. $1,150,000.00) in lawful currency of the United States.
This Note evidences a payment to be made to the Holder pursuant to the
Asset Purchase Agreement among Educational Medical, Inc., SACMD Acquisition
Corp., Sellers, and the Shareholder of Sellers dated the date of this
Promissory Note, and providing for the purchase by SACMD Acquisition Corp. of
substantially all of the Assets of Sellers (the "Agreement"). The terms of the
Agreement are incorporated into this Note, and this Note is the Second Payment
Promissory Note referred to in the Agreement representing a portion of the
purchase price of Assets as defined in the Agreement.
The principal amount of this Note will be due (1) as provided in
Section 1(e)(1) of the Agreement, (2) within 5 days following notice to the
Maker from the Holder that a payment of principal or interest has not been made
in accordance with the terms of this Note, which notice specifically declares
the entire amount owed to Holder and provided for in this Note immediately due
and payable, or (3) the first anniversary of this Note, (the earlier of the
dates referred to in the preceding three clauses is called the "Maturity
Date"). All amounts owing pursuant to this Note and not paid upon the Maturity
Date shall bear interest at the highest rate of interest permitted by law until
paid.
Maker for itself, its heirs, legal representatives, successors and
assigns, waives presentment for payment, demand, notice of dishonor or
non-payment, notice of default, notice of protest, and protest of this Note,
and waives any right to be released by reason of any extension of time or
change in terms of payment or any change, alteration or release of any security
given for the payment hereof. Maker hereby consents to any number of
extensions of time, and any and all renewals, waivers, and modifications of
this Note or any combination of the foregoing that may be made or granted by
Holder.
Maker agrees to pay immediately upon demand all reasonable costs and
expenses of Holder, including attorneys' fees, (i) if after default this Note
be placed in the hands of an attorney or attorneys for collection, or (ii) if
Holder finds it necessary or desirable upon default to secure the services or
advice of one or more attorneys with regard to collection of this Note against
Maker, or for the protection of its rights under this Note, or any instrument
relating to property securing the Note. The term "attorneys' fees" shall
include attorneys' fees incurred by Holder whether or not suit is brought and
if suit is brought, the term shall include attorneys' fees at trial and on
appeal, and shall include attorneys' fees incurred in connection with
consultations, arbitration, bankruptcy, conservatorship, receivership or any
other proceeding.
This Note shall be interpreted, construed, governed and enforced in
accordance with the laws of the State of Texas, and any suit, action or
proceeding arising out of or relating to this Note shall be
<PAGE> 35
commenced and maintained in the District Court of Bexar County, Texas or the
appropriate United States District Court for the State of Texas and each party
waives objection to such jurisdiction and venue.
EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER IT OR ITS SUCCESSORS, PERSONAL
REPRESENTATIVES OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THE
LOAN EVIDENCED BY THIS NOTE AND ANY AGREEMENTS CONTEMPLATED THEREBY TO BE
EXECUTED IN CONJUNCTION THEREWITH, OR IN CONJUNCTION WITH ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF THE PARTIES.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note in _________________________, the date first above written.
EDUCATIONAL MEDICAL, INC.
By:________________________________________________
Authorized Signatory
SACMD ACQUISITION CORP.
By:________________________________________________
Authorized Signatory
-2-
<PAGE> 36
EXHIBIT 3
NON-NEGOTIABLE
PURCHASE MONEY PROMISSORY NOTE
U.S. $1,250,000.00 _____________________
_______________, 1996
FOR VALUE RECEIVED, each of the undersigned, jointly and severally,
(each individually called a "Maker" and collectively called the "Makers")
hereby unconditionally promises to pay jointly to the order of SAN ANTONIO
COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC. and CAREER CENTERS OF TEXAS - EL
PASO, INC. (hereinafter referred to jointly as "Sellers"), or assigns
("Holder") at ______________________________________________________, or at
such other place or to such other party as Holder may from time to time
designate in writing, the principal sum of One Million Two Hundred Fifty
Thousand and 00/100 Dollars (U.S. $1,250,000.00) in lawful currency of the
United States.
This Note evidences obligations of the Makers to the Holder provided
for in to the Asset Purchase Agreement among Educational Medical, Inc., SACMD
Acquisition Corp., Sellers, and the Shareholder of Sellers dated the date of
this Promissory Note, and providing for the purchase by SACMD Acquisition Corp.
of substantially all of the Assets of Sellers (the "Agreement"). The terms of
the Agreement are incorporated into this Note, and this Note is the Purchase
Money Promissory Note referred to in the Agreement representing a portion of
the purchase price of Assets as defined in the Agreement.
This Note shall bear interest at the rate of eight percent (8%) per
annum and amortize in five equal principal payments of Two Hundred Fifty
Thousand and 00/100 Dollars ($U.S. $250,000.00) payable on the ____ day of
__________ commencing _________, 1997, together with all accrued interest.
All amounts represented by this Note shall be due and payable (1)
within 15 days following notice to the Maker from the Holder that a payment of
principal or interest has not been made in accordance with the terms of this
Note1/, which notice specifically declares the entire amount owed to Holder and
provided for in this Note immediately due and payable, (2) _________________,
2001 (the earlier of the dates referred to in the preceding two clauses is
called the "Maturity Date"). All amounts owing pursuant to this Note and not
paid upon the Maturity Date shall bear interest at the highest rate of interest
permitted by law until paid.
Maker for itself, its heirs, legal representatives, successors and
assigns, waives presentment for payment, demand, notice of dishonor or
non-payment, notice of default, notice of protest, and protest of this Note,
and waives any right to be released by reason of any extension of time or
change in terms of payment or any change, alteration or release of any security
given for the payment hereof. Maker hereby consents to any number of
extensions of time, and any and all renewals, waivers, and modifications of
this Note or any combination of the foregoing that may be made or granted by
Holder.
____________________
1/ In the event of a dispute as to the payment of such amounts, the relevant
payment may be made into the registry of any court of competent jurisdiction
subject to the resolution of such dispute or, at the discretion of the Buyer
(as defined in the Agreement) into the escrow account of counsel for the
Holder.
<PAGE> 37
Maker agrees to pay immediately upon demand all reasonable costs and
expenses of Holder, including attorneys' fees, (i) if after default this Note
be placed in the hands of an attorney or attorneys for collection, or (ii) if
Holder finds it necessary or desirable upon default to secure the services or
advice of one or more attorneys with regard to collection of this Note against
Maker, or for the protection of its rights under this Note, or any instrument
relating to property securing the Note. The term "attorneys' fees" shall
include attorneys' fees incurred by Holder whether or not suit is brought and
if suit is brought, the term shall include attorneys' fees at trial and on
appeal, and shall include attorneys' fees incurred in connection with
consultations, arbitration, bankruptcy, conservatorship, receivership or any
other proceeding.
This Note shall be interpreted, construed, governed and enforced in
accordance with the laws of the State of Texas, and any suit, action or
proceeding arising out of or relating to this Note shall be commenced and
maintained in the District Court of Bexar County, Texas or the appropriate
United States District Court for the State of Texas and each party waives
objection to such jurisdiction and venue.
EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER IT OR ITS SUCCESSORS, PERSONAL
REPRESENTATIVES OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE
LOAN EVIDENCED BY THIS NOTE AND ANY AGREEMENTS CONTEMPLATED THEREBY TO BE
EXECUTED IN CONJUNCTION THEREWITH, OR IN CONJUNCTION WITH ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF THE PARTIES.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note in _____________, _______________, the date first above written.
EDUCATIONAL MEDICAL, INC.
By:
-------------------------------
Authorized Signatory
SACMD ACQUISITION CORP.
By:
-------------------------------
Authorized Signatory
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<PAGE> 38
EXHIBIT 4
PLEDGE AGREEMENT
AGREEMENT, dated as of ____________________, 1996 among EDUCATIONAL
MEDICAL, INC., a Delaware corporation (the "Pledgor"), SAN ANTONIO COLLEGE OF
MEDICAL AND DENTAL ASSISTANTS, INC., a __________________ corporation and CAREER
CENTERS OF TEXAS - EL PASO, INC., a ________________ corporation (hereinafter
referred to jointly as the "Pledgees") and SACMD ACQUISITION CORP., a Delaware
corporation (the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common
stock, par value $.10 per share (the "Pledged Securities"), of the Issuer.
The Issuer and the Pledgor have jointly and severally executed and
delivered to Pledgees (i) their Promissory Note in the principal amount of
$1,150,000.00 (the "Second Payment Note"), a copy of which is attached as
Exhibit 1 to this Pledge Agreement. The Second Payment Note was issued
pursuant to an asset purchase agreement (the "Asset Purchase Agreement")
entered into among the Pledgor, Pledgees, the Issuer and the Shareholder of the
Pledgees and dated _____________, 1996. The Pledgor's obligations with respect
to the payment of the Second Payment Note are called the "Secured Obligations"
and are to be secured by the Pledged Collateral, as defined in Section 1.
In consideration of the premises and of the mutual covenants herein
contained, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Pledge. As security for the due and punctual payment and
performance of the payment of the Secured Obligations, and this Agreement, the
Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and
delivers unto the Pledgees, and hereby grants to the Pledgees a security
interest in, the following:
(a) the Pledged Securities and the certificates
representing the Pledged Securities, and all cash, proceeds, securities,
dividends and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Securities; and
(b) all securities hereafter delivered or issued in
substitution for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such securities, together with the
interest coupons (if any) attached thereto, and all cash, proceeds, securities,
interest, dividends and other property at any time and from time to time
received or otherwise distributed in respect of or in exchange for any or all
thereof (all such Pledged Securities, certificates, interest coupons, cash,
proceeds, securities, interest, dividends and other property being herein
collectively called the "Pledged Collateral");
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Pledgees, their successors and assigns, forever, subject,
however to the terms, covenants and conditions hereinafter set forth.
<PAGE> 39
2. Transfer to Escrow Agent. The original certificates representing
all Pledged Collateral shall be held on behalf of Pledgees by
___________________________________________________ (the "Escrow Agent"). The
Pledgor shall deliver to the Escrow Agent all original certificates
representing the Pledged Collateral issued in the name of the Pledgor, endorsed
or assigned in blank in favor of the Pledgees. The Pledgees may, upon request
to the Escrow Agent and delivery by the Escrow Agent of the appropriate Pledged
Collateral to the Issuer, exchange the certificates representing the Pledged
Collateral for certificates of smaller or larger denominations for any purpose
consistent with the terms of this Pledge Agreement.
3. Voting Rights; Dividends. So long as there is no failure to make
due and punctual payment to the Pledgees in accordance with the terms of the
Secured Obligations nor any other continuing event which would constitute an
event of default under this Agreement (an "Event of Default"):
(a) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to the
Pledged Collateral or any part thereof.
(b) The Pledgor shall be entitled to receive and retain
any and all ordinary cash dividends and interest payable on the Pledged
Collateral, but any and all stock and/or liquidating dividends, distributions
in property, returns of capital or other distributions made on or in respect of
the Pledged Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of an Issuer or received in
exchange for Pledged Collateral or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which the
Issuer may be a party or otherwise, and any and all cash and other property
received in payment of the principal of or in redemption of or in exchange for
any Pledged Collateral (either at maturity, upon call for redemption or
otherwise), shall be and become part of the collateral pledged by the Pledgor
hereunder and, if received by the Pledgor, shall be received in trust for the
benefit of the Pledgees or their assigns or the holder of any subsequent
perfected lien and shall forthwith be delivered to the Escrow Agent
(accompanied by proper instruments of assignment and/or stock and/or bond
powers executed by the Pledgor in accordance with the Pledgees' instructions)
to be held as Pledged Collateral subject to the terms of this Pledge Agreement.
(c) The Pledgees shall execute and deliver (or cause to
be executed and delivered) to the Pledgor all such proxies, powers of attorney,
dividend orders, interest coupons and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
subparagraph (a) above and/or to receive the dividends and/or interest payments
which it is authorized to receive and retain pursuant to subparagraph (b)
above.
(d) Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
Section 3(a) hereof and/or to receive the dividends and interest payments which
it is authorized to receive and retain pursuant to Section 3(b) hereof shall
cease, and all such rights shall thereupon become vested in the Pledgees who
shall have the sole and exclusive right and authority to exercise such voting
and/or consensual rights and powers and/or to receive and retain the dividends
and/or interest payments which the Pledgor would otherwise be authorized to
retain pursuant to Section 3(b) hereof. Any and all money and other property
paid over to or received by the Pledgees pursuant to the provisions of this
Section 3 or pursuant to the exercise by Pledgees of the voting and/or
consensual rights and powers shall be retained by the Pledgees as additional
collateral hereunder and be applied in accordance with the provisions of this
Pledge Agreement.
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<PAGE> 40
4. Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default:
(a) the Pledgor and the Issuer shall default in making any
payment with respect to the Secured Obligations; or
(b) if either the Pledgor or the Issuer become bankrupt or
insolvent, or file any petition for reorganization or relief from creditors
under any applicable law of any jurisdiction, or make any general assignment
for the benefit of creditors, and in any event; and
(c) except as provided for in subsection (c), if such default
or event shall continue for 10 days after the giving of written notice to the
Pledgees.
5. Remedies upon Default. If any Event of Default shall have occurred
and be continuing, then, in addition to exercising any rights and remedies as a
secured party under the Uniform Commercial Code in effect in __________, the
Pledgees may without being required to give any notice to the Pledgor:
(a) apply the cash (if any) then held by it as collateral
hereunder, first, to the payment of all costs of collection (including
attorneys' fees) incurred in enforcing Pledgees' rights under the Secured
Obligations and this Agreement; second to the payment of interest accrued and
unpaid on the Second Payment Note to and including the date of such
application, third to the payment or prepayment of principal of the Second
Payment Note; and fourth all other amounts then due with respect to other
Secured Obligations and then otherwise pursuant to this Pledge Agreement, and
(b) sell the Pledged Collateral, or any part thereof, at any
public or private sale or at any broker's board or in any securities exchange,
for cash, upon credit or for future delivery, as the Pledgees shall deem
appropriate. The Pledgees shall be authorized at any such sale (if they deem
it advisable to do so) to restrict the prospective bidders or purchasers to
persons who will represent and agree that they are purchasing the Pledged
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Pledgees shall have the right to assign, transfer and deliver to the purchaser
or purchasers thereof the Pledged Collateral so sold, free and clear from any
claims or rights of Pledgor. Further, it shall be deemed commercially
reasonable for the Pledgees to impose sufficient conditions on any such sale so
as to preclude the necessity of registration of the Pledged Collateral under
the Securities Act of 1933, as amended. Each such purchaser at any such sale
shall hold the property sold absolutely, free from any claim or right on the
part of the Pledgor, and the Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay and/or appraisal which it now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Pledgees shall give the Pledgor and the holder of any
subsequent perfected lien at least 30 days' written notice in the manner
specified for notices under this Agreement of the Pledgees' intention to make
any such public or private sale or sales at any broker's board or on any such
securities exchange, and the Pledgor agrees that such notice of sale will be
commercially reasonable notice to it. Such notice, in case of public sale,
shall state the time and place fixed for such sale, and, in the case of sale at
a broker's board or exchange at which such sale is to be made, the day on which
the Pledged Collateral, or portion thereof, will first be offered for sale at
such board or exchange. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places, as the
Pledgees may fix in the notice of such sale. At any such sale, the Pledged
Collateral, or portion thereof, to be sold may be sold in one lot as an
entirety or in separate parcels, as the Pledgees may (in their sole and
absolute discretion) determine and the Pledgees or other holder of the Secured
Obligations may bid (which bid may be in whole or in part,
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<PAGE> 41
in the form of cancellation of indebtedness) for and purchase for the account
of the Pledgees or other holder of any Secured Obligation the whole or any part
of the Pledged Collateral. If the proceeds of the Pledged Collateral are
insufficient to satisfy Pledgor's obligations under the Second Payment Note and
then otherwise pursuant to this Agreement, Pledgor shall remain liable for any
deficiency. The Pledgees shall not be obligated to make any sale of Pledged
Collateral if they shall determine not to do so, regardless of the fact that
notice of sale of Pledged Collateral may have been given. The Pledgees may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case sale of all or any part
of the Pledged Collateral is made on credit or for future delivery, the Pledged
Collateral so sold may be retained by the Pledgees until the sale price is paid
by the purchaser or purchasers thereof, but neither the Pledgees nor any other
holder of the Secured Obligations or the assignee of any of the Pledgees'
rights, shall incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Pledged Collateral so sold and, in the
case of such failure, such Pledged Collateral may be sold again upon like
notice. As an alternative to exercising the power of sale herein conferred
upon it, the Pledgees may proceed by a suit or suits at law or in equity to
foreclose this Pledge Agreement and to sell the Pledged Collateral, or any
portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction.
6. Application of Proceeds of Sale. The proceeds of sale of Pledged
Collateral sold pursuant to Section 5 (c) hereof shall be applied by the
Pledgees as follows:
First: in the manner provided in paragraph (a) of Section 5
hereof; and
Second: the balance (if any) of such proceeds shall be paid to the
holder of any subsequent perfected lien and then the Pledgor, its successors or
assigns in proportion to their ownership of the Pledged Collateral, or as a
court of competent jurisdiction may direct.
7. Extension or Modification of the Second Payment. The Pledged
Collateral pledged hereunder secures the payment and performance of all of the
indebtedness of the Pledgor with respect to the Secured Obligations and the
Pledgor agrees that the Second Payment Note may be extended or otherwise
modified in accordance with its terms without affecting this Pledge Agreement
or the obligations of Pledgor hereunder, which shall continue in full force and
effect until the Secured Obligations shall have been fully paid and performed.
8. Authority of Pledgees. The Pledgees shall have and be entitled to
exercise all such powers hereunder as are specifically delegated to the
Pledgees by the terms hereof, together with such powers as are reasonably
incidental thereto. The Pledgees may execute any of their duties hereunder by
or through agents or employees and shall be entitled to retain counsel and to
act in reliance upon the advice of such counsel (whether written or oral)
concerning all matters pertaining to their duties hereunder. Neither the
Pledgees, nor any director, officer or employee of the Pledgees, shall be
liable for any action taken or omitted to be taken by it or them hereunder in
connection herewith, except for its or their own gross negligence or willful
misconduct. The Pledgor hereby agrees to reimburse the Pledgees, on demand,
for all expenses incurred by the Pledgees in connection with the administration
and enforcement of this Pledge Agreement (including expenses incurred by the
Escrow Agent or any subagent employed by the Pledgees) and agrees to indemnify
and hold harmless the Pledgees and/or any such subagent against any and all
liability incurred by the Pledgees (or such subagent hereunder or in connection
herewith), unless such liability shall be due to willful misconduct or gross
negligence on the part of the Pledgees or such subagent.
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<PAGE> 42
9. Pledgees Appointed Attorney in Fact. The Pledgor hereby appoints
the Pledgees the Pledgor's attorney-in- fact for the purpose of carrying out
the provisions of this Pledge Agreement and, upon the occurrence of any Event
of Default, taking any action and executing any instrument which the Pledgees
may deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, upon an Event of Default, the Pledgees shall have
the right and power to receive, endorse and collect all checks and other orders
for the payment of money made payable to the Pledgor representing any dividend,
interest payment or other distribution payable or distributable in respect of
the Pledged Collateral or any part thereof and to settle or compromise any
claims relating thereto and to give full discharge for the same.
10. Representations and Warranties of Pledgor. To induce Pledgees to
enter into the transactions provided for in the Asset Purchase Agreement and to
accept the Second Payment Note, Pledgor represents and warrants to Pledgees,
and covenants with Pledgees that:
(a) it owns the Pledged Securities and by the execution and
delivery of this Agreement and delivery of the Pledged Collateral it has
created is a first priority lien granted in favor of the Pledgees with respect
to such Pledged Collateral; and
(b) this Agreement is the valid and binding obligation of
Pledgor, enforceable in accordance with its terms.
11. No Waiver; Cumulative Remedies. No failure on the part of the
Pledgees to exercise, and no delay in exercising any right, power, privilege or
remedy hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power, privilege or remedy of the Pledgees
preclude any other or further exercise thereof or the exercise of any other
right, power, privilege or remedy. All remedies hereunder are cumulative and
are not exclusive of any other remedies provided herein or by law.
12. Termination. This Pledge Agreement shall terminate when the
Secured Obligations have been fully paid and performed, at which time the
Pledgees shall reassign and redeliver (or cause to be reassigned and
redelivered) to the Pledgor, or to such person or persons as the Pledgor shall
designate, such of the Pledged Collateral (if any) as shall not have been sold
or otherwise applied by the Pledgees pursuant to the terms hereof and shall
still be held hereunder, together with appropriate instruments of reassignment
and release. Any such reassignment shall be without recourse against or
express or implied representation or warranty by the Pledgees and at the
expense of the Pledgor.
13. Assignability. The Pledgees may assign, in whole or in part, any
or all of their rights, title and interests provided for in this Pledge
Agreement, to any holder of the Secured Obligations or portion thereof.
14. Terms Relating to Escrow Agent.
(a) ______________________ shall initially act as Escrow
Agent under this Agreement. The Escrow Agent shall acknowledge its receipt of
the original certificate(s) representing the Pledged Securities by executing
this Agreement. Pledgor shall also deliver to the Escrow Agent any and all
original certificates, funds or documents as may hereafter become part of the
Pledged Collateral. The possession of the original certificates and other
documents relating to the Pledged Collateral shall be
-5-
<PAGE> 43
deemed to constitute the Pledgees' possession thereof in order to perfect
Pledgees' security interest in the Pledged Collateral.
(b) The Escrow Agent shall hold all certificates, funds
and documents representing the Pledged Collateral (collectively, the
"Instruments") subject to the following terms and conditions:
(i) If the Pledgees at any time instruct the Escrow Agent
to exchange any certificates representing any securities included in
the Pledged Collateral to change the denominations of such
certificates, the Escrow Agent shall comply with such request promptly
by so exchanging certificates directly with the Issuer. The Escrow
Agent shall give Pledgor and the holder of any subsequent perfected
lien notice of any such action within 10 days after it is completed.
(ii) Either Pledgor or Pledgees may give the Escrow Agent
a notice requesting the Escrow Agent to make any delivery or take any
action with respect to any Instruments that is proposed to be taken
pursuant to this Agreement. If the notice describing any such request
is executed by both the Pledgor and the Pledgees, the Escrow Agent
shall promptly comply with the request.
If the notice is given by Pledgor or Pledgees, and is not signed by
both, the Escrow Agent shall promptly forward a copy of such notice to the
party that did not sign it. Thereafter, the Escrow Agent shall refrain from
taking any action with respect to such request for at least 5 business days, or
until the other party authorizes the Escrow Agent in writing to comply with
such request. If the other party fails to deliver written notice of objection
to the Escrow Agent within such 5-day period, the Escrow Agent shall be fully
protected in complying with such request.
(c) In order to induce the Escrow Agent to act under this
Agreement, the Pledgor and the Pledgees jointly and severally agree as follows:
(i) The Escrow Agent shall not in any way be bound or
affected by any notice or modification or cancellation of this
Agreement unless in writing, signed by all parties hereto, nor shall
the Escrow Agent be bound by any modification hereof unless the same
shall be satisfactory to the Escrow Agent. The Escrow Agent shall be
entitled to rely upon any judgment, certification, demand or other
writing (including but not limited to any instructions given to it
under (b), above) without being required to determine the authenticity
or the correctness of any fact stated therein, the propriety of
validity of the service thereof, or the jurisdiction of the court
issuing such judgment or order.
(ii) The Escrow Agent may act in reliance upon any
document, instrument or signature believed by it to be genuine, and
the Escrow Agent may assume that any person purporting to give any
notice or instructions in accordance with the provisions hereof has
been duly authorized to do so.
(iii) The Escrow Agent may act in reliance upon advice of
counsel in reference to any matter(s) in connection herewith, and
shall not be liable for any mistake of fact or error of judgment, or
for any acts or omissions of any kind, unless caused by the Escrow
Agent's willful misconduct or gross negligence. The Escrow Agent
shall be entitled to consult with its counsel, which shall include any
attorney retained by it, and the Escrow Agent shall not be liable for
any
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<PAGE> 44
action taken, suffered or omitted by it in accordance with the advice
(whether written or oral) of such counsel.
(iv) This Agreement sets forth exclusively the Escrow
Agent's duties with respect to any and all matters pertinent hereto.
The Escrow Agent shall not be bound by, the provisions of any other
agreement.
(v) The Escrow Agent may at any time resign hereunder by
giving written notice of its resignation to all parties hereto at
least thirty (30) days prior to the date specified for such
resignation to take effect, and upon the effective date of such
resignation, all cash, documents and all other property then held by
the Escrow Agent hereunder shall be delivered by it to such persons as
may be designated in writing by all parties hereto, whereupon all
further obligations of Escrow Agent hereunder shall cease and
terminate. The Escrow Agent's sole responsibility thereafter shall be
to keep safely all property then held by it and to deliver same to a
person designated by all parties hereto or in accordance with the
directions of a final order or judgment of a court of competent
jurisdiction. In addition, the Escrow Agent shall be discharged from
any further duties and obligations hereunder upon its filing an
impleader or other appropriate proceeding in a court of competent
jurisdiction and depositing in such court all of the funds and
property then held by it hereunder. All parties hereto hereby submit
to the personal jurisdiction of said court (but solely for the purpose
of implementing this Agreement) and waive all rights to contest said
jurisdiction.
(vi) Pledgor and Pledgees shall be jointly and severally
obligated to pay the Escrow Agent its fees, and reimburse all of its
costs and expenses in connection herewith, including reasonable
counsel fees for counsel retained by the Escrow Agent (even though the
Escrow Agent is a practicing attorney) and to indemnify it and hold it
harmless against any claim asserted against it or any liability, loss
or damage incurred by it in connection herewith. The Escrow Agent may
apply to a court of competent jurisdiction for payment of its fees and
expenses from the Pledged Collateral and such claim shall have
priority over the rights of the undersigned with respect to any
payment to be made pursuant to this Agreement. In that connection the
Escrow Agent may sell all or any part of the Pledged Collateral to
satisfy such obligations as if they were Secured Obligations as
defined in this agreement.
(vii) Nothing herein contained shall be deemed to obligate
the Escrow Agent to deliver any securities, cash, instruments,
documents or any other property referred to herein, unless the same
shall have first been received by the Escrow Agent pursuant to this
Agreement.
(vii) Pledgor acknowledges that the Escrow Agent is counsel
of the Pledgees, and agrees that no action taken by the Escrow Agent
under this Agreement shall affect or impair the right of the Escrow
Agent to represent the Pledgees in any matter, including an impleader
action pursuant to this Agreement.
15. Miscellaneous. This Agreement shall be binding on and inure to
the benefit of the respective parties hereto and their successors and assigns.
This Agreement may be executed in counterparts, each of which shall be deemed
an original, but both of which together shall constitute one and the same
instrument. This Agreement represents the entire understanding of the parties
hereto, and supersedes any and all other prior agreements between the parties
relating to the subject matter of this Agreement. The terms and provisions of
this Agreement cannot be terminated or modified or amended except in writing
and signed by the party against whom enforcement is sought.
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<PAGE> 45
This Agreement shall be governed by and construed in accordance with the laws
of the State of Texas, and any suit, action or proceeding arising out of or
relating to this Agreement shall be commenced and maintained in the District
Court of Bexar County, Texas or the appropriate United States District Court
for the State of Texas and each party waives objection to such jurisdiction and
venue. The provisions of this Agreement are severable, and any invalidity,
unenforceability or illegality in any provision or provisions hereof shall not
affect the remaining provisions of this Agreement. As between Pledgor and
Pledgees, in any suit, action or proceeding arising out of or in connection
with this Agreement, the prevailing party shall be entitled to an award of the
amount of attorneys' fees and disbursements actually billed to such party in
connection herewith, including fees and disbursements on one or more appeals.
All notices required or allowed hereunder shall be in writing and
shall be deemed given upon (i) hand delivery or (ii) deposit of same in the
United States Certified Mail, Return Receipt Requested, first class postage and
certification fees prepaid and correctly addressed to the party for whom
intended at their address written in the first paragraph hereof, or such other
address as is most recently noticed for such party as aforesaid.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
In the Presence of: EDUCATIONAL MEDICAL, INC.
___________________________
___________________________ By:
________________________________
Authorized Signatory
SACMD ACQUISITION CORP.
___________________________
___________________________
By: ________________________________
Authorized Signatory
SAN ANTONIO COLLEGE OF MEDICAL AND
DENTAL ASSISTANTS, INC.
___________________________
___________________________ By:
__________________________________
Authorized Signatory
CAREER CENTERS OF TEXAS - EL PASO, INC.
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<PAGE> 46
___________________________
___________________________
By:__________________________________
Authorized Signatory
ACCEPTANCE OF ESCROW AGENT
________________________ acknowledges receipt of the foregoing
Agreement and agrees to act as Escrow Agent under its terms.
By: _________________________________
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<PAGE> 47
EXHIBIT 25
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT made as of ___________________, 1996 between SAN
ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC., a _________________
corporation and CAREER CENTERS OF TEXAS - EL PASO, INC., a _________________
corporation (hereinafter referred to jointly as the "Sellers") with a
registered office at _________________________________________ and SACMD
ACQUISITION CORP., a Delaware corporation, the registered office of which is
located at 1327 Northmeadow Parkway, Suite 132, Roswell, Georgia 30076
("Buyer").
Preliminary Statement
Buyer, Educational Medical, Inc., which is the parent corporation of
the Buyer, Sellers and Sellers' shareholder, have entered into an Agreement
dated as of ____________, 1996 (the "Asset Purchase Agreement") pursuant to
which, among other things, Buyer has agreed to assume certain stated
liabilities and obligations of Sellers relating to the operation of its
Schools. All of the capitalized terms in this Assumption Agreement shall have
the meaning given to them in the Asset Purchase Agreement unless the context
clearly demands otherwise.
NOW THEREFORE, in consideration of the agreements set forth herein and
in the Asset Purchase Agreement, and other good and valuable considerations,
the receipt and adequacy of which are hereby conclusively acknowledged by
Buyer, and to induce Sellers and the Shareholder to consummate the transactions
contemplated by the Asset Purchase Agreement, and intending to be legally bound
hereby Buyer agrees as follows:
1. Assumption Obligation. Buyer hereby assumes and undertakes to
perform, pay, satisfy, and discharge each of the Stated Liabilities.
The Buyer shall perform, pay, satisfy, and discharge, as the
case may be, each of the Stated Liabilities at or before such time as payment
or performance thereunder is due.
2. Right to Contest. Buyer may contest, in good faith, its
obligation to perform or pay Stated Liabilities in the event and to the extent
Buyer reasonably believes that such payment or performance is not due to the
creditor or other party claiming entitlement to payment or performance. In the
event that Buyer contests its obligation to pay or perform any of the Stated
Liabilities, (a) Buyer shall promptly notify Sellers of the Stated Liability
being contested, and the reasons therefor, and (b) regardless of whether such
notice is given, Buyer shall, at its cost and expense, protect, defend,
indemnify and hold harmless Sellers and the Shareholder from, against and in
respect of any cost, expense (including reasonable attorneys' fees and costs),
liability, obligation or claim asserted against, incurred by or imposed upon
Sellers or Shareholder arising from, or in connection with or related to
Buyer's contest of any Stated Liabilities.
3. Costs of Enforcement. In connection with any action arising
from or in connection with the enforcement of this Agreement, the prevailing
party shall be entitled to an award of its expenses, including reasonable
attorneys' fees and disbursements, incurred or paid in any proceeding which may
be instituted.
4. Jury Trial Waiver. BUYER KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF,
<PAGE> 48
UNDER, OR IN CONNECTION WITH THIS AGREEMENT, OR THE TRANSACTIONS OR OBLIGATIONS
CONTEMPLATED IN THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING TO THIS
AGREEMENT. BUYER CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF SELLERS, NOR
SELLERS' COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT,
IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY
TRIAL PROVISION.
5. Modifications; Waivers Remedies Cumulative. No amendment,
modification, waiver or discharge of this Agreement, or any provision hereof,
shall be valid or effective unless in writing and signed by Sellers and Buyer.
No delay or omission of Sellers to exercise any right, power or remedy accruing
under or pursuant to this Agreement, at law, in equity, or otherwise, shall
exhaust or impair any right, power or remedy or shall be construed to waive any
such right, power or remedy. Every right, power and remedy of Sellers created
under this Agreement may be exercised from time to time and as often as may be
deemed expedient by Sellers in their sole discretion. No right, power or
remedy conferred upon or reserved to Sellers is exclusive of any other right,
power or remedy, but each and every such right, power and remedy shall be
cumulative and concurrent and shall be in addition to any other right, power
and remedy given under this Agreement or under any other instrument executed in
connection herewith (including, without limitation, the Asset Purchase
Agreement), or now or hereafter existing at law, in equity, or otherwise. No
obligation of Buyer under this Agreement shall be deemed waived by any course
or pattern of conduct by any party.
6. Choice of Law; Venue. This Agreement shall be interpreted,
construed, governed and enforced in accordance with the laws of the State of
Texas, and any suit, action or proceeding arising out of or relating to this
Agreement shall be commenced and maintained in the District Court of Bexar
County, Texas or the appropriate United States District Court for the State of
Texas and each party waives objection to such jurisdiction and venue.
7. Severability. The provisions of this Agreement shall be
severable. In the event that a court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, and is not
reformed by such court, such invalid or unenforceable provision shall not
affect or impair the validity or enforceability of any other provision of this
Agreement and this Agreement shall be construed as if the invalid or
unenforceable provision had not been included in this Agreement.
8. Captions. The captions used in this Agreement are for
convenience of reference only and shall not be construed to extend, limit or
modify the scope of meaning of the respective paragraphs to which they relate.
9. Enforceability; Successors and Assigns. This Agreement shall
be binding upon Buyer and Buyer's successors and assigns and shall inure to the
benefit of Sellers and their successors and assigns.
-2-
<PAGE> 49
IN WITNESS WHEREOF, Buyer has executed and delivered this Agreement on
the date first above written.
SACMD ACQUISITION CORP.
By:__________________________________
Authorized Signatory
Educational Medical, Inc. joins in this Agreement for the purpose of confirming
that it is jointly and severally obligated with SACMD Acquisition Corp.
pursuant to the terms of this Assumption Agreement.
EDUCATIONAL MEDICAL, INC.
By:________________________________________________
Authorized Signatory
-3-
<PAGE> 50
EXHIBIT 26
BILL OF SALE
SAN ANTONIO COLLEGE OF MEDICAL AND DENTAL ASSISTANTS, INC., a
____________ corporation and CAREER CENTERS OF TEXAS - EL PASO, INC., a
_____________ corporation, (hereinafter referred to jointly as the "Sellers")
with a registered office at _____________________________ in consideration of
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, paid to it by SACMD ACQUISITION CORP., a Delaware corporation the
registered office of which is located at 1327 Northmeadow Parkway, Suite 132,
Roswell, Georgia, 33076 ("Buyer") hereby sell and deliver to the Buyer all of
their School Related Assets, as defined in the Asset Purchase Agreement between
Sellers and Buyer dated ____________, 1996, (the "Asset Purchase Agreement") to
which a form of this Bill of Sale is attached as an Exhibit, including without
limitation all of their right, title and interest to the personal property,
tangible or intangible, listed or described on Exhibit A, which is attached to
and made a part of this Bill of Sale by reference.
The Sellers warrant that they are the lawful owners of all of the
personal property listed in Exhibit A; that all of such property is free and
clear of all encumbrances except those specified in the Asset Purchase
Agreement; and that the Sellers have the right to sell all of such property and
will defend the sale and title to such property in the Buyer against the claims
of all persons.
IN WITNESS WHEREOF, the Sellers have caused this document to be
executed this ____ day of ___________________, 1996.
WITNESSES: SAN ANTONIO COLLEGE OF MEDICAL
AND DENTAL ASSISTANTS, INC.
- ----------------------------------
By:
- ---------------------------------- ------------------------------------
Authorized Signatory
CAREER CENTERS OF TEXAS - EL PASO, INC.
- ----------------------------------
By:
- ---------------------------------- ------------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 10.38
[BANK OF AMERICA LOGO]
CONFIDENTIAL
08/22/96
Educational Medical, Inc.
1327 Northmeadow Parkway, #132
Roswell, GA 30076
Attention: Mr. Gary Kerber & Mr. Vince Pisano
Gentlemen:
On behalf of Bank of America, FSB ("Bank" or "Bank of America"), I am
pleased to commit the following terms and conditions of credit. These terms
and conditions are not all-inclusive but generally describe the commitment
offered to you.
1. Borrower
The proposed borrowers are Educational Medical, Inc. and all of its
subsidiaries (hereafter collectively referred to as "EMI").
2. Credit Facilities
a) Revolving Line of Credit for $5 million, with availability not to exceed
80% of eligible accounts receivable (to be defined in the "Loan Documents"
defined below), to be used for general operating needs and working capital.
The Revolving Line of Credit would expire three years from the date of
inception of the facility and would have two one year extension options
beginning in year two at the sole discretion of the bank.
In addition to cash advances, up to $1 million in outstanding Letters of
Credit may also be provided under the Revolving Line of Credit, for the
issuance and maintenance of, or for having caused to be issued and
maintained, standby letters of credit, for approved purposes to be
specified in the Loan Documents. The tenor of the L/Cs shall not extend
beyond the term of the Revolving Line of Credit, nor extend beyond one
year.
b) Acquisition Line of Credit for up $12.5 million, to be used for
acquisitions of additional schools. The Acquisition Line would be limited
to a maximum of $5.0 million during the first year of the facility,
increasing to $7.5 million in the second year, and to $12.5 million in the
third year, provided however that each such increase would be subject to
the absence of any event of default under the Loan Documents and to the
satisfaction of other conditions to be specified in the Loan Documents.
The Acquisition Line of Credit would expire three years from the date of
inception of the facility and would have two one year extension options
beginning in year two at the sole discretion of the bank.
<PAGE> 2
Educational Medical, Inc.
08/22/96, Page 3
Facilities. The Facility Fees for the second and third year would be due
on the first and second anniversary dates of the closing respectively, and
will be charged only on the incremental increase of the total credit
commitment.
- - A L/C fee at the rate of 1.5% per annum, calculated on the basis of 360 days
for actual days elapsed, would be payable monthly on the average undrawn
amounts of all letters of credit, in addition to the amount of any costs or
expenses incurred by Bank in connection with any letter of credit opened.
- - Commitment fees on the unused amount of the Credit Facilities, payable
monthly, as follows:
Revolving Line of Credit
<TABLE>
<CAPTION>
Sr. Funded Debt/Adjusted Cash Flow Commitment Fee
---------------------------------- --------------
<S> <C>
1.5 to 2.0 .375%
1.0 to 1.5 .250%
less than 1.0 .250%
</TABLE>
Acquisition Line of Credit
<TABLE>
<CAPTION>
Sr. Funded Debt/Adjusted Cash Flow Commitment Fee
---------------------------------- --------------
<S> <C>
1.5 to 2.0 .500%
1.0 to 1.5 .375%
less than 1.0 .250%
</TABLE>
The commitment fee for the Acquisition Line would be waived for year one, if no
usage occurs. However, if usage occurs under the Acquisition Line during the
first year, the commitment fee will be due for the entire one year period based
on the average unused amount.
See Adjusted Cash Flow and Funded Debt definitions in paragraph 8.
6. Loan Documents
The commitment of the Bank to provide the Credit Facilities is subject to the
negotiation, execution and delivery of all loan, security and other agreements,
notes, guarantees, financing statements and other documentation giving effect to
the terms and conditions hereof as the Bank shall determine to be necessary or
appropriate, together with customary certificates and legal opinions
(collectively, the "Loan Documents"), in form and substance satisfactory to the
Bank. The Loan Documents shall contain conditions precedent, representations
and warranties, covenants, capital adequacy provisions, indemnification
provisions, events of default, provisions for reimbursement of expenses and
other terms and conditions consistent with the terms hereof, portions of which
are described more particularly below, all as shall be satisfactory to the Bank,
as well as other terms and conditions as the Bank shall determine to be
appropriate for this transaction (which may be in addition to or different from
those stated herein). All pre-closing conditions stated in the Loan Documents
must be met prior to funding.
7. Covenants
The following is a partial list of covenants and conditions which would be
included in the Loan Documents. Unless otherwise specified in writing by us,
all financial covenants are to be calculated according to generally accepted
accounting principles consistently applied. Each financial covenant will be
further defined in the Loan Documents.
<PAGE> 3
Educational Medical, Inc.
08/22/96, Page 4
- - EMI would be required to maintain the following financial ratios, tested
quarterly and pro forma in connection with acquisitions:
- Total Funded Debt/Adjusted Cash Flow of 3.0 times.
Adjusted Cash Flow would be defined more particularly in the Loan
Documents but generally would mean trailing 12-month net income plus
non-cash charges minus capital expenditures (excluding capital
expenditures for acquisitions). Includes the cash flow of schools
acquired, adjusted for non-recurring charges.
Funded Debt would be defined more particularly in the Loan Documents but
generally would mean indebtedness for money borrowed and for guarantees,
and represented by notes payable, bonds, debentures, capitalized lease
obligations, guarantees, letters of credit, etc.
- Maximum Senior Funded Debt (excludes subordinated debt with subordination
provisions satisfactory to Bank)/Adjusted Cash Flow of 2.0 times.
- Fixed Charge Coverage Ratio of 1.75 times: Fixed Charge Coverage Ratio
would be defined more particularly in the Loan Document but generally
would mean EBITDA minus capital expenditures divided by [the sum of
Interest Expense plus Rents plus CMLTD].
- Minimum Net Work of $30 million as of FYE 3/97, $33 million as of FYE
3/98, $35 million as of FYE 3/99. The Minimum Net Worth requirement
would be adjusted by the amount that net equity obtained at closing is
less than or more than $25.5 million.
- Maximum ratio of Total Liabilities: Tangible Net Worth of 2.75 times,
with Tangible Net Worth defined as Book Net Worth minus goodwill and
intangible assets plus seller debt. Seller debt to be unsecured and
subordinate to the Bank and contain blockage and standstill provisions
acceptable to the Bank.
- Restrictions on capital expenditures for purchasing fixed or capital
assets.
- Compliance with Title IV funding terms and conditions required to
maintain eligibility for schools representing in aggregate not less than
80% of the total operating contribution of all of the schools owned by
EMI.
- Limitations on dividends, advances to affiliates, distributions of
capital, etc.
- - All of the proceeds (net of no more than $5 million of exiting debt to be
repaid with the Initial Public Offering proceeds) being obtained from the
initial public offering described in Section 8 to be used prior to draws
being available under the Acquisition Line of Credit.
- - Bank of America's prior consent required for any acquisition (a) with a
consideration, plus any assumption of liabilities, in excess of $10 million
that does not require use of the Acquisition Line of Credit; (b) of schools
that were unprofitable during the prior 12 months, (c) that would be made
when the availability under the Revolving Line of Credit is less than $3
million (or would be on a pro forma basis) or when an event of default was
in existence under the Loan Documents or would result from such acquisition
or (d) with a consideration, plus any assumption of liabilities, in excess
of $5 million that requires use of the Acquisition Line of Credit.
<PAGE> 4
Educational Medical, Inc.
08/22/96, Page 5
- No new indebtedness without Bank's prior consent, except for:
1. trade credit and other operating accruals
2. limited amounts of additional indebtedness for buying fixed or
capital assets
3. limited additional indebtedness for acquisitions: provided
however, that any such indebt3dness must be on terms satisfactory
to the Bank.
- No liens or security interests other than in favor of Bank on any
property except for limited amounts for purchase money security
interests in fixed or capital assets subsequently acquired or purchase
money seller notes on terms satisfactory to the Bank.
- Restrictions and provisions relating to:
- leases
- dividends
- increase in compensation
- change in ownership
- voluntary suspension of business
- payment of taxes
- hazardous wastes
- certain representations and warranties required by Bank
- insurance
- maintenance of business and corporate good standing
- Standard Events of default that will include, among other things:
- failure to pay principal, interest, or other sum due
- loans plus L/Cs being in excess of availability calculations
- material adverse change
- material misrepresentation
- violation of financial covenants or other provisions of the Loan
Documents
- adverse governmental action
- default of other obligations
- false financial information
- voluntary or involuntary bankruptcy
- Reporting requirements that will include, among other things:
- annual CPA-audited financial statements within 120 days after the
end of each fiscal year.
- 10-K and 10-Q reports due within 5 days of filing, 8-K reports
due within 1 day of filing.
- quarterly financial statements within 45 days, to include
separate income statements for each of the schools.
- monthly financial statements within 30 days after the end of such
period.
- a borrowing base certificate to be provided within 45 days after
the end of each quarter, and pro forma in connection with any
acquisition that the Acquisition Line of Credit will be drawn
for.
- quarterly report of compliance and eligibility under Title IV Program
regulations.
8. Conditions and Additional Terms
<PAGE> 5
Educational Medical, Inc.
08/22/96, Page 6
Closing of the Credit Facilities will be subject to various conditions
precedent satisfactory to the Bank, including, without limitation, the
following:
* new equity obtained from a public stock offering to be not less than
$22 million, with not more than $5 million of the proceeds used to pay off
existing debt.
* no material adverse change in the operations, financial conditions or
business prospects of EMI, or change in business composition or management
* completion of the Loan Documents
* satisfaction by the Bank that it has obtained a perfected first
priority security interest in all assets of EMI, subject to no liens except
as approved by the Bank
* satisfactory review by the Bank of all litigation, proceedings and
injunctions pending or threatened against EMI
* satisfactory review by the Bank of EMI's compliance with all applicable
laws, including Title IV
* satisfactory review by the Bank of all affiliate transactions
* satisfactory review by the Bank of all material contracts
* receipt of all required shareholder and board of directors authorizations
and third party consents
* satisfactory completion of the Bank's credit and legal due diligence
9. Costs
You agree to reimburse us for the expenses incurred in connection with this
credit commitment, including those incurred after the credit closes.
These expenses may include, without limitation, our legal costs
and costs of preparing Loan Documents (including the allocated costs of
in-house counsel), any filing, search, escrow, and recording fees and other
costs (collectively "closing costs"), and are payable even though the terms
and conditions of this commitment change or the extension of credit is not
consummated.
In order for us to proceed with preparing documentation to this
commitment, Bank must receive a deposit of $35,000, to be used for the
closing costs. Any excess is refundable to you or may be credited to other
costs. In addition, you agree to reimburse Bank for any additional costs
or expenses that exceed the amount of your deposit, including any such
expenses incurred after the credit closes. The Bank to provide an estimate
of legal costs.
10. Disputes. Any disputes between you and us arising prior to closing
concerning the commitment summarized in this letter or the interpretation
of this letter, will be received by binding arbitration, according to the
Commercial Rules of the American Arbitration Association. The loan
documents will contain provisions for reference and arbitration of any
disputes that may arise after the closing of this credit.
This letter is issued solely for the benefit of EMI and the Bank and except
as expressly provided below, no provision hereof shall be deemed to confer
rights on any other person or entity. This letter may not be assigned by EMI
to any other person or entity, but all of the obligations of EMI hereunder
shall be binding upon the successors and assigns of EMI. The Bank shall the
right to assign or sell participations in, its rights under this letter and the
Loan Documents and any such assignee or participant shall, to the extent of its
interest, have all the rights and enjoy all the benefits of Lender hereunder.
This letter, together with the Loan Documents, shall be governed by and
construed in accordance with the laws of the State of Georgia without regard to
the principles of conflicts of laws. This letter may be executed in any number
of separate counterparts, each of which shall, collectively and separately,
constitute one
<PAGE> 6
Educational Medical, Inc.
08/22/96, Page 7
agreement. This letter may be amended or modified only in a writing signed by
Bank and EMI. This letter supersedes all understandings and agreement among
the parties in respect of the transactions contemplated hereby, including,
without limitation, those set forth in any proposal letter previously issued by
the Bank with regard to the transaction contemplated hereby.
EMI shall indemnify and hold harmless the Bank and its officers, directors,
employees, agents, advisors, attorneys and affiliates (each an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, fees and disbursements of counsel)
which may be incurred by or asserted against any Indemnified Party, in each
case in connection with or arising out of or by reason of any investigation,
litigation or proceeding arising out of, related to or in connection with this
letter and transactions contemplated hereby, except to the extent arising out
of the gross negligence or willful misconduct of any Indemnified Party. The
provisions of this paragraph shall survive any termination of this letter and
the transactions contemplated thereby.
If you wish to accept this commitment, please sign and return a copy of
this letter, accompanied by your check for $15,000, no later than August 23,
1996. If you do not respond by that time, or if yo do respond but the credit
does not close by October 31, 1996 for any reason, this commitment will expire.
Further, if between the time you accept this commitment and the date of
closing, a condition precedent to our extension of credit is not met, or there
is a material adverse change in you financial condition, or your business
composition or management changes, then we have the right to rescind this
commitment.
Thank you for the opportunity to offer this commitment.
Very Truly Yours
Bank of America, FSB
/s/ Calvin E. Blount, Jr.
- ------------------------------
Calvin E. Blount, Jr.
Vice President
Accepted:
Educational Medical Inc. individually and on behalf of all its subsidiaries
- ---------------
by: /s/ Vince Pisano
------------------
08/23/96
<PAGE> 1
EXHIBIT 10.39
ASSET PURCHASE AGREEMENT
Agreement dated as of December 12, 1996, among EDUCATIONAL MEDICAL,
INC., a Delaware corporation ("EMI"), HBC Acquisition Corp., a Delaware
corporation wholly owned by EMI (the "Buyer") and O/E Learning, Inc., a Michigan
corporation (the "Seller").
PRELIMINARY STATEMENT
The Seller is the owner of a postsecondary educational institution
located in Hagerstown, Maryland and related dormitory facilities (the "School").
The Buyer wants to buy the School. Subject to the terms and conditions contained
in this Agreement, the Seller wants to sell the School to the Buyer.
This Agreement provides for the sale and purchase of the School. It
contains the terms pursuant to which Seller has agreed to sell to Buyer
substantially all of its School Related Assets (as defined in Section 1(f)(1)
below), and Buyer has agreed to assume certain related Stated Liabilities (as
defined in Section 1(f)(2) below) of Seller. In addition, the Seller has agreed
not to compete with EMI and its schools pursuant to the terms of this Agreement.
EMI has entered into this Agreement to reflect that it is jointly and severally
liable with the Buyer with regard to the obligations of the Buyer provided for
in it.
IN CONSIDERATION OF THE COVENANTS CONTAINED IN THIS AGREEMENT, AND
THE OTHER CONSIDERATION PROVIDED FOR IN IT, THE PARTIES, EACH INTENDING TO BE
LEGALLY BOUND, AGREE AS FOLLOWS:
1. THE PURCHASE PRICE; CONVEYANCE OF THE ASSETS; ASSUMPTION OF
STATED LIABILITIES; CERTAIN DEFINITIONS; EFFECTIVE DATE OF TRANSACTION.
(a) The Purchase Price. The purchase price for the School
Related Assets, below, is $2,700,000 (the "Purchase Price"). The Purchase Price
will be allocated as follows: (i) $2,650,000 to tangible and intangible assets
allocated at the discretion of the Buyer, and (ii) $50,000 to the
Non-Competition Agreement (the "Non-Competition Agreement") contained in Section
7 of this Asset Purchase Agreement.
(b) Conveyance of Assets. On December 31, 1996, or such earlier
date as the parties may specify (the "Closing Date") the Seller shall convey to
Buyer all of its School Related Assets (the "Closing").
(c) Assumption of Stated Liabilities. On the Closing Date the
Buyer shall assume and agree to discharge when due all of the Stated
Liabilities.
(d) Cash Payments by the Buyer. On the Closing Date the Buyer
shall pay to Seller $1,350,000 (the "Initial Payment"), by wire transfer or
otherwise in immediately
<PAGE> 2
available funds.
(e) Delivery of Second Payment Note by the Buyer. On the Closing
Date the Buyer shall deliver to Seller:
(1) its Promissory Note for $1,350,000 (the "Second Payment
Note") in the form attached to this Agreement as EXHIBIT 1(1), payable without
interest on the earlier of the last business day within the first 30 calendar
days following the date on which the Prerequisite Student Aid Approvals are
obtained, but no later than September 30, 1997. "Prerequisite Student Aid
Approvals" mean approvals by the United States Department of Education and all
other applicable private and governmental agencies and organizations of the
change in control resulting from the change in ownership of the School resulting
from the sale of the School pursuant to this Asset Purchase Agreement which
approvals are a prerequisite to receipt of federal and state aid by the School's
students, and
(2) a pledge agreement in the form attached to this
Agreement as Exhibit(2) (the "Pledge Agreement") pursuant to which EMI secures
the payment of the Second Payment Note, and the related interest by a pledge of
all of the outstanding capital stock (the "Buyer's Stock") of the Buyer.
(f) Definitions of School Related Assets and Stated
Liabilities.
(1) "School Related Assets" shall mean: (i) the assets
reflected in the Seller's Effective Date Balance Sheet (as defined in Section
2(c)(1) below), together with the related goodwill and rights of Seller as a
going concern, tangible and intangible, used in connection with the operation of
the School, together with any other assets acquired by Seller subsequent to the
date of such balance sheet in connection with the operation of the School, and
(ii) Seller's right to use the name "Hagerstown Business College" in each case
either alone or in conjunction with other words or names in the context of the
operation of a school or other learning institution, but shall not include
"Excluded Assets." Excluded Assets are (i) assets, including without limitation,
all properties, interests and interests in properties, which have been or will
be sold consumed or otherwise disposed of in the ordinary course of business
subsequent to the date of the Effective Date Balance Sheet and prior to the
Closing Date, (ii) cash and cash equivalents on hand in an amount equal to that
presented on the Seller's Effective Date Balance Sheet, less accounts payable
(the "Seller's Cash Retention") which, if cash and cash equivalents on hand are
zero, may be a negative number for purposes of the adjustments provided for in
Section 6(e) of this Agreement, and (iii) those assets listed on EXHIBIT (3)
attached to this Agreement.
(2) "Stated Liabilities" shall mean the liabilities, duties
and obligations of the Seller related to the operations of the Schools (i) which
are disclosed as non-contingent liabilities on the Seller's Effective Date
Balance Sheet, (ii) provided for in agreements made or entered into in the
ordinary course of business after the date of the Seller's Effective Date
Balance Sheet to the Closing Date, including (a) accounts payable arising in the
ordinary course of business, from transactions with trade creditors and
suppliers, regardless of whether
-2-
<PAGE> 3
any such agreement is in writing, and (b) accrued but unpaid payroll and other
payroll related liabilities such as payroll taxes (the "Closing Date
Liabilities"), and (iii) provided for in the agreements disclosed on Exhibits
10, 15, and 16 attached to this Agreement, provided, in the case of liabilities,
duties and obligations described in clauses (ii) and (iii) of this sentence,
Stated Liabilities shall only include the liability, duty or obligation to (x)
pay money if, and to the extent, such obligation is provided for in such
agreement and/or (y) perform any service or take any action to the extent
provided for in such agreement. Stated Liabilities shall exclude, without
limitation, any contingent liabilities not specifically assumed, whether arising
prior to or after the Effective Date and regardless of whether disclosed to
Buyer, including without limitation, (x) any employee benefits pursuant to plans
listed on Exhibit 17, or otherwise, other than for accrued wages as provided for
in clause (ii) of this Subsection (1)(f)(2), and (y) liabilities arising from
failure to comply with any law or regulation prior to the Closing Date relating
to the administration of any kind of student aid or grant, or record keeping or
reporting required in connection with such administration.
(g) Effective Date. In the event the Closing occurs, the
effective date of this transaction for all accounting purposes shall be December
1, 1996, and the operations of the School be deemed to have been on behalf of
the Buyer at all times following the Effective Date, provided that the selection
of such effective date shall not impose on the Buyer any liability of the Seller
other than with respect to the assumption of Stated Liabilities.
2. REPRESENTATIONS OF THE SELLER.
Seller represents and warrants to Buyer.
(a) No Misstatements. The representations of the Seller and
the information supplied by Seller contained in this Agreement, the Exhibits
attached to it and the documents incorporated into it by reference do not
contain any untrue statement of a material fact or omit to state any fact
necessary to make such representations or information not materially misleading.
(b) Validity of Actions. Seller (i) is duly organized, validly
existing and in good standing under the laws of its organization, (ii) has all
requisite corporate and other appropriate authorization to operate the School in
the manner in which it is currently operated, except for the State of Maryland,
(iii) is qualified to do business in all jurisdictions in which such
qualification is necessary for the operation of the School, other than those
jurisdictions where the failure to so qualify would not have a material adverse
effect upon the School's assets or operations, except for the State of Maryland,
and (iv) has full power and authority to enter into this Agreement and to carry
out all acts contemplated by it. This Agreement has been duly executed and
delivered on behalf of the Seller, has received all necessary corporate
authorization and is a legal, valid and binding obligation of the Seller,
enforceable against it in accordance with its terms. Entering into this Asset
Purchase Agreement and the
-3-
<PAGE> 4
consummation of the transactions contemplated by it will not (i) violate any
provision of the Articles of Incorporation or Bylaws of Seller or, (ii) conflict
with or result in any breach of in any material respect of any of the provisions
of any material agreement to which the Seller is a party or by which it or its
assets are bound, or (iii) to the best of Seller's knowledge, cause a breach of
any applicable law, governmental regulation, order, or other decree of any court
or governmental agency. The Articles of Incorporation and Bylaws of Seller, as
presently in effect, are attached to this Agreement as EXHIBIT 4(4).
(c) Seller's Financial Statements
(1) Attached as EXHIBIT 5(5) to this Agreement are Seller's
unaudited balance sheets for the School at October 31, 1994, 1995 and 1996, and
statements of income and expense and cash flows for the years then ending, in
the case of the years ending October 31, 1994 and 1995, as appear on a
consolidating basis in the Seller's audited financial statements for the years
then ending, after giving effect to corporate allocations, which are not
continuing expenses of the School (the "Corporate Allocations"), of $284,400 and
$398,500, respectively, and for the year ended October 31, 1996 prepared for the
School as a separate operating entity without giving effect to Corporate
Allocations (the "Seller's Annual Financial Statements"). Attached as Exhibit
6(6) to this Agreement is Seller's unaudited balance sheet at November 30,
1996, (the "Effective Date Balance Sheet"). The Seller's Annual Financial
Statements and Effective Date Balance Sheet are collectively called the
"Seller's Financial Statements."
(2) The Seller's Financial Statements: (i) accurately
represent the transactions appearing on the books and records of the Seller
relating to the operations of the School, and (ii) fairly present in all
material respects School's financial condition and its results of operations at
the times and for the periods presented, including normal adjustments consistent
with year end adjustments to properly reflect accruals through the end of the
period ended November 30, 1996; provided, however that Seller's Financial
Statements do not contain footnotes and the related disclosures. The Sellers'
Financial Statements have been prepared on the accrual basis in accordance with
generally accepted accounting principles consistently applied ("GAAP"), except
as otherwise disclosed in the reports accompanying them or in the notes attached
to them.
(3) There have been no material adverse changes in the
financial condition or in the operations, properties or assets of School since
the date of the Seller's Effective Date Balance Sheet.
(d) Liabilities of Seller. Seller has no liabilities relating
to the School, contingent or otherwise, including, without limitation,
liabilities for state or Federal income, withholding, sales, or other taxes,
except to the extent reflected, reserved against, or provided for, in the
Seller's Effective Date Balance Sheet, except for taxes, trade payables and
other
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obligations incurred after the date of the Seller's Effective Date Balance Sheet
in amounts consistent in all material respects, with those incurred in prior
periods in the ordinary course of business, including without limitation
liabilities for unearned tuition.
(e) Assets of Seller. Seller has good title to all of its
School Related Assets. Except as otherwise disclosed in the Seller's Financial
Statements or the related notes accompanying them or in the Exhibits to this
Agreement, all of the School Related Assets are owned free and clear of any
adverse claims, security interests, or other encumbrances or restrictions,
except liens for current taxes not yet due and payable, landlords' liens as
provided for in the relevant leases or by applicable law, or liens or similar
security interests granted as part of personal property financing agreements
made in the ordinary course of business and which in the aggregate are not
material and the lien of Michigan National Bank (the "Bank Lien") securing the
Seller's general line of credit. The School Related Assets constitute all of the
assets necessary for the operation of the School as currently conducted.
(f) Facility and Facility Operations.
(1) The School's operations are conducted solely at its
single teaching facility located in Hagerstown, Maryland (the "Teaching
Facility") and certain of the School's students are housed at related
dormitories located in a single building also located in Hagerstown Maryland
(the "Dormitory Facility," collectively with the Teaching Facility, the "School
Facilities"). The School Facilities are owned by the Seller. The School
Facilities are described in detail on EXHIBIT 7(7) attached to this Agreement.
The School's educational operations are conducted solely at the Teaching
Facility. All of the tangible School Related Assets used in connection with
the School's operations are located at the School Facilities. To the best of
Seller's knowledge, all of the improvements located at the School Facilities
are in good operating condition and repair, subject only to ordinary wear and
tear. There is no pending or, to the knowledge of Seller, threatened
condemnation proceeding with respect to the School Facilities.
(2) Attached as Exhibit 8(8) to this Agreement is a
schedule of all of the furnishings, fixtures and equipment with values in
excess of the baseline used in determining such inventory, located on, or used
in connection with, the operation of the School Facilities as of the date
indicated on such inventory, subject to immaterial omissions occurring in
course of compiling such inventory.
(3) Except for (i) environmental law compliance (which is
addressed in Section 2(f)(4) below) and (ii) accreditation, recruitment,
admissions, student loan and funding matters compliance (which are addressed in
Sections 2(h) and 2(i) below) as to which no representation or warranty is made
in this Section 2(f), all activities at, and the physical condition of, the
School Facilities are in compliance with all legal and regulatory requirements
applicable to the Seller, the conduct of its business, and the use of each
School Facility, and
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the Seller has not received any actual notice to the contrary. Seller has paid
for and obtained all licenses, permits, and other authorizations material to the
conduct of its business at the School Facilities (the "Permits"). All Permits
currently in effect and pertaining to the School Facilities or the Seller's
activities at the School Facilities are listed on EXHIBIT 9(9) to this
Agreement. The representations contained in this subsection 3 shall not apply
to incidental instances of non-compliance occurring in the ordinary course of
business without the actual knowledge of the Seller, which are immaterial to
the operation of the School and capable of being cured without significantly
disrupting the School's operations.
(4) To the best of the knowledge of Seller, there are no
Hazardous Substances(1) in, on or under the School Facilities except for those
which are used by Seller in compliance, in all material respects, with
applicable law, and Seller is not now engaged in any litigation, proceedings or
investigations, nor knows of any pending or threatened litigation, proceedings
or investigations regarding the presence of Hazardous Substances in, on or under
the School Facilities.
(g) Equipment Leases and Financing Agreements. All of the
leases and financing agreements to which Seller is a party and which relate to
the operations of the School are described in EXHIBIT 10(10) to this Agreement
(the "Financing and Related Agreements"). Copies of the Financing and Related
Agreements are attached to such Exhibit or have been provided to the Buyer.
Except as reflected in such Exhibit, there have been no modifications to any of
the Financing and Related Agreements; Seller is not in default in any material
respect with respect to them; and none of the interests of Seller in any of
them is subject to any restriction except as stated in the applicable document
or as provided by applicable law.
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(1) The term "Hazardous Substance" shall include without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any
Maryland Statute and in the regulations promulgated pursuant to any
Maryland Statute;
(iii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or which
are classified as hazardous or toxic under federal, state, or local
laws or regulations; and
(v) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C) polychlorinated biphenyl, (D) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act,
33 U.S.C. ss.ss.1251 et seq. or listed pursuant to Section 307 of the
Clean Water Act, (E) flammable explosive, or (F) radioactive materials.
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(h) Accreditation and Compliance with Title IV Requirements.
Attached as EXHIBIT 11(11) to this Agreement is a list of all Federal, state or
other licenses and approvals, including without limitation all accreditations
and certifications, granted to Seller with respect to the conduct of its
educational or training business at the School (the "Accreditations and
Certifications"), and the governmental body or agency or other entity granting
such Accreditation or Certification. Included in such Exhibit are copies of all
such Accreditations and Certifications.
(1) Except for the Permits and the Accreditations and
Certifications, no license or approval is material to the conduct of Seller's
operation of the School as it is now being conducted, and the Seller has
received no notice that any other license or approval is necessary for the
continued operation of the School or that any such license or approval will not
be renewed.
(2) The School is accredited by the Accrediting Council for
Independent Colleges and Schools. The Seller's operation of the School is and
has been conducted in all material respects in accordance with all relevant
standards imposed by applicable accrediting agencies, or agencies administering
state government student aid programs in which the Seller or any students
attending the School participate, or other applicable laws or regulations.
(3) The School is an institution certified by the United
States Department of Education (the "Department of Education"). The Seller is a
party to, and is and at all times has been in compliance with, a valid program
participation agreement with the Department of Education with respect to the
operations being conducted by the School. The Seller has not received any
notice, not previously complied with, with respect to any alleged violation of
the rules or regulations of the Department of Education or any applicable
accrediting agency in respect of the School or the terms of any program
participation agreement to which it is or was a party. If any such notices have
been received and complied with, the Seller has disclosed its receipt and
disposition to Buyer prior to the execution of this Agreement in writing by a
letter making specific reference to this Section of this Agreement. The Seller
is and at all times has been, in compliance with all of the provisions of the
Higher Education Act of 1965 ("HEA") and the regulations promulgated by the
Department of Education thereunder (the "DOE Regulations") necessary to
establish and maintain its eligibility to participate in the Title IV funding
programs provided for therein, including without limitation,
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the demonstration of financial and administrative responsibility as provided for
in the DOE Regulations. The Seller has submitted audited financial statements to
the Department of Education for the fiscal year ended December 31, 1995 relating
to the School's operations (the "DOE Financial Statements").
(4) The Seller is not aware of any investigation or review
of student financial aid programs (including without limitation Title IV
Programs) in which the School or its students participate, or any review of any
of the School's Accreditations or Certifications whether by a party to any
relevant agreement, the issuer of such Accreditation or Certification or
otherwise.
(i) Recruitment; Admissions Procedures; Attendance; Reports.
Attached as EXHIBIT 12(12) to this Agreement is a list of all policy manuals and
other statements of procedures or instruction relating to recruitment of the
School's students, including procedures for assisting in the application by
prospective students for direct or indirect state or Federal financial
assistance; admissions procedures, including any descriptions of procedures for
insuring compliance with state or Federal or other appropriate standards or
tests of eligibility; procedures for encouraging and verifying attendance,
minimum required attendance policies, and other relevant criteria relating to
course completion and certification (collectively referred to as the "Policy
Guidelines") which have previously been delivered to the Buyer by the Seller.
The School's operations have been conducted in all material respects in
accordance with the Policy Guidelines.
The Seller has submitted all reports, audits, and other information,
whether periodic in nature or pursuant to specific requests ("Compliance
Reports"), to all agencies or other entities with which such filings are
required relating to the School's compliance with (i) applicable accreditation
standards governing its activities or (ii) laws or regulations governing
programs pursuant to which the School or students attending the School receive
funding, including, without limitation, the Perkins Loan Program, the Stafford
Student Loan Program, the Pell Grant program and the Supplemental Educational
Opportunity Grant Programs, or the Federal Direct Student Lending Program, all
of which are provided for pursuant to Title IV of the HEA.
Complete and accurate records in all material respects for all present
and past students attending the School have been maintained consistent with the
operations of a school business. All forms and records have been prepared,
completed, maintained and filed in all material respects in accordance with all
federal and state laws and regulations applicable to the operations of the
School, and are true and correct in all material respects. All financial aid
grants and loans, disbursements and record keeping relating to them have been
completed in compliance in all material respects with all federal and state
requirements, and there are no material deficiencies in respect thereto. No
student at the School has been funded prior to the date for which such student
was eligible for funding and such student's records have been processed in all
material respects in accordance with all applicable federal, state and relevant
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third party funding source requirements. All appropriate reports and surveys
have been accurately prepared, taken and filed prior to delinquency.
(j) Default. Attached as EXHIBIT 13(13) is a schedule
indicating the cohort default rate, as calculated by the United States
Department of Education, of all students attending the School receiving
assistance pursuant to the Stafford Loan and Supplemental Loans for Students
programs (or their applicable predecessor programs) for the federal fiscal
years ended September 30, 1992, 1993 and 1994. To the best of the knowledge of
the Seller, such schedule is materially accurate in all respects.
(k) Trademarks, etc. Attached to this Agreement as EXHIBIT
14(14) is a list of all tradenames, trademarks, service marks, copyrights and
the registrations for them owned or used by Seller in connection with the
operation of the School. To the best knowledge of Seller, it has not infringed
and is not now infringing, any trademark, tradename, service mark, or copyright
belonging to any other person in connection with the operation of the School.
Except as set forth on such exhibit, Seller is not a party to any license,
agreement or arrangement, whether as licensor, licensee or otherwise, with
respect to any trademark, tradename, service mark, or copyright used by Seller
in connection with the operation of the School. To Seller's best knowledge,
its operation of the school may be conducted without license by others for the
use of any tradename, trademark, service mark, or copyright.
(l) Material Contracts. Attached as composite EXHIBIT 15(15)
to this Agreement is (i) a schedule identifying all material contracts relating
to the School's operations not otherwise specifically identified in the other
Exhibits to this Agreement, including, without limitation, all agreements
relating to state or Federal funding of educational services provided by the
Seller through grants, loans or direct payments either to the Seller, individual
students or otherwise, and any agreements relating to the placement of students
following their completion of relevant educational programs provided by the
School other than agreements with students involving the teaching of standard
courses, for standard prices as set forth in the School's catalog or in the
enrollment agreement for such students (the "Contracts"); (ii) a summary of all
material provisions of the Contracts that are oral and not reduced to written
documents; and (iii) a copy of all written Contracts. Except as disclosed in
this Exhibit 15: (i) all of the Contracts remain unmodified and in full force
and effect, and (ii) Seller is not in default of any material nature (nor, to
the best knowledge of Seller, does any state of facts exist which, with the
giving of notice, the passing of time, or otherwise, would constitute a default
of any material nature by Seller) with respect to any of the Contracts.
(m) Maintenance and Employment Agreements. Attached to this
Agreement as composite EXHIBIT 16(16) is (i) a schedule of all written
agreements between the Seller and independent contractors, employees and agents
who are employed or engaged in the management or operation of the School or the
School Facilities; (ii) the names of all parties entitled to payments from
Seller under any such agreements or arrangements; (iii) the amounts
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payable by Seller under the terms of all such agreements and arrangements,
including without limitation, the terms of employment and compensation,
including vacation and other employee benefit provisions and the cost of all
employee benefits and payroll taxes; and (iv) a copy of all written contracts
for such services. There are no material oral agreements in effect for any such
services. Except as disclosed on such Exhibit: (x) there are no written
agreements between any of such contractors, employees or agents and Seller; (y)
there is no party entitled to compensation or remuneration for any such services
arising from the operation of the School after the Closing; and (z) Seller's
agreements and arrangements providing for the services described on Exhibit 16
may be terminated by Seller at any time, with or without cause, and without any
obligation to pay any of said parties any amounts whatsoever except as may be
required by law (including, without limitation, severance pay or accrued
vacation pay or other benefits).
(n) Employee Benefit Plans. Seller maintains employee benefit
plans as listed on EXHIBIT 17(17) to this Agreement (the "Employee Benefit
Plans") with respect to employees involved in the operation of the School.
Copies of such plans have been previously delivered to the Buyer. Except as
listed on such Exhibit, Seller does not maintain any profit sharing, pension or
other employee benefit plan related to the School's operations. Seller has no
unfunded obligations pursuant to any insurance, retirement, pension, profit
sharing or deferred compensation plan or program relating to the School's
operations.
(o) Labor. There is no existing labor dispute affecting the
operation of the School. None of Seller's employees involved in the operations
of the School are covered by any union or collective bargaining agreement.
(p) Insurance. A schedule of all of the policies of insurance
maintained by Seller in connection with the operation of the School is attached
as EXHIBIT 18(18) to this Agreement. The insurance coverage provided by such
policies complies in all material respects, with all agreements to which Seller
is a party, and applicable legal requirements to which it is subject. All such
policies are currently in effect.
(q) Taxes. The Seller has filed all Federal, state and local
tax returns which it is required to file and has no outstanding liability for
any Federal, state or local taxes or interest or penalties thereon, whether
disputed or not, except taxes not yet payable which have been provided for in
accordance with GAAP and are disclosed in the Seller's Effective Date Balance
Sheet or have subsequently accrued in the normal course of business.
(r) Actions Pending. Except as disclosed in EXHIBIT 19(19) to
this Agreement: (i) there are no actions, suits, proceedings or claims pending
or (to Seller's knowledge) threatened against Seller which, if determined
adversely to Seller, would (A) have a material adverse effect on the School
Related Assets, or the operation of the School, or (B) prevent or delay the
consummation of any of the transactions contemplated by this Agreement; (ii)
Seller,
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is not (to its knowledge) the subject of any pending or threatened investigation
relating to any aspect of Seller's operation of the School, by any Federal,
state or local governmental agency or authority; (iii) Seller, is not and has
not been (to its knowledge) the subject of any formal or informal complaint,
investigation or inspection under the Equal Employment Opportunity Act or the
Occupational Safety and Health Act (or their state or local counterparts) or by
any other Federal, state or local authority with respect to any aspect of
Seller's operation of the School.
(s) Accounts Receivable. Each of the accounts receivable of
Seller relating to the School's operations, constitutes a valid claim in its
full amount against the debtor charged on Seller's books and has arisen in the
ordinary course of the School's operations. Seller has no knowledge that each
such account receivable is not fully collectible to the extent of the face value
thereof, except to the extent of the normal allowance for doubtful accounts with
respect to accounts receivable computed as a percentage of sales consistent with
Seller's prior practices as reflected on the Effective Date Balance Sheet. No
account debtor has asserted any right to any setoff, deduction or defense with
respect thereto.
(t) No Guaranties. None of Seller's obligations or liabilities
with respect to the School's operations or the School Facilities is guaranteed
by any other person, firm or corporation, nor has Seller guaranteed the
obligations or liabilities of any other person, firm or corporation so as to
affect the operations of the School.
(u) Bank Accounts and Deposit Boxes. Attached to this
agreement as EXHIBIT 20(20) are the names and addresses of all banks or
financial institutions in which Seller has an account, deposit or safety
deposit box with the names of all persons authorized to draw on these accounts
or deposits or to have access to the boxes, and an indication of which accounts
or deposits or boxes contain financial aid funds, in each case to the extent
such accounts are used in connection with the School's operations.
(v) Records. The books of account of Seller relating to the
School's operations are complete and correct in all material respects, and there
have been no transactions involving the School's operations which properly
should have been set forth therein and which have not been accurately so set
forth.
(w) Transactions With Certain Persons. The School, on the one
hand, and the Seller, on the other, when considered on a consolidating basis, do
not owe any amount to, the other or have any contract with or commitment to the
other except as reflected on the School's Financial Statements. Seller has made
no distributions or other intra company transfers from or to the School
subsequent to the date of the Seller's Effective Date Balance Sheet.
3. REPRESENTATIONS AND WARRANTIES OF EMI AND BUYER. Each of EMI and
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Buyer represents to Seller as follows:
(a) No Misstatements. The representations and the information
supplied by it contained in this Agreement, the Exhibits attached to it, and the
documents incorporated by reference into it do not contain any untrue statement
of a material fact or omit to state any fact necessary to make such
representations or information not materially misleading.
(b) Validity of Actions. It is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the authority to carry on its business as currently conducted, and is qualified
to do business in all jurisdictions in which such qualification is necessary. It
has full power and authority to enter into this Agreement and to carry out all
acts contemplated by it. This Agreement and each of the documents provided for
in it to be delivered as part of this transaction, have been duly executed and
have or will be delivered pursuant to all appropriate corporate authorization on
its behalf and is, or will be, its legal, valid and binding obligation and is
enforceable against it in accordance with its terms. The execution and delivery
of this Agreement, and each of the documents to be executed and delivered by EMI
and the Buyer pursuant to its terms, and the consummation of the transactions
contemplated by them will not violate any provision of their respective
Certificates of Incorporation or Bylaws or, violate, conflict with or result in
any breach of any of the terms, provisions of or conditions of, or constitute a
default or cause acceleration of any indebtedness under, any indenture,
agreement or instrument to which it is a party or by which it or its assets may
be bound, or, upon filing the Articles of Transfer with the Department of
Taxation and Assessment in the State of Maryland, cause a breach of any
applicable law or governmental regulation, or any applicable order, judgment,
writ, award, injunction or decree of any court or governmental instrumentality.
(c) Actions Pending. There are no actions, suits, proceedings
or claims pending or to the knowledge of EMI or the Buyer, threatened against
either of them which, if determined adversely to either of them would (A) have a
material adverse effect on their operations, or (B) prevent or delay the
consummation of any of the transactions contemplated by this Agreement. Neither
EMI nor Buyer is the subject of any pending or (to its knowledge) threatened
investigation relating to any aspect of its operations.
(d) EMI's Financial Statements
(1) Attached as EXHIBIT 21(21) to this Agreement are (A)
EMI's audited balance sheets at March 31, 1994, 1995, and 1996, and statements
of income and expense and cash flows for the years then ending (EMI's Audited
Financial Statements") and (B) EMI's unaudited balance sheets at September 30,
1995 and 1996, and statements of income and expense and cash flows for the
periods then ending ("EMI's Interim Financial Statements" collectively with
EMI's Audited Financial Statements, "EMI's Financial Statements").
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(2) EMI's Financial Statements: (i) have been prepared on
the accrual basis in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except as otherwise disclosed in the reports
accompanying them or in the notes attached to them, and (ii) fairly present
EMI's financial condition and its results of operations at the times and for the
periods presented.
(3) There have been no material adverse changes in the
financial condition or in the operations, business, prospects, properties of
assets of EMI since the date of EMI's Interim Financial Statements.
(e) Buyer's Financial Condition. The Buyer is a newly formed
corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
4. COVENANTS OF THE PARTIES.
(a) Conduct of the Business Prior to the Closing. Pending
consummation of the transactions contemplated in this Agreement or prior to
termination of this Agreement, Seller agrees, without prior written consent of
Buyer, given in a letter which specifically refers to this Section of the
Agreement:
(1) not to (i) perform any act or omit to take any act that
would make any of the representations made in Section 2 above, inaccurate in any
material respect or materially misleading as of the Closing Date, or (ii) make
any payment or distribution with respect to the School or its operations except
for the payment of liabilities provided for in Seller's Financial Statements or
incurred in the ordinary course of business;
(2) to conduct the business of the School in the ordinary
and regular course, maintain the School Facilities, protect the School's
Accreditation Certifications and Permits, and keep its books of account, records
and files in substantially the same manner as at present.
(3) to make all tuition refunds with respect to the School's
operations within the time frames provided for in the Regulations and any
applicable state or accrediting agency regulations, and to pay all accounts
payable as they become due.
(b) Notice. Pending the consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, each
party agrees that it will promptly advise the others of the occurrence of any
condition or event which would make any of its representations contained in this
Agreement inaccurate, incorrect, or materially misleading.
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(c) Access. Prior to the Closing, Seller shall afford to the
Buyer (and its officers, attorneys, accountants and other authorized
representatives), upon reasonable notice, free and full access during usual
business hours to its relevant offices, personnel, books and records and other
data, financial or otherwise, so that Buyer may have full opportunity to make
such investigation as it shall desire of the School Related Assets and the
business and operations of the School by the Seller, provided that such
investigation shall not unreasonably interfere with Seller's operations. The
scope of the investigation will include, but not be limited to, a verification
of Seller's Financial Statements and a review of Seller's control procedures,
regulatory compliance relating to the School, the School Facility, and material
contracts and litigation relating to the School. Duly authorized representatives
of the Buyer shall also be entitled to discuss with officers of Seller, its
counsel, employees and independent public accountants, all of its books, records
and other corporate documents, contracts, pricing and service policies,
commitments and future prospects to the extent such materials and matters relate
to the operation of the School. Representatives of Seller will furnish to Buyer
and such other persons, copies of all materials relating to the business
affairs, operations, Facility, School Related Assets and liabilities of Seller
relating to the School which may be reasonably requested from time to time and
will cause representatives and employees of Seller to assist Buyer in its
investigation of the matters relative to the School. All information obtained by
Buyer, EMI or any of their officers, directors, employees, lender, investors,
agents and other representatives (the "Buyer's Representatives") in connection
with the transactions contemplated by this Agreement or in the course of their
investigations of the School, whether obtained before or after the date of this
Agreement (the "Evaluation Material") shall be used only in connection with this
Agreement and the subsequent operation of the School, and each of Buyer and EMI
shall assure that all Evaluation Material will be otherwise kept strictly
confidential by each of them and the Buyer's Representatives. The obligations
provided for in this Subsection (c) shall be in addition to the obligations
provided for in the confidentiality agreement dated December 27, 1995 between
the Buyer and EMI, the terms of which are incorporated into this agreement by
reference.
(d) Additional Documents. At the request of any party, each
party will execute and deliver any additional documents and perform in good
faith such acts as reasonably may be required in order to consummate the
transactions contemplated by this Agreement and to perfect the conveyance and
transfer of any property or rights to be conveyed or transferred or perfect the
assumption of any liabilities assumed under the terms of this Agreement.
(e) Employee Notification, Termination of Employee Benefit
Plans, Etc. With respect to any employees employed by the Seller with respect to
the operations of the School, prior to the Closing, Seller will comply with the
terms of all applicable Federal and state laws and regulations, including
without limitation the provisions of the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. ss.ss. 2101 et. seq. or the Consolidated Omnibus
Budged Reconciliation Act ("COBRA"). Seller will terminate all Employee Benefit
Plans relating to such
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<PAGE> 15
employees in accordance with all applicable laws and regulations as of a date no
later than the Closing Date or otherwise take such actions as are necessary to
insure that the Buyer has no obligations with respect to thereto.
(f) Filing of Returns; Additional Information. Seller will
file on a timely basis all tax returns, notices of sale and other documentation
required by law in connection with the transactions provided for in this
Agreement or otherwise required by law, regulation or pursuant to the terms of
any agreement to which it is a party. Seller will supplement any previous filing
made by it in accordance with legitimate requests made by applicable agencies or
parties to the extent required by the relevant law, regulation or agreement.
(g) Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the, each of the parties
to this Agreement will execute such documents and take such other actions as
reasonably may be appropriate to fulfill the conditions to Closing provided for
in Section 5 of this Agreement.
5. CONDITIONS TO CLOSING BY THE RESPECTIVE PARTIES.
The obligation of EMI and Buyer, on the one hand, and Seller on the
other hand, to consummate the transactions contemplated by this Agreement shall
be subject to compliance with or satisfaction of the following conditions by the
other, to the extent applicable:
(a) Bring Down. The representations and warranties set forth
in this Agreement shall be true and correct in all material respects on and at
the Closing Date as if then made by the relevant party (except for those
representations and warranties made as of a given date, which shall continue to
be true and correct as of such given date).
(b) Compliance. Each party shall have complied with all of the
covenants and agreements in this Agreement on its or their part, respectively,
to be complied with as of or prior to the Closing Date.
(c) No Material Adverse Changes. Since the date of the
Effective Date Balance Sheet, there shall not have occurred any material adverse
change in the condition or operations (financial or otherwise) of the School,
the School Facilities, or the School Related Assets. Since September 31, 1996
there shall not have occurred any material adverse change (financial or
otherwise) of EMI.
(d) Buyer Certificates. There shall be delivered to the
Seller:
(1) a certificate executed by the President and Secretary of
each of Buyer and EMI, dated the Closing Date, certifying that the conditions to
be fulfilled by each of them set forth in this Section 5 have been fulfilled;
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(2) a certificate of incumbency for each of the Buyer and
EMI executed by its President or any Vice President and by the Secretary or any
Assistant Secretary of such entity, listing the officers of such entity
authorized to execute (to the extent applicable) the Agreement and the other
documents, certificates, schedules and instruments to be delivered on behalf of
such entity, and their respective offices, and containing the genuine signature
of each such person set forth opposite his name; and
(3) good standing certificates and certified charter
documents of each of them of recent date, from the Secretary of the State of the
jurisdiction of incorporation of such entity and a copy of their respective
By-Laws certified by an officer thereof.
The certificates described in subsections (1), (2) and (3) above are hereafter
referred to collectively as the "Buyer's Certificates."
(e) Seller Certificate. There shall be delivered to the
Buyer and EMI:
(1) a certificate executed by the President and Secretary of
the Seller, dated the Closing Date, certifying that the conditions to be
fulfilled by it as set forth in this Section 5 have been fulfilled;
(2) a certificate of incumbency for the Seller executed by
its President or any Vice President and by the Secretary or any Assistant
Secretary of the Seller, listing the officers of such entity authorized to
execute (to the extent applicable) the Agreement and the other documents,
certificates, schedules and instruments to be delivered on behalf of such
entity, and their respective offices, and containing the genuine signature of
each such person set forth opposite his name; and
(3) good standing certificates and certified charter
documents of the Seller of recent date, from the Secretary of the State of the
jurisdiction of incorporation of such entity.
The certificates described in subsections (1), (2) and (3), above, are hereafter
referred to collectively as the "Seller's Certificates."
(f) No Suits. No action or proceeding shall have been
instituted in any court or before any Federal, state or local governmental
agency against any party seeking to restrain or prohibit the consummation of the
transactions contemplated by this Agreement, or which could have a material
adverse effect on any of the parties, which shall not have been dismissed or
withdrawn prior to the Closing Date.
(g) Documents. All documents required to be delivered to Buyer
or Seller pursuant to this Agreement at or prior to Closing shall have been so
delivered.
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<PAGE> 17
(h) Authority. There shall be in full force and effect on the
Closing Date resolutions of the Boards of Directors of the Buyer, EMI and the
Seller approving this Agreement the other documents executed and delivered by
each of them in connection with this Agreement and the transactions contemplated
in it. At or prior to the Closing, each party will deliver to the other a copy
of the resolutions of its Board of Directors approving the execution and
delivery of this Agreement and the other documents to be delivered pursuant to
this Agreement and the consummation of all of the transactions contemplated
hereby, duly certified by an appropriate officer.
(i) Opinions of Counsel. Each party shall receive the opinion
of counsel to the other party reasonably satisfactory in form and content to the
party receiving such opinion.
(j) Current Insurance Coverage. Payments will have been made
as of the Closing Date with respect to all of Seller's insurance policies,
relating to the School, and all insurance coverage concerning School Related
Assets and the School's operations shall be continued in force through at least
10 days subsequent to the Closing Date, unless canceled subsequent to the
Closing Date by Buyer.
(k) Bankruptcy, Dissolution, etc. No petition or other
commencement of proceedings in bankruptcy or proceedings for dissolution,
termination, liquidation or an arrangement, reorganization or readjustment of
any party's debts under any state or Federal law enacted for the relief of
debtors or otherwise, whether instituted by or against a party, has been
effected or commenced by or against any party.
(l) Lease. The Buyer and Seller shall have entered into a
lease agreement with respect to the School Facilities effective as of the
Effective Date (for purposes of payments to the Seller thereunder and for all
other purposes effective as of the Closing Date).
(m) State Approvals. The transactions provided for in this
Agreement shall have been approved by all applicable state regulatory agencies
or authorities and such approvals shall have been delivered to Buyer.
(n) Maryland Qualification. The Seller shall be authorized to
conduct business and be duly qualified to do business in the State of Maryland.
(o) November 31, 1996 Statement of Income and Expenses. The
Seller shall have delivered to Buyer a statement of income and expenses for the
one month period ended November 30, 1996 which shall be consistent in all
material respects with the Seller's Effective Date Balance Sheet, and show no
material adverse change from the Seller's October 31, 1996 financial statements
included in Seller's Financial Statements. Upon delivery, such November 30, 1996
statement of income and expenses shall be considered part of Seller's Financial
Statements.
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<PAGE> 18
(p) Bank Lien. The Bank Lien shall have been released with
respect to the School Related Assets.
6. CLOSING AND POST CLOSING AGREEMENTS.
(a) Closing Date and Place; Effective Date. The closing of the
transactions provided for in this Agreement shall take place at the time
provided for in Section 1(b) of this Agreement at such place as the parties may
agree, and shall be effective as provided in Section 1(f).
(b) Deliveries by Buyer to Seller. At the Closing, Buyer and
EMI shall deliver to Seller:
(1) Initial Payment;
(2) The Second Payment Note;
(3) The Pledge Agreement;
(4) An assumption agreement (the "Assumption Agreement")
in substantially the form attached to this Agreement
as EXHIBIT 22(22); and
(5) The Buyer's Certificates.
(c) Deliveries by Seller to Buyer. At the Closing, Sellers shall
deliver to Buyer:
(1) The Bill of Sale (the "Bill of Sale") in
substantially the form attached to this Agreement as
Exhibit 23(23) and
(2) The Sellers' Certificates; and
(3) Such other instruments of conveyance in form and
substance reasonably satisfactory to Buyer's counsel,
as shall be effective to vest in Buyer good title to
the School Related Assets.
(d) Filing of Tax Returns and Other Reports. The Seller shall
timely file all federal and state income tax and other returns or reports
relating to the transactions provided for in this Agreement and relating to all
periods during which each of the Seller owned the School Related Assets, and to
the extent required by law or regulation, all reports with the Department of
Education or any other applicable state of federal regulatory or accrediting
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<PAGE> 19
agency relating to such periods including without limitation the Financial Aid
Audits for the federal fiscal year ended June 30, 1996 to be filed by the School
with the Department of Education pursuant to applicable regulations.
(e) Delivery of December 31, 1996 Financial Statements and
Post Closing Adjustments. Prior to January 31, 1997, the Seller shall deliver to
the Buyer unaudited financial statements for the School for the month ended
December 31, 1996, which shall include a statement of income and expense for the
period then ending and a balance sheet as of such date, all of which shall be
prepared for the School as a separate entity without giving effect to the
Corporate Adjustments in accordance with, and subject to the same
representations contained in, Section 2(c)(2) of this Agreement (the "Closing
Date Financial Statements"). If the amount of cash or cash equivalents paid to
or retained by the Seller on a consolidating basis during such period plus then
on hand as of December 31, 1996 (as computed in accordance with clause (ii) of
the last sentence of Section 1(f)(1) of this Agreement) exceeds the Seller's
Cash Retention, then the amount of such excess shall be promptly paid to the
Buyer by the Seller, and if the amount of such cash is less than the Seller's
Cash Retention, the amount of such shortfall shall be promptly paid to the
Seller by the Buyer. For purposes of the calculations provided for in this
subsection (e), the lease provided for in section 5(l) shall be considered in
effect for the month of December, 1996.
(f) Access to Records. Following the effective Closing Date,
Buyer and EMI shall give to the Seller reasonable access to (and the right to
make copies at the expense of Seller) the all financial and other records of the
School which reflect or relate to the business, operations, income, expenses and
assets of School existing on, accruing or prior to the Closing Date, and to
preserve such records for a period of time reasonably necessary to insure their
availability for purposes of state and federal regulatory compliance or
production or review in the case of an audit, investigation or inquiry. Access
to such records shall be conducted by the Seller in such manner as not to
interfere unreasonably with the operations of the business following the Closing
Date.
(g) Filing for Prerequisite Student Aid Approvals. Prior to
January 31, 1997, or 30 days after the Closing Date, whichever is later, the
Buyer shall file all necessary applications for the Prerequisite Student Aid
Approvals.
(h) Further Documents or Acts. The parties will also execute,
deliver, record (where appropriate) and/or perform at Closing and from time to
time thereafter, at the request of Buyer, EMI, or Seller, all other documents or
acts required to consummate any of the transactions contemplated by this
Agreement or otherwise carry out the purposes of this Agreement, including
without limitation, any and all instruments or other documents of transfer,
conveyance, assignment and assumption as may be reasonably necessary to effect
of evidence the transfer of the School Related Assets and the assumption of the
Stated Liabilities.
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<PAGE> 20
7. CONFIDENTIALITY AND JOINT NON-COMPETITION AGREEMENT.
(a) Seller acknowledges that, as a result of its ownership of
the School it has had access to and knowledge of confidential or proprietary
information developed by Seller with respect to the School and its operations
and of a special and unique nature and value to the Buyer, including, but not
limited to, the methods and systems used in connection with the School's
operations, the names and addresses of its students and sources of referral,
tuition charged and paid by with respect to the School or its customers,
curricula, related memoranda, research reports, designs, records, student files,
services, and operating procedures, and other information, data, and documents
now existing or later acquired by Seller in connection with the School's
operations, regardless of whether any such information, data, or documents,
qualify as a "trade secret" under applicable Federal or state law (collectively
"Confidential Information"). Confidential Information does not include
information that (i) becomes generally available to the public other than as a
result of disclosures by Seller in violation of the terms of this Agreement, or
(ii) becomes available to Seller on a non-confidential basis from a source that
is not bound by a confidentiality agreement with Buyer or EMI or each of their
respective directors, officers, employees, agents or representatives. As a
material inducement to Buyer to enter into this Agreement, the Seller covenants
and agrees not at any time following the directly or indirectly, to divulge or
disclose for any purpose whatsoever, any Confidential Information which is in
the possession of Seller as a result of its ownership of the School, or
otherwise as a result of the relationship between the Seller and the School's
operations. In accordance with the foregoing, the Seller agrees at no time
retain or remove from the School Facilities records of any kind or description
whatsoever (other than those which constitute Excluded Assets) for any purpose
whatsoever unless authorized by Buyer. Notwithstanding the foregoing provisions
of this Section 7(a), Seller may disclose Confidential Information (i) to its
employees, counsel, accountants and agents on a need-to-know basis (provided
that any such person shall be informed of the confidential nature of such
information and directed not to disclose or make public such Confidential
Information), (ii) to the extent required by applicable law, rules and
regulation, and (iii) in any action, suit or proceeding between the parties,
provided that in connection with disclosures permitted by clauses (ii) and (iii)
above, Seller shall provide Buyer with at least three (3) days notice of such
intent so that an appropriate protective order may be sought by Buyer if
desired.
(b) As a material inducement to Buyer to enter into this
Agreement, the Seller agrees for a period of five (5) years after the Closing of
the transactions provided for in this Agreement not to (i) engage in the
operation of a post secondary school facility (the "Prohibited Activities")
anywhere within 50 miles (the "Area") of the location of any school owned or
operated by EMI and listed on EXHIBIT 24(24) or any postsecondary educational
school which EMI subsequently operates during such period with respect to which
EMI either gives written notice to the Buyer or includes on its Internet
homepage or any successor generally available information service prior to the
Seller's commencement of such activities; (ii) become associated as manager,
consultant, advisor, or stockholder owning more that 5%
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<PAGE> 21
of the outstanding stock of a company or participate in the management or
direction of a company or otherwise with any person, corporation or entity
engaging in Prohibited Activities anywhere within the Area; (iii) call upon any
of Buyer's, EMI's or any of EMI's subsidiary schools' students, teachers or
referral sources for the purpose of promoting any Prohibited Activities for any
person, person, corporation or entity within the Area; or (iv) divert, solicit
or take away any of Buyer's, EMI's or any of EMI's subsidiary school's teachers
or other personnel for the purpose of engaging in any Prohibited Activities
regardless of the location of such activities.
(c) In the event of a breach or threatened breach by the
Seller of any of the provisions of this Section 7, Buyer, in addition to and not
in limitation of any other rights, remedies, or damages available to Buyer at
law or in equity, shall be entitled to a permanent injunction in order to
prevent or to restrain any such breach by Seller, or by Seller's partners,
agents, representatives, servants, employers, employees and/or any and all
persons directly or indirectly acting for or with him.
(d) Seller agrees that, if it shall violate any of its
covenants or agreements provided for in this Section 7, Buyer shall be entitled
to an accounting and repayment of all profits, compensation, commissions,
remuneration, or benefits which Seller directly, or indirectly, has realized
and/or may realize as a result of, growing out of, or in connection with any
such violation; such remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Buyer may be entitled to
at law or in equity or under this Agreement.
(e) Seller has carefully read and considered the provisions of
this Section 7, and agrees that the restrictions set forth above (including
without limitation the time period and geographical areas of restriction) are
fair and reasonable and are reasonably required for the protection of the
interest of the Buyer and EMI. In the event that, notwithstanding the foregoing,
any of the provisions of this Section 7 are held invalid or unenforceable, the
remaining provisions shall continue to be valid and enforceable. In the event
that any provision of this Section 7 relating to time period and/or areas of
restriction are declared by a court of competent jurisdiction to exceed the
maximum time period or areas such court deems reasonable and enforceable, said
time period or areas of restriction shall be deemed to become, and thereafter
be, the maximum time period and/or area which such court deems reasonable and
enforceable.
8. INDEMNIFICATION.
(a) Seller agrees to defend, indemnify and hold harmless the
Buyer and EMI and their directors, officers, employees and agents from and
against any loss, liability, damage, settlement or expense (including without
limitation, attorneys' fees and disbursements) incurred by Buyer or EMI arising
from or related to the inaccuracy or breach
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<PAGE> 22
of any of the representations, warranties, covenants or agreements of Seller
contained in this Agreement or in any document incorporated by reference into
this Agreement.
(b) Buyer and EMI, jointly and severally, agree to defend,
indemnify and hold harmless Seller and its directors, officers, employees and
agents from and against any loss, liability, damage, settlement or expense
(including without limitation attorneys' fees and disbursements) incurred by
Seller arising from or related to the inaccuracy or breach of any of the
representations, warranties, covenants or agreements of Buyer or EMI contained
in this Agreement or in any document incorporated by reference into this
Agreement.
(c) The party seeking indemnification pursuant to this Section
8 (the "Indemnified Party") shall give (or cause to be given) to the party or
parties from whom indemnification is sought hereunder (the "Indemnifying Party")
written notice of any claim or matter for which indemnity is (or will be) sought
under this Section 8. Such notice shall be given promptly after the Indemnified
Party receives actual notice or knowledge of the claim or matter that is subject
to indemnification. With respect to any claim asserted by a third party against
an Indemnified Party for which indemnity is sought hereunder, the relevant
Indemnifying Party shall have the right to employ counsel reasonably acceptable
to the relevant Indemnified Party to defend against such assertion and such
Indemnifying Party shall have the right to compromise or otherwise settle any
such action or claim only with the prior written consent of such relevant
Indemnified Party, which consent shall not be unreasonably withheld.
9. EVENTS OF DEFAULT. If any one or more of the following events occurs
then, subject to the expiration of any specified grace period and the giving of
any prior notice required under this Section 9, such event shall constitute an
Event of Default by the party responsible for such event or against whom it
should be charged.
(a) Warranties or Representations. Any warranty or
representation by or on behalf of any party contained in this Agreement (or in
any document between the parties furnished in compliance with this Agreement at
Closing) is false or misleading in any material respect.
(b) Agreements. Any party fails to take any action required of
it to comply with its obligations contained in this Agreement, or takes any
action prohibited or inconsistent with its obligations under this Agreement, and
such failure to act or action is not cured prior to ten (10) days after written
notice thereof is given to the defaulting party.
(c) Refusal to Close. A party refuses to consummate the
transactions provided for (and subject to the terms and conditions specified) in
this Agreement by 5 p.m., Eastern Daylight Time on January 31, 1997 (the
"Termination Date"), except if the failure to close is based upon the failure of
the other party to meet a condition to Closing provided for
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<PAGE> 23
in Section 5 of this Agreement.
(d) Failure of Closing Condition. Any party is unable to
comply with the conditions of Closing provided for in Section 5 of this
Agreement, other than as a result of an Event of Default as described in
Sections 9(a), (b), or (c) above.
10. TERMINATION AND RIGHTS AND REMEDIES ON DEFAULT.
(a) Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned prior to the Closing: (i) by the
mutual consent of Buyer, EMI, and Seller; (ii) by Buyer and EMI, if any
condition to their obligations to close set forth in Section 5 hereof becomes
impossible of performance or has not been satisfied in full (in each case other
than as a result of a breach of such party's obligations under this Agreement)
or previously waived by the other parties to this Agreement in writing at or
prior to the Termination Date; (iii) by Seller if any condition to their
obligations to close set forth in Article 5 hereof becomes impossible of
performance or has not been satisfied in full (in each case other than as a
result of a breach of such party's obligations under this Agreement) or
previously waived by the other parties to this Agreement in writing at or prior
to the Termination Date; or(iv) by any party (other than a party that is in
breach of its obligations under this Agreement) if the Closing shall not have
occurred on or before the Termination Date. If this Agreement is terminated
pursuant to clause (i) of this Article 10, all obligations of the parties
hereunder shall terminate without any further liability or obligation of either
party to the other, except that the provisions of Section 11, Section 13(b) and
the confidentiality provisions of Section 4(c) of this Agreement shall survive
and continue in full force and effect notwithstanding such termination. Except
as limited by the preceding sentence, the exercise by any party of the right to
terminate this Agreement shall not terminate or limit any remedy that such party
may have in this Section 10 as a result of an Event of Default.
(b) Rights and Remedies on Default. Upon and after an Event of
Default by any party, the other party shall have the following rights and
remedies:
(1) Default by Buyer. In the event that Buyer is obligated
to and fails to close by the Termination Date, and Seller is not in default of
its obligations under this Agreement, this Agreement shall terminate and Seller
shall have the right to seek money damages as their sole remedy. Seller hereby
agrees that it shall not be entitled to seek or file suit for specific
performance of this Agreement.
(2) Default by Seller. If, on the Termination Date, there
exists an Event of Default as described in Section 9 of this Agreement,
chargeable against the Seller, Buyer may either (i) waive such default and
close, in which event Buyer shall have the right to seek specific performance of
this Agreement, including, without limitation, the acquisition
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<PAGE> 24
of the School Related Assets and the performance by the Seller of the covenants
provided for in this Agreement, or (ii) refuse to close, and, except in the case
of an Event of Default described in Section 9(d) above, seek money damages from
Seller, including, without limitation, indemnification pursuant to Section 8 of
this Agreement. An election by Buyer to proceed in accordance with subclause (i)
of the preceding sentence shall constitute the acknowledgment by Buyer and
Seller that Buyer cannot be adequately compensated by money damages for the
failure to perform by Seller, that such damages are indeterminate, and that a
court of competent jurisdiction may enter an order pursuant to which Seller is
obligated to specifically perform their obligations to Buyer pursuant to the
terms of this Agreement.
(3) Default Subsequent to Closing. If any party breaches
this Agreement subsequent to Closing, or if a default occurs pursuant to
Sections 9(a) or 9(b), the nondefaulting party(ies) shall have the right to seek
money damages from the defaulting party(ies), either pursuant to Section 8 of
this Agreement or otherwise. In addition, if, (i) as a result of any action
taken or not taken by the Seller in violation of any applicable law or
regulation which (ii) has not been disclosed to the Buyer in this Agreement, and
which (iii) the occurrence or non occurrence of which was known or reasonably
should have been known to the Seller, the Prerequisite Student Aid Approvals are
not received prior to 12 months from the date of the Closing, or, if received or
offered, can only be obtained on conditions imposing substantial financial
burdens on the Buyer in addition to those which would otherwise be imposed in
connection which such approval, the Buyer may elect to rescind the transactions
provided for in this Agreement and, upon such election, the parties will take
such action as may be reasonably required to restore the other party to its
respective positions as they existed prior to the Closing provided for in this
Agreement.
(4) Nature of Remedies Cumulative. Except as otherwise
provided in this Agreement, all rights and remedies granted in this Agreement or
available under applicable law shall be deemed concurrent and cumulative and not
alternative or exclusive remedies, to the full extent permitted by law and this
Agreement, and any party may proceed with any number of remedies at the same
time or in any order. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy, and any party, upon the
occurrence of an event of default by another party under this Agreement, may
proceed at any time, under any agreement, in any order and with any available
remedy.
(5) Limitation on Liability of Seller. Except in the case of
a breach of the agreements contained in Section 7 of this Agreement, Seller
shall not have any liability with respect to any claims of Buyer or EMI for
money damages, whether pursuant to this Section, Section 8 of this Agreement or
otherwise, until such time, if any, as the aggregate amount of all such amounts
otherwise subject to recovery by Buyer or EMI shall exceed, in the aggregate,
$10,000, and then only to the extent of such excess; and provided further that
the Seller shall not be obligated to pay such damages to the extent the total
amount otherwise subject to recovery by Buyer or EMI from the Seller exceeds the
aggregate of all amounts paid or payable to the Seller pursuant to the terms of
this Agreement.
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<PAGE> 25
11. FINDERS FEES.
Except with respect to Mr. Frank Paone, each of the parties represents
and warrants to the other that such party has not employed any finder or broker
in connection with transactions contemplated by this Agreement. Seller
acknowledges that it is solely responsible for all compensation due to Mr. Paone
on account of the transactions contemplated by this Agreement. Each party agrees
to indemnify and hold harmless the others from and against any claim, damages,
liabilities, and expenses (including without limitation, attorneys' fees and
disbursements) arising from any claim or demand asserted by any person or entity
on the basis of its employment as a finder or broker by the respective party.
12. NOTICES. All notices or other communications required or permitted
under the terms of this Agreement shall be made in writing and shall be deemed
given (i) upon hand delivery, (ii) when sent by commercial overnight courier
with written verification of receipt, or (iii) three days after deposit of same
in the Certified Mail, Return Receipt Requested, first class postage and
registration fees prepaid and correctly addressed to the parties at the
following addresses:
If to Buyer: HBC Acquisition Corp.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 30076
Attn: President
With a copy to: Greenberg Traurig
777 South Flagler Drive
Suite 310
West Palm Beach, Florida 33401
Attn: Morris C. Brown, Esq.
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia, 33076
Attn: President
With a copy to: Greenberg Traurig
777 South Flagler Drive
Suite 310
West Palm Beach, Florida 33401
Attn: Morris C. Brown, Esq.
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<PAGE> 26
If to Seller: O/E Learning, Inc.
3290 West Big Beaver
Suite 128
Troy, Michigan 48084
Attn: Chairman of the Board
With a copy to: O/E Automation
3290 West Big Beaver
Suite 132
Troy, Michigan 48084
Attn: James Newhard, Esq.
or to such other address as any of the parties hereto may designate by notice to
the others.
13. MISCELLANEOUS.
(a) Successors. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned prior to Closing without
the prior written consent of the other parties hereto.
(b) Expenses. Except as otherwise provided in this Agreement,
Buyer and Seller shall be responsible for any and all of the respective fees,
costs and expenses incurred by each, in connection with the negotiation,
preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by this
reference all Exhibits hereto and all documents executed and/or delivered at
Closing. This Agreement and the documents so incorporated into it contain the
parties' entire understanding and agreement with respect to the subject matter
hereof; and any and all conflicting or inconsistent discussions, agreements,
promises, representations and statements, if any, between the parties or their
representatives that are not incorporated in this Agreement shall be null and
void and are merged into this Agreement.
(d) Amendments Only in Writing. No amendment, modification,
waiver or discharge of this Agreement or any provision of this Agreement shall
be effective against any party, unless such party shall have consented thereto
in writing.
(e) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement, when
requested by
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<PAGE> 27
another party, shall give all reasonable and necessary cooperation with respect
to any reasonable matters relating to the transactions contemplated by this
Agreement.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, exclusive of its
choice of law provisions.
(h) Headings. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.
(i) Gender; Number. All references to gender or number in this
Agreement shall be deemed interchangeably to have a masculine, feminine, neuter,
singular or plural meaning, as the sense of the context requires.
(j) Severability. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement,and each term and provision of this Agreement shall
be construed to be valid and enforceable to the full extent permitted by law.
(k) Survival. Except as otherwise expressly provided in this
Agreement, the liabilities and obligations of each party with respect to any and
all of its representations, warranties, covenants and agreements set forth in
this Agreement and/or in any document incorporated into it shall not be merged
into, affected or impaired by the Closing under this Agreement. All of the
representations, warranties, covenants and agreements set forth in this
Agreement shall survive the Closing for the period of two years thereafter, so
that (except as otherwise provided below) any claim under this Agreement must be
asserted by notice given to the party claimed to be liable on or before the
second anniversary of the Closing Date. Notwithstanding the foregoing, the time
limitation shall not apply to: (i) the covenants related to confidentiality and
non-competition contained in Section 7 above; (ii) claims arising out of a
misrepresentation as to matters contained in Section 2 (h) and 2 (i) (which
shall survive for a period ending on the seventh anniversary of the Closing
Date), or (iii) fraud. All obligations and liabilities described in clauses (i)
and (iii) of the previous sentence shall survive the Closing for the period in
which a claim can be asserted with respect thereto under applicable law.
(l) No Third Party Beneficiaries. This Agreement has been
entered into solely for the benefit of the parties that have executed it, and
not to confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it.
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<PAGE> 28
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
HBC ACQUISITION CORP. ("BUYER") O/E LEARNING, INC. ("SELLER")
By:s/Vince Pisano By: s/Anthony Iaquinto
---------------------------- -----------------------------
Authorized Signatory Anthony Iaquinto, Treasurer
EDUCATIONAL MEDICAL, INC.
By: s/Vince Pisano
-------------------------
Vince Pisano, Chief Financial Officer
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<PAGE> 29
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
1. Form of Second Payment Note
2. The Pledge Agreement
3. List of Excluded Assets
4. Articles of Incorporation and By-Laws of the Seller
5. Seller's Financial Statements
6. Seller's Unaudited Balance Sheet
7. Description of School Facilities
8. Inventory of FF & E
9. List of Permits
10. List of Leases, Financing Agreements, and Other Encumbrances relating to Real and
Personal Property
11. List of Accreditation
12. Policy Manuals and other School Material.
13. Cohort Default Rate Evaluation Material
14. Trademarks etc.
15. List of Material Contracts
16. Employment Agreements
17. Employee Benefit Plans
18. Insurance Policies
19. Actions Pending
20. List of Bank Accounts
21. EMI's Financial Statements
22. Form of Assumption Agreement
23. Form of Bill of Sale
24. List of Existing School Locations
</TABLE>
-29-
<PAGE> 30
EXHIBIT 3
LIST OF EXCLUDED ASSETS
All assets of Seller not related to or used in connection with the
operation of the School.
<PAGE> 31
EXHIBIT 4
ARTICLES OF INCORPORATION AND BY-LAWS OF THE SELLER
See attached
<PAGE> 32
C&S-500 (Rev. 1-83)
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU
(FOR BUREAU USE ONLY) Date Received
FILED
MAR 05 1984 MAR 05 1984
Administrator
MICHIGAN DEPT. OF COMMERCE
Corporation & Securities Bureau
EFFECTIVE DATE:
CORPORATION IDENTIFICATION NUMBER 295-444
ARTICLES OF INCORPORATION
For use by Domestic Profit Corporations
(Please read instructions on last page before completing form)
Pursuant to the provisions of Act 284, Public Acts of 1972, as amended,
the undersigned corporation executes the following Articles:
Article I
The name of the corporation is:
O/E Learning Systems, Inc.
Article II
The purpose or purposes for which the corporation is organized is to engage in
any activity within the purposes for which corporations may be organized under
the Business Corporation Act of Michigan.
Article III
The total authorized capital stock is
(1) Class A
Common Shares 1,000,000 Par Value $0.01
per share
(2) Class B
Common Shares 1,000,000 Par Value $0.01
(3) A statement of all or any of the designations and the powers, preferences
and rights, and the qualifications, limitations or restrictions thereof
is as follows:
The holders of the Class A common stock shall each be entitled to three
votes for each share of said stock standing registered in his or her name
on the books of the company. The holders of the Class B common stock shall
each be entitled to one vote for each share of said stock standing
registered in his or her name on the books of the company. Otherwise, each
share of Class A and Class B common stock shall be in all respects equal to
every other share of Class A and Class B common stock.
<PAGE> 33
Article IV
1. The address of the registered office is:
1800 Travelers Tower, 26555 Evergreen Rd., Southfield, Michigan 48076
- --------------------------------------------------------------------------
(Street Address) (City) (Zip Code)
2. The mailing address of the registered office if different than above:
Michigan
- --------------------------------------------------------------------------
(P.O. Box) (City) (Zip Code)
3. The name of the resident agent at the registered office is: James J. Vlasic
Article V
The name(s) and address(es) of the incorporator(s) is (are) as follows:
Name Residence or Business Address
James J. Vlasic 1800 Travelers Tower
26555 Evergreen Rd., Southfield, MI 48076
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Article VI (Optional. Delete if not applicable)
When a compromise or arrangement or a plan of reorganization of this corporation
is proposed between this corporation and its creditors or any class of them or
between this corporation and its shareholders or any class of them, a court of
equity jurisdiction within the state, on application of this corporation or of a
creditor or shareholder thereof, or on application of a receiver appointed for
the corporation, may order a meeting of the creditors or class of creditors or
of the shareholders or class of shareholders to be affected by the proposed
compromise or arrangement or reorganization, to be summoned in such manner as
the court directs. If a majority in number representing 3/4 in value of the
creditors or class of creditors, or of the shareholders or class of shareholders
to be affected by the proposed compromise or arrangement or a reorganization,
agree to a compromise or arrangement or a reorganization of this corporation as
a consequence of the compromise or arrangement, the compromise or arrangement
and the reorganization, if sanctioned by the court to which the application has
been made, shall be binding on all the creditors or class of creditors, or on
all the shareholders or class of shareholders and also on this corporation.
Article VII (Optional. Delete if not applicable)
Any action required or permitted by the Act to be taken at an annual of special
meeting of shareholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to shareholders who have not
consented in writing.
<PAGE> 34
C&S-500 (Rev. 1-83)
DOCUMENT WILL BE RETURNED TO NAME AND MAILING ADDRESS INDICATED IN THE BOX
BELOW. Include name, street and number (or P.O. box), city, state and ZIP
code.
James J. Vlasic, Esq. Telephone:
1800 Travelers Tower Area Code 313-
26555 Evergreen Rd. ----------
Southfield, MI 48076 Number 355-0300
-------------
INFORMATION AND INSTRUCTIONS
1. Submit one original copy of this document. Upon filing, a microfilm copy
will be prepared for the records of the Corporation and Securities Bureau.
The original copy will then be returned to the address appearing in the box
above as evidence of filing.
Since this document must be microfilmed, it is important that the filing be
legible. Documents with poor black and white contrast, or otherwise
illegible, will be rejected.
2. This document is to be used pursuant to the provisions of Act 284, P.A. of
1972, by one or more persons for the purpose of forming a domestic profit
corporation.
3. Article I--The corporate name of a domestic profit corporation is required
to contain one of the following words or abbreviations: "Corporation",
"Company", "Incorporated", "Limited", "Corp.", "Co.", "Inc.", or "Ltd.".
4. Article II--State, in general terms, the character of the particular
business to be carried on. Under section 202(b) of the Act, it is
sufficient to state substantially, alone or without specifically enumerated
purposes, that the corporation may engage in any activity within the
purposes for which corporations may be organized under the Act. The Act
requires, however, that educational corporations state their specific
purposes.
5. Article III (2)--The Act requires the incorporators of a domestic
corporation having shares without par value to submit in writing the amount
of consideration proposed to be received for each share which shall be
allocated to stated capital. Such stated value may be indicated either in
item 2 of article III or in a written statement accompanying the articles of
incorporation.
6. Article IV--A post office box may not be designated as the address of the
registered office. The mailing address may differ from the address of the
registered office only if a post office box address in the same city as the
registered office is designated as the mailing address.
7. Article V--The Act requires one or more incorporators. The address(es)
should include a street number and name (or other designation), city and
state.
8. The duration of the corporation should be stated in the articles only if the
duration is not perpetual.
9. This document is effective on the date approved and filed by the Bureau. A
later effective date, no more than 90 days after the date of delivery, may
be stated as an additional article.
10. The articles must be signed in ink by each incorporator. The names of the
incorporators as set out in article V should correspond with the signatures.
11. FEES: Filing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . .$10.00
Franchise fee--1/2 mill (.0005) on each dollar of authorized
capital stock, with a minimum franchise fee of. . . . . . . . .$25.00
Total minimum fees (Make remittance payable to State of
Michigan) . . . . . . . . . . . . . . . . . . . . . . . . . . .$35.00
12. Mail form and fee to:
Michigan Department of Commerce
Corporation and Securities Bureau
Corporation Division
P.O. Box 30054
Lansing, MI 48909
Telephone: (517) 373-0493
<PAGE> 35
Use space below for additional Articles or for continuation of previous
Articles. Please identify any Article being continued or added. Attach
additional pages if needed.
I (We), the incorporator(s) sign my (our) name(s) this 2nd day of March, 1984.
/s/ JAMES J. VLASIC
- -------------------------------------- ---------------------------------
James J. Vlasic
- -------------------------------------- ---------------------------------
- -------------------------------------- ---------------------------------
- -------------------------------------- ---------------------------------
- -------------------------------------- ---------------------------------
<PAGE> 36
[SEAL]
Michigan Department of Commerce
Lansing, Michigan
This is to Certify That Articles of Incorporation of
O/E Learning Systems, Inc.
were duly filed in this office on the 5th day of March, 1984,
in conformity with Act 284, Public Acts of 1972, as amended.
In testimony whereof, I have hereunto set my
hand and affixed the Seal of the Department,
in the City of Lansing, this 5th day
of March, 1984.
Director
<PAGE> 37
MICHIGAN DEPARTMENT OF COMMERCE-CORPORATION AND SECURITIES BUREAU
(For Bureau use only)
FILED Date Received
JUL 06 1984 JUN 18 1984
Administrator
MICHIGAN DEPT. OF COMMERCE
Corporation & Securities Bureau
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Corporations
(Please read instructions on last page before completing form)
Pursuant to the provisions of Act 284, Public Acts of 1972, as amended
(profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations),
the undersigned corporation executes the following Certificate:
1. The name of the corporation is: O/E Learning Systems, Inc.
2. The corporation identification number (CID) assigned by the Bureau is:
295-444
3. The location of the registered office is:
1800 Travelers Tower, 26555 Evergreen, Southfield, Michigan 48076
----------------------------------------------------------------------------
(Street address) (City) (ZIP Code)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4. Article I of the Articles of Incorporation is hereby amended to read as
follows:
I The name of the Corporation is O/E Learning, Inc.
<PAGE> 38
5. The foregoing Amendment to the Articles of Incorporation was duly adopted on
the 29th day of May, 1984, in accordance with the provisions of the Act.
Complete and execute either a or b below, but not both.
This Amendment
a. [ ] was duly adopted by the unanimous consent of the incorporator(s) before
the first meeting of the board of directors or trustees.
Signed this _____ day of ___________, 19___.
___________________________________________ _________________________________
___________________________________________ _________________________________
___________________________________________ _________________________________
___________________________________________ _________________________________
(Signatures of all incorporators; type or print name under each signature)
b. (Check one of the following)
[ ] was duly adopted by the shareholders or members, or by the directors
if it is a nonprofit corporation organized on a nonstock directorship
basis,in accordance with Section 611(2) of the Act. The necessary
votes were cast in favor of the amendment.
[ ] was duly adopted by written consent of the shareholders or members
having not less than the minimum number of votes required by statute
in accordance with Section 407 (1) and (2) of the Act. Written notice
to shareholders or members who have not consented in writing has been
given. (Note: Written consent by less than all of the shareholders or
members is permitted only if such provision appears in the Articles of
Incorporation.)
[x] was duly adopted by written consent of all the shareholders or members
entitled to vote in accordance with Section 407 (3) of the Act.
Signed this 29th day of May, 1984
By /s/ THOMAS A. DOONAN
------------------------------------------------------
(Signature)
Thomas A. Doonan, its President
------------------------------------------------------
(Type or Print Name and Title)
<PAGE> 39
DOCUMENT WILL BE RETURNED TO NAME AND MAILING ADDRESS INDICATED
IN THE BOX BELOW. Include name, street and number (or P.O. box),
city, state and ZIP code.
James J. Vlasic, Esq. Telephone:
1800 Travelers Tower Area Code 313
26555 Evergreen Rd. -------
Southfield, MI 48076 Number 355-0300
----------
INFORMATION AND INSTRUCTIONS
1. Submit one original copy of this document. Upon filing, a
microfilm copy will be prepared for the records of the Corporation and
Securities Bureau. The original copy will be returned to the address
appearing in the box above as evidence of filing.
Since this document must be microfilmed, it is important that the filing be
legible. Documents with poor black and white contrast, or otherwise
illegible, will be rejected.
2. This document is to be used pursuant to the provisions of section 631 of
the Act for the purpose of amending the articles of incorporation of a
domestic corporation.
3. Item 2 - Enter the identification number previously assigned by the
Bureau. If this number is unknown, leave it blank.
4. Item 4 - The entire article being amended must be set forth in its
entirety. However, if the article being amended is divided into separately
identified sections, only the sections being amended need be included.
5. This document is effective on the date approved and filed by the Bureau. A
later effective date, no more than 90 days after the date of delivery, may
be stated.
6. If the amendment is adopted before the first meeting of the board of
directors, item 5(a) must be completed and signed in ink by all of the
incorporators. If the amendment is otherwise adopted, item 5(b) must be
completed and signed in ink by the president, vice-president, chairperson,
or vice-chairperson.
7. FEES: Filing fee (Make remittance payable to State of Michigan)---$10.00
Franchise fee for profit corporations (payable only if authorized
capital stock has increased) - 1/2 mill (.0005) on each dollar of
increase over highest previous authorized capital stock.
8. Mail form and fee to:
Michigan Department of Commerce
Corporation and Securities Bureau
Corporation Division
P.O. Box 30054
Lansing, Michigan 48909
Telephone: (517) 373-0493
<PAGE> 40
MICHIGAN DEPARTMENT OF COMMERCE -- CORPORATION AND SECURITIES BUREAU
(FOR BUREAU USE ONLY) Date Received
March 21, 1988
FILED
MAR 29 1988
Administrator
MICHIGAN DEPARTMENT OF COMMERCE
Corporation & Securities Bureau
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC CORPORATIONS
(Please read instructions and Paperwork Reduction Act notice on last page)
Pursuant to the provisions of Act 284, Public Acts of 1972, as amended
(profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations),
the undersigned corporation executes the following Certificate:
1. The present name of the corporation is: O/E Learning, Inc.
2. The corporation identification number (CID) assigned by the Bureau is:
295-444
3. The location of its registered office is:
1800 Travelers Tower, 26555 Evergreen Road, Southfield, Michigan 48076
--------------------------------------------------------------------------
(Street Address) (City) (ZIP Code)
4. Article IV, Section 1 of the Articles of Incorporation is hereby amended to
read as follows:
1. The address of the registered office is: 2000 Town Center, Suite 900,
Southfield, Michigan 48075
Article VIII is hereby added and reads as follows:
See Exhibit A
<PAGE> 41
EXHIBIT A
ARTICLE VIII
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for a breach of fiduciary
duty as a director, except for liability:
(a) For any breach of the director's duty of loyalty to the
Corporation or its shareholders;
(b) For acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(c) Resulting from a violation of Section 551(1) of the
Michigan Business Corporation Act; or
(d) For any transaction from which the director derived an
improper personal benefit.
In the event the Michigan Business Corporation Act is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Michigan
Business Corporation Act, as so amended. Any repeal, modification or adoption
of any provision in these Articles of Incorporation inconsistent with this
Article shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal, modification or adoption.
<PAGE> 42
5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT
OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR
TRUSTEES. OTHERWISE, COMPLETE SECTION (b).
a. [ ] The foregoing amendment to the Articles of Incorporation was duly
adopted on the _______ day of _____________, 19__, in accordance with
the provisions of the Act by the unanimous consent of the
incorporator(s) before the first meeting of the board of directors or
trustees.
Signed this _______ day of _______, 19__.
----------------------------- ------------------------------------
----------------------------- ------------------------------------
----------------------------- ------------------------------------
----------------------------- ------------------------------------
(Signatures of all incorporators; type or print name under each
signature)
b. [x] The foregoing amendment to the Articles of Incorporation was duly
adopted on the 18th day of March, 1988. The amendment: (check one of the
following)
[ ] was duly adopted in accordance with Section 611(2) of the Act by the
vote of the shareholders if a profit corporation, or by the vote of the
shareholders or members if a nonprofit corporation, or by the vote of
the directors if a nonprofit corporation organized on a nonstock
directorship basis. The necessary votes were cast in favor of the
amendment.
[ ] was duly adopted by the written consent of all the directors pursuant to
Section 525 of the Act and the corporation is a nonprofit corporation
organized on a nonstock directorship basis.
[ ] was duly adopted by the written consent of the shareholders or members
having not less than the minimum number of votes required by statute in
accordance with Section 407(1) and (2) of the Act. Written notice to
shareholders or members who have not consented in writing has been
given. (Note: Written consent by less than all of the shareholders or
members is permitted only if such provision appears in the Articles of
Incorporation.)
[x] was duly adopted by the written consent of all the shareholders or
members entitled to vote in accordance with Section 407(3) of the Act.
Signed this 18th day of March, 1988
By /S/ Cass T. Casucci
----------------------------------------------------------
(Signature)
Cass T. Casucci, Chairman
------------------------------------------------------------
(Type or Print Name and Title)
<PAGE> 43
BARLOW & LANGE, P.C.
ATTORNEYS AND COUNSELLORS AT LAW
3290 WEST BIG BEAVER ROAD
SUITE 310
TROY, MICHIGAN 48084
THOMAS W.H. BARLOW TELEPHONE: (313) 649-3150
CRAIG W. LANGE FAX: (313) 649-3175
H. DAVID CAMP
PAUL W. COUGHENOUR
LEE GOLDMAN
DONNA A. LAVOIE
LAWRENCE M. HINTZ
August 19, 1988
Dr. Thomas A. Doonan
O/E Learning, Inc.
3290 W. Big Beaver
Suite 128
Troy, Michigan 48084
Dear Dr. Doonan:
Please be advised that O/E Learning, Inc. is authorized to do business in
Washington, County, Maryland under the name "Hagerstown Business College" as of
August 16, 1988. Enclosed is the receipt of such filing along with a copy of the
affidavit filed by O/E Learning, Inc.
Very truly yours,
BARLOW & LANGE, P.C.
/s/ Donna A. Lavoie/CL
----------------------
Donna A. Lavoie
/cl
cc: Richard K. Austin
Anthony Iaquinto
Robert T. Smith
Q: OEL81L01
<PAGE> 44
INSTRUMENT: DEED
-----
MORTGAGE
-----
REQUEST FOR NOTICE OF SALE
-----
XX AGENCY RECORD
-----
HAGERSTOWN BUSINESS COLLEGE
<PAGE> 45
BYLAWS
OF
O/E LEARNING SYSTEMS, INC.
a Michigan corporation
ARTICLE ONE
DEFINITIONS AND ABBREVIATIONS
As used in this set of Bylaws, when capitalized:
Section 1.1 "Corporation" means O/E Learning Systems, Inc., a
Michigan corporation.
Section 1.2 "Act" means the Michigan Business Corporation Act
(Act No. 284 of the Public Acts of 1972), as amended
from time to time.
Section 1.3 "Articles" means the articles of incorporation of the
Corporation as amended from time to time.
Section 1.4 "Bylaws" means the bylaws of the Corporation, as
amended from time to time.
Section 1.5 "Board" means the board of directors of the
Corporation as the same may be constituted from time
to time.
ARTICLE TWO
CORPORATE OFFICES
Section 2.1 Principal Office. The principal office of the
Corporation shall be located in the State of Michigan. The Board may change
the location of the principal office of the Corporation and may, from time to
time, designate other offices within or without the State of Michigan as the
business of the Corporation may require.
ARTICLE THREE
SHAREHOLDERS
Section 3.1 Place of Shareholder's Meetings. Meetings of the
shareholders of the Corporation may be held within or without the State of
Michigan, provided that no meeting shall be held at any place other than 710
North Woodward, Bloomfield Hills, or the registered office of the Corporation
in Michigan, except pursuant to a resolution adopted by the Board.
<PAGE> 46
Section 3.2 Annual Meeting of Shareholders. The annual meeting of
shareholders shall be held on the third Tuesday in the month of December in
each year, commencing in the year 1984 at the hour of 9:00 o'clock in the
forenoon for election of directors and for such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Michigan, then such meeting shall be held on the next
succeeding day that is not a legal holiday. If the annual meeting is not held
on the date designated therefor, the Board shall cause the meeting to be held
as soon thereafter as convenient.
Section 3.3 Special Meetings of Shareholders. A special meeting of
the shareholders may be called at any time by the Chairman, President, a
Vice-President, or by a majority of the Board, or by shareholders of record of
not less than 10% of all the shares entitled to vote at the meeting. The
method by which such meeting shall be called is as follows: Upon receipt of a
specification in writing setting forth the date and purpose of such proposed
special meeting, signed by the Chairman, President, or by a Vice-President, or
by a majority of the Board or by the required number of shareholders as above
provided, the Secretary of this Corporation shall give the written notice
requisite to such meeting.
Section 3.4 Notice of Meetings of Shareholders; Waiver.
(1) Except as otherwise provided in the Act, written
notice of the time, place and purposes of a meeting of shareholders shall be
given not less than 10 nor more than 60 days before the date of the meeting,
either personally or by mail, to each shareholder of record entitled to vote at
the meeting.
(2) When a meeting is adjourned to another time or place,
it is not necessary to give notice of the adjourned meeting if the time and
place to which the meeting is adjourned are announced at the meeting at which
the adjournment is taken and at the adjourned meeting only such business is
transacted as might have been transacted at the original meeting. However, if
after the adjournment the Board fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder
of record on the new record date entitled to notice under subsection (1).
(3) Attendance of a person at a meeting of shareholders,
in person or by proxy, constitutes a waiver of notice of the meeting, except
when the shareholder attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. (See Section 8.1)
Section 3.5 Action by Shareholders Without a Meeting. Any action
required or permitted by the Act to be taken at an annual or special meeting of
shareholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to shareholders who have not consented
in writing.
Section 3.6 Vote of Shareholders.
(1) Each outstanding share is entitled to 1 vote on each
matter submitted to a vote, unless otherwise provided in the Articles. A vote
may be cast either orally or in writing, unless otherwise provided in the
Bylaws. (See Section 3.7)
-2-
<PAGE> 47
(2) When an action, other than the election of directors,
is to be taken by vote of the shareholders, it shall be authorized by a
majority of the votes cast by the holders of shares entitled to vote thereon,
unless a greater plurality is required by the Articles or the Act. Except as
otherwise provided by the Articles, directors shall be elected by a plurality
of the votes cast at an election. There shall be no cumulative voting for
election of directors.
Section 3.7 Voting by Proxy. A shareholder entitled to vote at a
meeting of shareholders or to express consent or dissent without a meeting may
authorize other persons to act for him by proxy. A proxy shall be signed by
the shareholder or his authorized agent or representative. No such proxy need
be recognized by the Corporation until it is filed with the Secretary of the
Corporation, either before or at the time of the meeting. A proxy is not valid
after the expiration of 3 years from its date unless otherwise provided in the
proxy.
Section 3.8 Order of Business at Shareholders Meeting . The presiding
officer of the meeting of shareholders shall, in the exercise of his
discretion, establish the order of business at such meeting of the shareholders
and at any delayed or adjourned meeting of the shareholders, whether a regular,
special, or annual meeting. Such presiding officer has the power to determine
whether a vote shall be cast orally or in writing.
ARTICLE FOUR
BOARD OF DIRECTORS
Section 4.1 General Powers. The business and affairs of the
Corporation shall be managed by its Board, except as otherwise provided in the
Act or in the Articles. A director need not be a shareholder of the
Corporation.
AMENDED
Section 4.3 Removal of Directors. A director or the entire Board may
be removed at any time, with or without cause, by vote of the holders of a
majority of the shares entitled to vote at an election of directors.
Section 4.4 Vacancies. A vacancy occurring in the Board may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board. A directorship to be filled because of an
increase in the number of directors or to fill a vacancy may be filled by the
Board for a term of office continuing only until the next election of directors
by the shareholders.
Section 4.5 Place of Meetings. Except as provided in Section 4.8,
the meetings of the Board may be held at such place, whether in the State of
Michigan or elsewhere, as the Board may from time to time determine.
Section 4.6 Organization Meeting of Board. At the place of holding
the annual meeting of shareholders, and immediately following the same, the
Board as constituted upon final adjournment of such annual meeting of
shareholders shall convene for the purpose of organization, electing officers,
and transacting any other business properly brought before it, provided, that
the organization meeting in any year may be held at a different time and place
than herein provided
-3-
<PAGE> 48
by consent of a majority of the directors of such new Board. No notice of any
kind to either old or new members of the Board shall be necessary for an
organization meeting held on the same day as the annual shareholders' meeting.
Any organization meeting not held on the same day as the annual shareholders'
meeting shall be a special meeting of the Board.
Section 4.7 Regular Meetings of the Board. Regular meetings of the
Board shall be held at such times and places as the Chairman may from time to
time determine. No notice of regular meetings of the Board shall be required.
Section 4.8 Special Meetings of Board. Special meetings of the
Board may be called by the Chairman, President, or a Vice-President, or
Secretary, or by a majority of the members of the Board, at any time by means
of written notice of the time, place and purposes thereof to each director in
the manner provided in Section 4.9, signed by the Chairman, President, a Vice
President, Secretary, or a majority of the members of the Board, as the case
may be. However, action taken at any such meeting shall not be invalidated for
want of notice if such notice shall be waived as hereinafter provided. The
person or persons authorized to call special meetings of the Board may fix any
place within the State of Michigan, as the place for holding any special
meeting of the Board called by him or them.
Section 4.9 Notice to Board of Special Meeting. Written notice of a
special Board meeting, stating the time and place thereof, shall be personally
delivered, or given by letter, telegram, cable or radiogram, mailed or
delivered for transmission not later than during the third day immediately
preceding the day for such meeting, to each director at such address as appears
on the books of the Corporation; provided, however, that such a special Board
meeting may be held on shorter notice, at the call of only the Chairman,
President or a Vice-President, when the Chairman, President or a Vice-President
in his discretion shall deem such shorter notice to be in the best interests of
the Corporation.
Section 4.10 Waiver of Notice. Attendance of a director at a meeting,
constitutes a waiver of notice of the meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. (See Section 8.1)
Section 4.11 Communication Devices. A member of the Board, or of a
committee designated by the Chairman, may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section constitutes presence in person at the meeting.
Section 4.12 Quorum and Vote of Board and Committees. A majority of
the members of the Board then in office, or of the members of a committee
thereof, constitutes a quorum for transaction of business. The vote of the
majority of members present at a meeting at which a quorum is present
constitutes the action of the Board or of the committee, unless the vote of a
larger number is required by the Act, the Articles or the Bylaws. Amendment of
the Bylaws by the Board requires the vote of not less than a majority of the
members of the Board then in office.
Section 4.13 Action by the Board Without a Meeting. Action required
or permitted to be taken pursuant to authorization voted at a meeting of the
Board or a committee thereof, may be taken without a meeting if, before or
after the action, all members of the Board or of the committee consent thereto
in writing. The written consents shall be filed with the minutes of the
proceedings of the Board or committee. The consent has the same effect as a
vote of the Board or committee for all purposes.
-4-
<PAGE> 49
Section 4.14 Establishment of Committees by the Chairman. The
Chairman may designate 1 or more committees, each committee to consist of 1 or
more of the directors of the Corporation. The Chairman may designate 1 or more
directors as alternate members of a committee, who may replace an absent or
disqualified member at a meeting of the committee. In the absence or
disqualification of a member of a committee, the members thereof present at a
meeting and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in place of such an absent or disqualified member. A committee, and
each member thereof, shall serve at the pleasure of the Board.
Section 4.15 Powers of Committees of the Board. A committee
designated pursuant to Section 4.14 may exercise all powers and authority of
the Board in management of the business and affairs of the Corporation.
However, such a committee does not have power or authority to:
(a) Amend the Articles.
(b) Adopt an agreement of merger or consolidation.
(c) Recommend to shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets.
(d) Recommend to shareholders a dissolution of the Corporation or
a revocation of a dissolution.
(e) Amend the Bylaws.
(f) Fill vacancies in the Board.
(g) Fix compensation of the directors for serving on the Board or
on a committee.
Such a committee does not have power or authority to declare a dividend or to
authorize the issuance of stock. (See subsection 5.1(1))
Section 4.16 Compensation. The Board, by affirmative vote of a
majority of directors in office and irrespective of any personal interest of
any of them, may establish reasonable compensation of directors for services to
the Corporation as directors or officers, and also authorize payment or
reimbursement of the respective director's expenses, if any, of attendance at
each meeting of the Board. No such payment shall preclude any director or
officer from serving the Corporation in any other capacity, and receiving
compensation therefor.
Section 4.17 Further Powers. In addition to the powers and authority
by these Bylaws expressly conferred upon it, the Board may further exercise all
powers of the Corporation, and do all lawful acts and things, as are not by law
or by the Articles or by these Bylaws prohibited, or directed or required to be
exercised or done by the shareholders.
ARTICLE FIVE
OFFICERS
Section 5.1 Officers.
(1) The officers of the Corporation shall consist of a
Chairman, President, Secretary, Vice President Finance - Treasurer, and, if
desired, 1 or more Vice Presidents, and such
-5-
<PAGE> 50
other officers as may be determined by the Board. The officers shall be
elected or appointed by the Board, however, the Chairman may authorize a
committee to elect or appoint officers.
(2) Two or more offices may be held by the same person but an
officer shall not execute, acknowledge or verify an instrument in more than 1
capacity if the instrument is required by law or the Articles or Bylaws to be
executed, acknowledged or verified by 2 or more officers.
(3) An officer elected or appointed as herein provided shall hold
office for the term for which he is elected or appointed and until his
successor is elected or appointed and qualified, or until his resignation or
removal.
(4) An officer, as between himself and other officers and the
Corporation, has such authority and shall perform such duties in the management
of the Corporation as is provided in the Bylaws, or as may be determined by
resolution of the Board not inconsistent with the Bylaws.
(5) None of the officers need be a director.
Section 5.2 Removal of Officers. An officer elected or appointed by
the Board or a committee of the Board may be removed by the Board, at any time,
with or without cause.
Section 5.3 Vacancies. If the office of any officer becomes vacant
for any reason, the Board shall have the power to fill such vacancy.
Section 5.4 Chairman. The Chairman shall be selected from the
membership of the Board. He shall be chief executive officer of the
Corporation and shall preside at the meetings of the Board and at all meetings
of the shareholders; but notwithstanding the fact that he is the presiding
officer, he shall have the full right to participate and vote on all actions of
the Board and shareholders. In addition, he shall have the same general powers
as are granted to the chief executive officer of a corporation. He shall be ex
officio a member of all committees, and shall have the general powers and
duties of supervision and management usually vested in the chief executive
officer of a corporation.
Section 5.5. President. The President shall be the chief operating
officer of the Corporation. He shall, in the absence of the Chairman, preside
at all meetings of the shareholders and directors; he shall have general and
active operating management of the business of the Corporation, and shall see
that all orders of the Chairman and orders and resolutions of the Board are
carried into effect.
Section 5.6 Vice-Presidents. One or more Vice-Presidents may be
selected by the Board. The respective Vice-Presidents shall have such powers
and perform such duties as may from time to time be assigned to each of them by
the Board, or as the Chairman or President may delegate to each of them
respectively.
Section 5.7 Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the shareholders and of the Board, and shall preserve in
books of the Corporation true minutes of the proceedings of all such meetings.
He shall keep in his custody the seal of the Corporation and shall have
authority to affix the same to all instruments where its use is required. He
shall give, or cause to be given, all notices required to be given by him by
the Act, Bylaws or resolution. He shall, in general, perform all duties
incident to the office of Secretary, and such other duties as may be assigned
to him from time to time by the Board, or as the Chairman or President may
delegate to him.
-6-
<PAGE> 51
The Assistant Secretaries, if any, in the order of their seniority as
determined by the Board, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary, and shall perform
such other duties as the Board shall assign to them from time to time, or as
the Chairman or President may delegate to them.
Section 5.8 Treasurer and Assistant Treasurer. The Vice President
Finance-Treasurer shall have custody of all corporate funds and securities and
shall keep in books belonging to the Corporation full and accurate accounts of
all receipts and disbursements; he shall cause to be deposited all monies,
securities and other valuable effects in the name of the Corporation in such
depositories as may be designated for that purpose by the Board. (See Section
7.4) He shall cause to be disbursed the funds of the Corporation as may be
ordered by the Board, causing to be taken proper vouchers for such
disbursements. (See Section 7.3) He shall render to the Chairman, President and
the Board, whenever the same shall be required, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board, he shall deliver to the Chairman or President of the
Corporation, and shall keep in force, a bond in form, amount and with a surety
or sureties satisfactory to the Board, for faithful performance of the duties
of his office, and for restoration to the Corporation in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and property of whatever kind in his possession or under his control
belonging to the Corporation. He shall, in general, perform all duties
incident to the office of Treasurer, and such other duties as may be assigned
to him from time to time by the Board, or as the Chairman or President may
delegate to him.
The Assistant Treasurers, if any, in order of their seniority as
determined by the Board, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer, and shall perform
such other duties as the Board shall assign to them from time to time, or as
the Chairman or President may delegate to them.
Section 5.9 Duties of Officers May be Delegated. In case of the
absence or disability of any officer of the Corporation, or for any other
reason that the Board may deem sufficient, the Board may delegate, for the time
being, the powers and duties, or any of them, of such officer, to any other
officer, or to any director.
ARTICLE SIX
STOCK MATTERS
Section 6.1 Transfer of Stock. Shares of capital stock of the
Corporation shall be transferable only on the books of the Corporation. The
shares are transferable in accordance with article 8 of the Michigan uniform
commercial code, being act no. 174 of the public acts of 1962, as amended,
being sections 440.8101 through 440.8406 of the Michigan Compiled Laws of 1948,
except as otherwise provided in the Act.
Section 6.2 Lost, Stolen, or Destroyed Certificates. Where the
registered owner of a certificate of capital stock or other security of the
Corporation claims that such certificate or other security has been lost,
apparently destroyed, or wrongfully taken, the issuance of a new certificate or
other security in place of the original certificate or other security shall be
governed by the provisions of article 8 of the Michigan uniform commercial
code, being act no. 174 of the public acts of 1962, as amended, being sections
440.8101 through 440.8406 of the Michigan Compiled Laws of 1948, except as
otherwise provided in the Act. The Chairman, President or a Vice-President in
the exercise of his sole discretion may waive the requirement of an indemnity
bond as referred to in Section 8405 of the Michigan uniform commercial code.
Section 6.3 Regulations. The Board shall have the power and
authority to make all such rules and regulations as the Board shall deem
expedient for the regulation of the issue,
-7-
<PAGE> 52
transfer and registration of certificates for shares of capital stock, or other
securities, of this Corporation.
ARTICLE SEVEN
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 7.1 Contracts. The Board, or a duly authorized committee
thereof may authorize any officer or officers, agent or agents, to enter into
any contract or execute and deliver any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances.
Section 7.2 Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board or a duly authorized committee thereof.
Such authority may be general or confined to specific instances.
Section 7.3 Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in
the name of the Corporation shall be signed by such officer or officers, agent
or agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board or a duly authorized committee thereof.
Such authority may be general or confined to specific instances.
Section 7.4 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositaries as the Board, or a duly
authorized committee thereof may select.
ARTICLE EIGHT
MISCELLANEOUS PROVISIONS
Section 8.1 Notice: Waiver. When, under the Act or the Articles or
Bylaws of the Corporation or by the terms of an agreement or instrument, the
Corporation or the Board or any committee thereof may take action after notice
to any person or after lapse of a prescribed period of time, the action may be
taken without notice and without lapse of the period of time, if at any time
before or after the action is completed the person entitled to notice or to
participate in the action to be taken or, in case of a shareholder, by his
attorney-in-fact, submits a signed waiver of such requirements.
Section 8.2 Fiscal Year. The fiscal year of the Corporation shall
end on October 31 in each year.
Section 8.3 Seal. The Corporation's seal shall have inscribed
thereon the name of the Corporation and the words "seal" or "corporate seal".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise. (See Section 5.6)
Section 8.4 Voting of Shares Owned by Corporation. Any share or
shares of stock in other corporations owned by this Corporation may be voted by
the Chairman or President of this Corporation or by a proxy appointed by either
of them, or in the absence of the Chairman, President or their proxy, by a Vice
President or by proxy appointed by him, or in the absence of the aforementioned
persons, by the Secretary or by proxy appointed by him. The Board may by
resolution appoint some other person to vote such shares.
-8-
<PAGE> 53
Section 8.5 Dividends. The Board may, from time to time, declare and
the Corporation may pay dividends on its outstanding shares in the manner and
upon the terms and conditions permitted by law, and not in contravention of the
Articles. (See Section 4.15)
ARTICLE NINE
AMENDMENTS
Section 9.1 Bylaw Amendments, Etc. The shareholders or the Board may
amend or repeal the Bylaws or adopt new Bylaws. (See Section 4.12)
/s/ James J. Vlasic
-----------------------------------
James J. Vlasic,
INCORPORATOR
-9-
<PAGE> 54
I, RICHARD K. AUSTIN, duly elected and qualified Secretary of O/E
LEARNING, INC., a Michigan corporation, do hereby certify that at the annual
meeting of the stockholders held on December 18, 1984, Section 4.2 of the
By-Laws of this corporation was amended to read as follows:
"Section 4.2: Number of Directors; Election and Term. The Board shall
consist of five (5) members. At each meeting, the shareholders shall
elect directors to hold office until the succeeding annual meeting of
the shareholders. A director shall hold office for the term for which
he is elected and until a successor is elected and qualified, or until
his resignation or removal."
/s/ Richard K. Austin
------------------------------------
RICHARD K. AUSTIN
Dated: As of December 18, 1984
<PAGE> 55
I, RICHARD R. VLASIC, duly elected and qualified Secretary of O/E
LEARNING, INC., a Michigan corporation, do hereby certify that at the annual
meeting of the stockholders held on December 16, 1985, Section 4.2 of the
By-Laws of this corporation was amended to read as follows:
"Section 4.2: Number of Directors; Election and Term. The Board shall
consist of six (6) members. At each meeting, the shareholders shall
elect directors to hold office until the succeeding annual meeting of
the shareholders. A director shall hold office for the term for which
he is elected and until a successor is elected and qualified, or until
his resignation or removal."
/s/ Richard R. Vlasic
-----------------------------------
RICHARD R. VLASIC
Dated: As of June 12, 1986
<PAGE> 56
AMENDED SECTION 4.2 OF THE BYLAWS
OF O/E LEARNING, INC.
(as of May 1, 1994)
Section 4.2 Number of Directors; Election and Term. The Board shall
consist of eight (8) members. At each annual meeting, the shareholders shall
elect directors to hold office until the succeeding annual meeting of the
shareholders. A director shall hold office for the term for which he is
elected and until his successor is elected and qualified, or until his
resignation or removal.
END OF AMENDED SECTION 4.2
<PAGE> 57
I, JAMES A. NEWHARD, the duly elected and qualified Secretary of O/E
LEARNING, INC., a Michigan corporation, do hereby certify that, at the annual
meeting of shareholders held on December 14, 1995, Section 4.2 of the Bylaws of
this Corporation was amended to read in its entirety as follows:
Section 4.2: Number of Directors; Election and Term. The
Board shall consist of eight (8) members, or such number of Directors
as may be elected from time to time by the shareholders. At each
annual meeting the shareholders shall elect Directors to hold office
until the succeeding annual meeting of the shareholders. A Director
shall hold office for the term for which he/she is elected and until
his/her successor is elected and qualified, or until his/her
resignation or removal.
/s/ James A. Newhard
-------------------------------------
James A. Newhard
Secretary, O/E Learning, Inc.
Dated: December 18, 1995
<PAGE> 58
I James A. Newhard, the duly elected and qualified Secretary of O/E
Learning, Inc., a Michigan corporation (the "Corporation"), do hereby certify
that, by consent of the majority shareholder as of September 25, 1996, Section
8.6 of the Bylaws of the Corporation was added to read in its entirety as
follows:
"Section 8.6 Referral of Transactions for Approval by Parent
Corporation. Proposed transactions which have been approved by the
Board of Directors of the Corporation and which are outside the
ordinary course of business (acquisitions, divestitures, bank
relationships, etc.), and which involve, affect, obligate or encumber
the assets of the Corporation in an amount in excess of the greater of
ten (10%) percent of the then current net worth of the Corporation or
$100,000, shall be submitted to the Board of Directors (or appropriate
committee thereof) of O/E Automation, Inc., a Michigan corporation
("O/E Automation"), for prior consideration and approval. This
provision shall become null and void in the event O/E Automation shall
cease to be the owner of a majority of the outstanding shares and
voting rights of the Corporation."
/s/ James A. Newhard
----------------------------------
James A. Newhard
Dated: October 10, 1996
<PAGE> 59
EXHIBIT 5
SELLER'S FINANCIAL STATEMENTS
See attached
<PAGE> 60
[COOPERS & LYBRAND LETTER]
Report of Independent Accountants
To the Board of Directors of
O/E Learning, Inc.:
We have audited the accompanying balance sheet of O/E Learning, Inc. as of
October 31, 1994 and 1993, and the related combined statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of O/E Learning, Inc. as of
October 31, 1994 and 1993, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 4 to the financial statements, the company changed its
method of accounting for income taxes in 1994.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The supplementary combining information contained
on pages 11 and 12 is presented for purposes of additional analysis of the
financial statements rather than to present the financial position and results
of operations of the individual divisions. The combining information has been
subjected to the auditing procedures applied in our audits of the financial
statements and, in our opinion, is fairly stated, in all material respects, in
relation to the financial statements taken as a whole. This information should
be read in conjunction with the paragraph immediately preceding.
/s/ COOPERS & LYBRAND L.L.P.
Detroit, Michigan
January 20, 1995
<PAGE> 61
O/E LEARNING, INC.
COMBINING BALANCE SHEET
for the year ended October 31, 1994
<TABLE>
<CAPTION>
-----------
HAGERSTOWN
BUSINESS
COLLEGE
ASSETS -----------
<S> <C>
Current assets:
Cash $ 202,000
Accounts receivable, net 308,200
Note receivable, affiliate -
Inventory 22,700
Other current assets 600
-----------
Total current assets 533,500
-----------
Property and equipment:
Furniture and equipment, net 239,600
Land and buildings, net 2,069,700
-----------
Net property and equipment 2,309,300
-----------
Intangible assets, net 150,000
-----------
$ 2,992,800
===========
LIABILITIES
Current liabilities: -
Line of credit
Accounts payable:
Trade $ 34,600
Affiliates
Accrued expenses and other liabilities 81,200
Deferred revenue 386,300
Income taxes payable, Parent -
-----------
Total current liabilities 502,100
-----------
Deferred income taxes -
Divisional equity 2,490,700
-----------
$ 2,992,800
===========
</TABLE>
This information is supplemental to the basic financial statements and is
presented solely for purposes of additional analysis.
11
<PAGE> 62
O/E LEARNING, INC.
COMBINING STATEMENT OF INCOME
for the year ended October 31, 1994
<TABLE>
<CAPTION>
-------------
HAGERSTOWN
BUSINESS
COLLEGE
-------------
<S> <C>
Revenue: $ 1,997,900
Training -
Interest income -
Gain on disposal of assets 79,700
Other -------------
Total Revenue 2,077,600
-------------
Costs and expenses:
Training 1,090,500
Depreciation 176,000
Amortization of intangible assets 8,000
Selling, general and administrative 513,100
Interest -
-------------
Total costs and expenses 1,787,600
-------------
Income before income taxes and cumulative effect of
change in accounting principle 290,000
Income taxes (104,400)
-------------
Income before cumulative effect of change in
accounting principle 185,600
Cumulative effect of change in accounting principle 9,700
-------------
Net income $ 195,300
=============
</TABLE>
This information is supplemental to the basic financial statements and is
presented solely for purposes of additional analysis.
12
<PAGE> 63
[PLANTE & MORAN, LLP LETTERHEAD]
To the Board of Directors
O/E Learning, Inc.
We have audited the financial statements of O/E Learning, Inc. for the year
ended October 31, 1995. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The combining
information in the accompanying schedules of pages 12 and 13 is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Plante & Moran, LLP
December 7, 1995
11
<PAGE> 64
O/E LEARNING, INC.
COMBINING DIVISIONAL BALANCE SHEET
OCTOBER 31, 1995
<TABLE>
<CAPTION>
-----------
HAGERSTOWN
BUSINESS
COLLEGE
ASSETS -----------
<S> <C>
CURRENT ASSETS
Cash $ 207,000
Accounts receivable - Net 302,500
Note receivable, Affiliate -
Inventory 23,800
Other current assets -
-----------
Total current assets 533,300
PROPERTY AND EQUIPMENT
Furniture and equipment - Net 337,900
Land and buildings - Net 2,003,100
-----------
Net property and equipment 2,341,000
INTANGIBLE ASSETS - Net 142,000
-----------
Total assets $ 3,016,300
===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade $ 31,900
Affiliates -
Accrued expenses and other liabilities 86,200
Deferred revenue 385,000
-----------
Total current liabilities 503,100
DEFERRED INCOME TAXES -
DIVISIONAL EQUITY 2,513,200
-----------
Total liabilities and equity $ 3,016,300
===========
</TABLE>
12
<PAGE> 65
O/E LEARNING, INC.
COMBINING STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
-------------
HAGERSTOWN
BUSINESS
COLLEGE
-------------
<S> <C>
REVENUE
Training $ 2,329,900
Interest income -
Gain on disposal of assets -
Other 36,700
-------------
Total Revenue 2,366,600
EXPENSES
Training 1,012,400
Depreciation 176,100
Amortization of intangible assets 8,000
Selling, general and administrative 669,000
Interest -
-------------
Total expenses 1,865,500
-------------
INCOME - Before income taxes
501,100
INCOME TAXES 173,100
-------------
NET INCOME $ 328,000
=============
</TABLE>
PLANTE & MORAN, LLP
13
<PAGE> 66
O/E LEARNING, INC. H.B.C. ASSETS/LIABILITIES AS OF 10/31/96:
<TABLE>
<S> <C> <C>
Assets:
Accounts Receivable $357,774.18
Inventory $ 34,529.60
Goodwill $ 200,000.00
Goodwill Amortization $ (65,999.34)
------------
Net Goodwill $134,000.36
Fixed Assets $ 850,014.15
Accumulated Depreciation-F/A ($570,960.82)
Net Fixed Assets $279,053.33
Other Assets $ 0.00
-----------
Total Assets $805,357.77
===========
Liabilities:
Accounts Payable $ 11,819.81
Customer Deposits $ 4,352.00
Dorm Security Deposits $ 1,500.00
Dorm Rent Deposits $ 9,850.00
Student Credit Balances $ 61,033.08
Deferred Tuition Revenue $382,420.65
Deferred Fees Revenue $ 20,230.00
-----------
Total Liabilities $491,205.54
===========
</TABLE>
This schedule does not include the outstanding liability related to personal
property taxes that will be settled by O/E Learning, Inc.
<PAGE> 67
O/E LEARNING, INC.
HAGERSTOWN BUSINESS COLLEGE
OPERATING RESULTS
<TABLE>
<CAPTION>
MONTH MONTH MONTH MONTH MONTH MONTH MONTH
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
11/30/95 12/31/95 01/31/96 02/28/96 03/31/96 04/30/96 05/31/96
-------- -------- -------- -------- -------- -------- --------
M$ M$ M$ M$ M$ M$ M$
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Tuition............................................. 187.4 187.9 150.5 151.1 154.4 142.7 127.5
Bookstore........................................... 0.4 2.4 80.9 2.1 1.4 17.1 54.5
Dormitory........................................... 4.9 5.0 6.0 6.0 3.3 3.5 3.0
Student Fees........................................ 10.0 10.9 11.8 12.0 5.7 0.3 7.5
----- ----- ----- ----- ----- ----- -----
TOTAL REVENUE....................................... 202.7 206.2 249.2 171.2 164.8 163.6 192.5
----- ----- ----- ----- ----- ----- -----
COST OF TRAINING
Salaries-Instructor................................. 27.1 24.6 26.9 27.1 27.6 27.9 25.3
Salaries-Student Services........................... 11.5 11.6 10.0 11.9 11.7 11.1 11.5
Insurance-Benefit................................... 4.1 3.8 3.7 3.8 3.8 4.1 4.1
Payroll Taxes-Benefit............................... 3.4 3.1 3.9 4.0 4.4 4.0 3.4
Depreciation........................................ 15.1 15.0 15.3 14.6 15.2 14.9 15.2
Property Taxes...................................... 2.6 2.6 2.6 2.6 2.6 2.6 2.6
Repair/Maintenance.................................. 0.7 1.7 2.7 6.9 2.1 3.4 1.2
Service on Equipment................................ 0.6 0.4 0.8 0.4 0.0 0.7 0.7
Purchased Services.................................. 2.3 0.8 1.3 2.4 3.5 0.3 1.5
Bookstore........................................... 0.3 1.8 47.4 2.4 0.3 10.8 40.7
Supplies/Printing................................... 2.0 2.3 3.6 3.6 2.5 6.8 7.6
Telephone........................................... 1.0 1.0 1.0 0.9 1.0 1.3 1.1
Dues................................................ 0.1 0.3 10.3 0.2 0.5 0.9 (3.4)
Utilities........................................... 3.4 2.9 3.5 4.3 3.2 2.5 2.8
Advertising......................................... 0.3 2.4 0.9 0.5 5.6 2.6 0.1
Travel.............................................. 0.0 0.6 0.1 0.0 0.1 0.4 0.0
Postage............................................. 1.6 0.2 2.0 1.4 0.2 0.2 1.3
Other............................................... 9.4 3.5 (9.0) 1.2 0.5 0.2 1.3
----- ----- ----- ----- ----- ----- -----
TOTAL DIRECT COSTS.................................. 85.5 78.6 127.0 88.2 84.8 94.7 117.0
----- ----- ----- ----- ----- ----- -----
GROSS MARGIN........................................ 117.2 127.6 122.2 83.0 80.0 68.9 75.5
----- ----- ----- ----- ----- ----- -----
PERSONNEL EXPENSES
Salaries-Admissions................................. 10.9 10.7 12.9 12.8 11.4 15.1 14.3
Commissions......................................... 2.8 2.8 2.8 2.8 2.6 2.8 2.8
Salaries-Office..................................... 5.5 5.4 5.1 5.0 5.0 6.0 5.4
Payroll Taxes....................................... 1.3 1.8 1.8 1.8 1.6 1.9 1.8
Insurance/Benefits.................................. 1.5 1.4 1.5 1.4 1.5 1.0 1.0
Autos............................................... 0.1 0.1 0.1 0.4 0.1 0.5 0.2
----- ----- ----- ----- ----- ----- -----
TOTAL PERSONNEL EXPENSES............................ 22.1 22.2 24.2 24.2 22.4 27.3 25.5
----- ----- ----- ----- ----- ----- -----
INCOME.............................................. 95.1 105.4 98.0 68.8 57.6 41.6 50.0
===== ===== ===== ===== ===== ===== =====
<CAPTION>
MONTH MONTH MONTH MONTH MONTH F.Y.E.
ENDED ENDED ENDED ENDED ENDED 10/31/96
06/30/96 07/31/96 08/31/96 09/30/96 10/31/96 TOTAL
-------- -------- -------- -------- -------- --------
M$ M$ M$ M$ M$ M$
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Tuition............................................. 139.5 135.5 150.5 186.1 191.4 1,904.5
Bookstore........................................... 0.7 0.6 1.3 108.1 1.5 271.0
Dormitory........................................... 3.1 3.0 3.0 2.8 5.3 48.9
Student Fees........................................ 11.2 11.6 18.0 7.4 10.1 116.5
----- ----- ----- ----- ----- -------
TOTAL REVENUE....................................... 154.5 150.7 172.8 304.4 208.3 2,340.9
----- ----- ----- ----- ----- -------
COST OF TRAINING
Salaries-Instructor................................. 23.8 23.5 23.6 29.2 28.3 314.9
Salaries-Student Services........................... 11.3 9.7 10.5 10.9 11.6 133.3
Insurance-Benefit................................... 4.1 4.1 4.4 3.7 3.9 47.6
Payroll Taxes-Benefit............................... 2.9 2.8 2.8 3.5 3.4 41.6
Depreciation........................................ 16.4 16.8 16.6 16.7 16.5 188.3
Property Taxes...................................... 2.6 2.6 2.6 2.6 2.6 31.2
Repair/Maintenance.................................. 1.4 1.2 6.0 1.8 0.0 29.1
Service on Equipment................................ 0.1 0.3 0.5 0.0 0.0 4.5
Purchased Services.................................. 1.3 0.8 0.7 1.3 1.3 17.5
Bookstore........................................... 0.9 1.3 1.0 66.4 2.7 176.0
Supplies/Printing................................... 1.8 2.8 3.5 3.2 7.6 47.3
Telephone........................................... 1.2 1.0 1.3 1.2 1.2 13.2
Dues................................................ 0.2 0.0 3.6 0.4 0.2 13.3
Utilities........................................... 2.4 3.2 4.2 2.8 4.8 40.0
Advertising......................................... 0.0 3.6 0.2 3.8 3.7 23.7
Travel.............................................. 0.0 0.4 0.0 0.0 0.1 1.7
Postage............................................. 1.6 0.2 1.4 0.0 1.4 11.5
Other............................................... 0.4 0.5 0.0 0.3 1.5 9.8
----- ----- ----- ----- ----- -------
TOTAL DIRECT COSTS.................................. 72.4 74.8 82.9 147.8 90.8 1,144.5
----- ----- ----- ----- ----- -------
GROSS MARGIN........................................ 82.1 75.9 89.9 156.6 117.5 1,196.4
----- ----- ----- ----- ----- -------
PERSONNEL EXPENSES
Salaries-Admissions................................. 13.6 12.8 12.9 12.9 13.4 153.7
Commissions......................................... 2.8 2.8 2.8 0.9 4.6 33.5
Salaries-Office..................................... 5.0 5.0 5.0 5.5 5.2 63.1
Payroll Taxes....................................... 1.6 1.5 1.5 1.4 3.6 21.6
Insurance/Benefits.................................. 1.4 1.2 1.2 1.2 1.2 15.5
Autos............................................... 0.5 0.2 0.0 0.2 0.8 3.2
----- ----- ----- ----- ----- -------
TOTAL PERSONNEL EXPENSES............................ 24.9 23.5 23.4 22.1 28.8 290.6
----- ----- ----- ----- ----- -------
INCOME.............................................. 57.2 52.4 66.5 134.5 88.7 905.8
===== ===== ===== ===== ===== =======
</TABLE>
<PAGE> 68
EXHIBIT 6
SELLER'S UNAUDITED BALANCE SHEET
--------------------------------
See attached
<PAGE> 69
O/E LEARNING, INC. H.B.C. ASSETS/LIABILITIES AS OF 10/31/96:
<TABLE>
<S> <C> <C>
Assets:
Accounts Receivable $150,690.38
Inventory $ 34,596.31
Goodwill $ 200,000.00
Goodwill Amortization $ (66,666.00)
------------
Net Goodwill $133,334.00
Fixed Assets $ 858,164.76
Accumulated Depreciation-F/A ($581,245.04)
------------
Net Fixed Assets $276,919.72
Other Assets $ 0.00
-----------
Total Assets $595,540.41
===========
Liabilities:
Accounts Payable $ 10,015.43
Customer Deposits $ 2,176.00
Dorm Security Deposits $ 1,500.00
Dorm Rent Deposits $ 4,925.00
Student Credit Balances $ 86,864.55
Deferred Tuition Revenue $188,935.20
Deferred Fees Revenue $ 10,115.00
-----------
Total Liabilities $304,531.18
===========
</TABLE>
This schedule does not include the outstanding liability related to personal
property taxes that will be settled by O/E Learning, Inc.
<PAGE> 70
EXHIBIT 7
DESCRIPTION OF SCHOOL FACILITIES
The School Facilities are located on the north side of Crestwood Drive
approximately 500 feet west of its intersection with Pennsylvania Avenue (U.S.
Route 11) and just north of the City of Hagerstown corporate boundary in
Washington County, Maryland. The Teaching Facility is a one-story 23,682
square foot facility located at 18614 Crestwood Drive, Hagerstown, Maryland.
The Dormitory Facility is a two-story facility containing 13 dormitory units
located at the same address. The legal description of the property is:
BEGINNING at a concrete monument recovered 269.75 feet along
the 8th line of a deed from Agnita M. Stine unto Mack Trucks
Reality Corporation, dated July 8, 1960 and recorded among the Land
Records of Washington County, Maryland, in Liber 359, folio 232, and
running thence with portions of the 8th and 7th lines reversed North
42 degrees 44 minutes 29 seconds East 269.75 feet to a concrete
monument recovered, thence North 18 degrees, 04 minutes 14 seconds
East 399.44 feet to an iron pipe and surveyor's cap set, thence South
77 degrees 55 minutes 31 seconds East 245.25 feet to an iron pipe and
surveyor's cap set, thence South 22 degrees 53 minutes 49 seconds
East 240.28 feet to an iron pipe and surveyor's cap set, thence South
69 degrees 49 minutes 57 seconds East 104.60 feet to an iron pipe and
surveyor's cap set, thence South 03 degrees 44 minutes 17 seconds
East 426.77 feet to a 3/8 inch rebar recovered on the north margin of
Crestwood Drive, thence with Crestwood Drive South 89 degrees 50
minutes 33 seconds West 75.52 feet to an iron pipe and surveyor's cap
set, thence leaving Crestwood Drive North 03 degrees 47 minutes 19
seconds West 130.26 feet to an iron pipe and surveyor's cap set,
thence South 89 degrees 50 minutes 33 seconds West 431.75 feet to an
iron pipe and surveyor's cap set, thence South 00 degrees 09 minutes
27 seconds East 130.00 feet to an iron pipe and surveyor's cap set on
the North margin of Crestwood Drive, thence with Crestwood Drive by a
line curving to the right having a radius of 202.11 feet and an arc
length of 151.32 feet subtended by a chord bearing and distance of
North 68 degrees 42 minutes 29 seconds West 147.81 feet to an iron
pipe and surveyor's cap set, thence continuing with Crestwood Drive
North 47 degrees 15 minutes 31 seconds West 153.93 feet to the place
of beginning containing 7.281 acres of land.
BEING all the same lot or parcel as particularly described in
that Deed from Agnita M. Schreiber to HBC Associates, a
<PAGE> 71
Maryland general partnership, dated March 11, 1985, and
recorded among the Land Records of Washington County, Maryland, in
Liber 780, folio 612.
<PAGE> 72
EXHIBIT 8
INVENTORY OF FF & E
See attached
<PAGE> 73
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 100 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Sterile Syringes (Boxes) 1
Culturette Collection & Transport System 1
B-D Alcohol swabs (Boxes) 1
Corkboard 2
Filing Cabinet 1
Tables 3
Chairs 5
Applicators Cannister 1
Tongue Depressors Cannister 1
Gauze Cannister 1
Bandage Cannister 1
Metal Chart Holders 2
Marcaine HCl (Bottles) 1
Sodium Chloride (Bottles) 1
Lidocaine (Bottles) 1
File Box 1
Forceps 1
Metal Cart 1
Disposable Scalpels (Boxes) 2
Prep Pads (Boxes) 1
Silver Nitrate Applicators 2
Triangular Bandages (Boxes) 1
Stretch Gauze Bandade (Boxes) 1
8" Nonabsorbable Surgical Suture (Boxes) 2
Ammonia Inhalants (Boxes) 1
Neosporin (Tubes) 1
Basin/CM 1
Isopropyl Alcohol (Bottles) 1
Hydrogen Peroxide Solution (Bottles) 1
Packing Strip (Bottles) 2
Small Size Sterile Pads (Boxes) 1
Paper Tape Rolls 6
4X4 Post-Op Sponges (Boxes) 1
4X4 Dressing Sponges (Boxes) 1
Sterile Field (Boxes) 1
Stretch Vinyl Medical Gloves (Packages) 1
Stethoscopes 22
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ---------------------- ------ ----------- ------------
<S> <C> <C> <C>
Inner Ear Diagram 1 3 years
Bactrim Diagrams 2
Heart Diagram 1
</TABLE>
<PAGE> 74
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 100 - PAGE 2
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Eye Chart 1
Health O Meter Scale 2
Thermometers (Cases) 2
Thermometer Sheaths (Packages) 2
Nasal Speculum 1
Lister Bandage Scissors 2
Tissue Forceps 5
Curved Kelley 2
Tenaculums 2
Sharp Blunt Scissors 2
Adson Dressing Forceps 1
Utility or Sterilized Forceps 1
Mosquito Hemostat 1
Thumb Forceps 1
Trocar/Cannula 1
Urethral Scissors 7
Splinter Forceps 1
Suture Removal Scissors 2
Tongue Depressor 1
Hemostatic Forceps 1
Transfer/Utility Forceps 1
Blood Pressure Cuffs 21
Examining Table 1
Privacy Screen 1
Electrocardiograph Machine With Stand 1
Metal Trays 2
Desk 1
Stool 2
Disposable Resting ECG Sensors (Boxes) 2
ECG Graph Paper (Boxes) 8
Lectro-Pads (Boxes) 1
Standing Lights 2
Slides (Packages) 1
Paper Gowns (Packages) 1
Lab Coats 20
Ritter M7 Speed Clave 1
Latex Exam Gloves 7
File Holders 2
Bostitch Stapler 1
Distilled Water 6
Resusitube Airway 1
Audio-visual Equipment Number Average Age Owned/Leased
- ---------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 75
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 100 - PAGE 3
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
1995 Physicians' Desk Reference 1
1995 The Complete Drug Reference 1
1994 The Complete Drug Reference 1
1993 Physicians' Desk Reference 1
Cervical Scrapers (Boxes) 1
Surgical Gloves (Boxes) 1
Senior Tongue Blades (Boxes) 2
Sterile Applicator Tips (Boxes) 1
Sheer Bandage Strips (Boxes) 1
Cotton Swabs (Boxes) 4
Glass Jars 4
Metal Emesis Basin 5
Large Exam Gloves (Boxes) 1
Digital Sphygmomanometer 1
Dictionary 1
Sphygmomanometer 1
Gauze Jar 1
Cotton Jar 1
Cotton Balls (Bags) 1
Plastic Nasal Cannula 1
Digital Thermometer 1
Percussion Hammers 3
Tuning Fork 1
Ear Examining Case 1
Suture Removal Kit 9
Metal Tray 1
Probe Covers (Boxes) 1
Termoscan 1
Rectal Thermometer Tray 1
Sterile Gloves 27
Suture Sets 5
Measuring Cups 22
First Aid Kits 2
Mayo Stands 2
Large Biohazard Container 1
Drapes (Packages) 1
Plastic Emesis Basin 2
Sheets 2
Towels 20
EKG Cuffs (Packages) 2
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 76
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 100 - PAGE 4
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Tylenol (Bottles) 1
Mycitracin (Boxes) 1
Band-Aid Bandages (Boxes) 3
Gauze (Boxes) 1
Rolaids (Bottles) 1
Mineral Oil (Bottle) 1
Pepto-Bismol (Bottle) 1
Ampicillin Suspension 1
Benylin Cough Syrup 1
Ceclor 1
Elixicon Donnatal 1
Elixicon 1
Mylanta 1
Naldecon Pediatric Drops 1
Robitussin-DM 1
Somophyllin 1
Tussi-Organidin-DM 1
Stadol Nasal Spray 1
Thorazine 1
Celestone Soluspan Suspension 1
Ntrolingual Spray 1
Isordial Titradose 1
Proencid 1
Premarin 1
Somophyllin-T 1
Penicillin V Potassium 1
Zithromax 1
Inderal 1
Zyloprim 1
Nitro-Bid Ointment 1
Nitrostat Ointment 2% 1
Serax 1
Niacin 2
Nitro Dur 1
Adrenalin Chloride Solution 1
Aspirin Analgesic 1
Aquasol A 1
Anacin-3 Maximum Strength 1
Fioricet 1
Bacteriostatic Sodium Chloride 1
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
</TABLE>
<PAGE> 77
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 100 - PAGE 5
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Aspirin Acetylasalicylic Acid 1
Chlortrimeton 1
Choledyl 1
Dramimine 1
Gantrisin 1
Clinoril 1
Hygroton Chlorthalidone 1
Deltasone 1
Ecotrin 1
Sorbitrate Sublingual 1
Sorbitrate Chewable 1
Sorbitrate Oral 1
Sorbitrate Sustained Action 1
Erythromycin 1
Elavil 1
Naprosyn 1
Feldene Piroxicam 1
Keflex 1
Flagyl Metronidazole 1
Lopressor 1
Isordil 1
Allorurinol 1
Klotrix (Potassium Chloride) 1
Name/Room Paper Pads (Boxes) 1
Clinistix Reagent Strips 1
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
</TABLE>
<PAGE> 78
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 103 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
PS2 Computers complete with Monitor/Keyboard 3
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Microscope 7
Disposable Gloves (Boxes) 1
Pediatric Scale 1
Filing Cabinets 3
Trash Cans 2
Biohazard Trash Cans 2
Lab Coats 34
Urine Collection Containers 2
Butterfly Blood Collectors (Sets) 16
Capillary Finger Sticks (Bags) 1
Rubber Tourniquets (Spools) 2
Hemoccults (Boxes) 2
Fixative for Slides (Cans) 1
Midstream Catch Sets 2
Vaginal Speculum 2
Graduated Cylinders 43
Microscope Slides (Boxes) 1
Wooden Sticks 7
Sputum Collection System 1
Chalk (Boxes) 1
Sorbitrol Plus (Bottles) 1
Specimen Bags 20
Stool System Kit 1
Blood Culture Test Kit 1
Inoculating Tubes (Packs) 2
Safety Goggles 1
Micro Slides (Boxes) 25
Refractometry 1
Plastic Cups 19
Obstetrical Towlettes (Boxes) 1
Thermometer Beaker 35
Reagent Strips - Blood (Bottles) 2
Reagent Strips - Urine (Bottles) 10
Reagent Tablets (Boxes) 2
Red Markers 3
Unopette Tests 15
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Full Body Skeleton 1
Human Model of Torso 1
Human Anatomy Chart 1
Atlas of Urine Sediment 1
</TABLE>
<PAGE> 79
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 103 - PAGE 2
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Kora Stain Bottles 2
Timer 1
Bleeding Time Devices (Boxes) 1/2
Amber Tubes with Serum Separator 25
Syringes 2
Adhesive Bandages (Boxes) 4
Wood Applicators (Boxes) 1
Lancets (Boxes) 2
Alcohol Swabs (Boxes) 4
Disposable Pipettes (Boxes) 2
Bandage Spots (Boxes) 5
Capillary Pipettes (Boxes) 2
Micro Hematricrit Capillary Tubes (Containers) 6
Adhesive Dressing (Boxes) 5
Cotton Balls (Bags) 1
Tube Sealant (Boxes) 1
Slide Holders (Boxes) 2
Hemocytometer 10
Bottle of Cyanmethemoglobin Reagent 1
Resolve Microscope Immersion Oil 1
Filter Paper (Boxes) 1
Lens Paper (Packages) 3
Container of volupette pipets 3
1 fl. oz bottle of iodine 2
Surgery Gloves 3
Tongue Blades 5,000
Cotton Tip Applicators 1,600
Cotton Swab Transporter 8
Throat Swabs (Boxes) 1
End Coder Tutorials 17
CPT Books 4
DRG Books 4
ICD 9 Books 3
Curvettes (Boxes) 5
Vacutainer Collection Tubes-Hemogard Closure 10
Vacutainer Collection Tubes-Sodium Heparin 2
Sterile Blood Collection Tubes 2
Roll of Biohazardous Waste Bags 1
Clorox (Gallons) 1 1/2
Hotpoint Refrigerator 1
Medifuge 1
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
</TABLE>
<PAGE> 80
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 103 - PAGE 3
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Glucose Kit 1 3 years
Spectophotometer - Model 340 1 3 years
Rubberbands (Boxes) 1
Envelopes (Boxes) 1
Printer Ribbons 1
Letterhead Paper (Boxes) 1
Biohazard Bags 12
Binders 7
Payment Plan Contracts (Boxes) 1
First Aid Kits 2
Phlebotomy Training Programs 15
Alcohol Swabs (Cases) 2
Autoclaves 2
200 ml calibrated cylinders 3
100 ml calibrated cylinders 14
Glass Funnels 2
Cotton Container 1
Glass Alcohol Containers 50
180 cc Urine Specimen Cylinder 50
Small Biohazardous Vacutainer 60
Surgical Gowns 5
Face Masks (Boxes) 5
Strep A Testing Kit 1
Slide X-ray Light 1
Centrifuge 2
Blood Microscope 1
Large Vacutainer 4
Artificial Injection Arms 3
Diff-Quik Stain Sets 2
Gram Stain Set 1
100 Ct. Box of Blood Collection tubes
with sodium citrate 4
100 Ct. Box of Blood Collection tubes
with EDTA 7
Iodine Solution Bottles 2
Ammonia Inhalants (Boxes) 1
Lab Film (Boxes) 1
Vacutainer Needles (Boxes) 13
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
Black Board 1 3 years
</TABLE>
<PAGE> 81
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 104 - PAGE 1
--- -
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
Typewriters - IBM Wheelwriter Series II 20 3 years
Lanier Transcription Units 20 3 years
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Transcription Desks 21 3 years
Transcription Chairs 21 3 years
Table 1 3 years
Desk 1 3 years
Trash Container 1 3 years
Book Holders 17 3 years
Filing Cabinets 2 3 years
Books - Assorted Reference 39 3 years
Book Ends 2 3 years
Tray 1 3 years
Box Miscellaneous Office Supplies 1 3 years
Audio-visual Equipment Number Average Age Owned/Leased
- ---------------------- ------ ----------- ------------
<S> <C> <C> <C>
Writable Board 1 3 years
IBM Instruction Pamphlets 18
Lanier Voice Writer Instruction Pamphlets 20
Notebook - Student Transcription Key 1
Plastic Box for Student Folders 1
Transcription Tapes, Medical 13
Audio Cases - Empty 22
Ruler 1
Stapler 2
Worksheets 1
Typewriter ribbons 22
Audio Tapes 35
Notebooks - Transcription Course 4
Notebooks - Gregg Short 2
Zip Code Book 1
Earphones 6
Gregg Manual 1
Gregg Reference 1
Alcohol Swabs (Boxes) 1
</TABLE>
<PAGE> 82
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 105 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Keyboards 8 7 years
Computers 8 7 years
Monitors 8 7 years
X Scribe Adapters 2 7 years
Module Type E Adapter 1 7 years
Steno Adapter for Printer 1 7 years
Mouse Pad 2 1 year
Mouse 2 1 year
Printer Switch Boxes 2 7 years
Printer 2 7 years
Typewriters 2 3 years
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Math Tutorial Software
Basic Math - Basic Math Text
Advanced Math - Fundamentals Math Text
English Tutorial
Grassroots - Basic English
Skillbank - Grammar Skills
CAT system for Court Reporters
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 83
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 106 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owned/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
PS2 Model 50 IBM Computers 25 3 years
IBM Proprinter II--Dot Matrix Printers 25 3 years
Computer Desks 25 3 years
Computer Chairs 25 3 years
Lateral Files 2 3 years
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Writable Board 1 3 years
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 84
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 107 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
PS2 Model 50 IBM Computers 25 3 years
IBM Proprinter II - Dot Matrix Printers 24 3 years
Computer Desks 25 3 years
Computer Chairs 25 3 years
Lateral Files 2 3 years
Epson FX Dot Matrix 286e Printer 1 3 years
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Writable Board 1 3 years
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ---------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 85
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 108 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Gateway 2000 DX2-66 Computers 25 6 months
IBM Proprinter II - Dot Matrix Printers 21 3 years
Epson Action Laser 1500 Printer 1 6 months
Computer Desks 25 3 years
Computer Chairs 25 3 years
IBM Computer Overhead PS2 Model 50 1 3 years
Lateral Files 2 3 years
Storage Cabinet 1 3 years
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Writable Board 1 3 years
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 86
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 109 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Computer Monitor 1 7 years
Keyboard 1 7 years
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Judge's Bench 1 6 months
Chairs 3 6 months
Tables 15 3 years
Chairs 45 3 years
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Black Board 1 3 years
Projection Screen 1 7 years
</TABLE>
<PAGE> 87
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 110 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Podium 1 3 years
Tables 12 3 years
Chairs 36 3 years
Desk 1 3 years
Desk Chair 1 3 years
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Blackboard 1 3 years
Projection Screen 1 3 years
</TABLE>
<PAGE> 88
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 111 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Trashcan 1 3 years
Podium 1 3 years
Desk 1 3 years
Desk Chair 1 3 years
Tables 15 3 years
Chairs 45 3 years
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Chalkboard 1 3 years
Projection Screen 1 3 years
</TABLE>
<PAGE> 89
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 112 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Podium 1 3 years
Trashcan 1 3 years
Desk 1 3 years
Desk Chair 1 3 years
Tables 15 3 years
Chairs 45 3 years
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ---------------------- ------ ----------- ------------
<S> <C> <C> <C>
Black Board 1 3 years
</TABLE>
<PAGE> 90
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 114 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Desks 4 3 years
Chairs 16 3 years
Podium 1 3 years
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Chalk Board 1 3 years
</TABLE>
<PAGE> 91
INVENTORY OF EQUIPMENT
Include equipment used directly in the educational activities of the
institution; do not include administrative equipment.
ROOM 116 - PAGE 1
Name of Institution Hagerstown Business College ID Code
--------------------------------------- ----------
City, State Hagerstown, Maryland
------------------------------------------------------------------
<TABLE>
<CAPTION>
Business Machines (e.g. computers, typewriters) Number Average Age Owner/Leased
- ----------------------------------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Other Instructional Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
Bulletin Board 1
Conference Table 1
Conference Chairs 17
Trash Container 1
Student Chairs 14
Steno Pad Paper (Boxes) 3
</TABLE>
<TABLE>
<CAPTION>
Audio-visual Equipment Number Average Age Owned/Leased
- ----------------------------- ------ ----------- ------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 92
EXHIBIT 9
LIST OF PERMITS
1. Authorization to conduct business in Maryland (Seller will bring into
good standing at or prior to the Closing)
2. Maryland sales tax license
3. Vendor's license
4. Those accrediations and approvals described on Exhibit 11
<PAGE> 93
________________________________________________________________________________
FIRE SAFETY INSPECTION
________________________________________________________________________________
NAME HAGERSTOWN BUSINESS COLLEGE
ADDRESS 18618 CRESTWOOD DR
HAGERSTOWN, MD ZIP 21742
OCCUPANCY BUSINESS 27,000
TELEPHONE 739 2670 BARBARA KEESECKER
MARYLAND STATE MARYLAND STATE FIRE MARSHALL [LOGO]
FIRE MARSHALL'S
OFFICE
DEPARTMENT OF
PUBLIC SAFETY AND
CORRECTIONAL SERVICES
A fire safety inspection of the above referenced location was conducted by
C.M. Cronauer on 2/2/96. As a result, the following violations of the State
Fire Prevention Code are noted for your immediate attention and compliance
within _________ days:
1. MEANS OF EGRESS
( ) A. Keep all exit doors unlocked and unobstructed.
( ) B. Keep all corridors/stairways clear and unobstructed.
( ) C. Repair exit doors, locks, and hardware for easy operation.
( ) D. Install/Repair normal exit illumination in the following areas:
______________________________________________________________________
( ) E. Install/Repair emergency lighting in the following areas:
______________________________________________________________________
( ) F. Install/Repair illuminated exit signs in the following areas:
______________________________________________________________________
2. FIRE PROTECTION FEATURES
( ) A. Install/Repair fire/smoke doors in the following areas:
______________________________________________________________________
( ) B. Install/Repair self-closing devices on doors in the following areas:
______________________________________________________________________
( ) C. Remove unauthorized hold-open devices on doors in the following areas:
______________________________________________________________________
( ) D. Provide flame spread certification for interior finish in the
following areas:______________________________________________________
3. FIRE PROTECTION EQUIPMENT
( ) A. Install/Repair manual fire alarm system in the following areas:
______________________________________________________________________
( ) B. Install/Repair smoke detectors in the following areas:
______________________________________________________________________
( ) C. Install automatic sprinkler protection in the following areas:
______________________________________________________________________
(X) D. Provide quarterly testing and maintenance for the automatic sprinkler
system.
( ) E. Replace/Repair automatic sprinkler system equipment as follows:
______________________________________________________________________
( ) F. Install/Repair hood extinguishing system in the following area:
______________________________________________________________________
( ) G. Provide semi-annual testing and maintenance for hood extinguishing
system.
( ) H. Install portable fire extinguishers in the following areas:
______________________________________________________________________
( ) I. Provide annual testing and maintenance for portable fire
extinguishers in the following areas:_________________________________
(X) J. Maintain adequate clearance and access to all fire protection
equipment.
( ) K. Maintain a minimum of 18" below sprinkler heads.
4. BUILDING SERVICE EQUIPMENT
( ) A. Provide cover plates for open electrical receptacles and junction
boxes in the following areas:_________________________________________
( ) B. Repair loose electrical fixtures, wiring, and switches in the
following areas:______________________________________________________
( ) C. Discontinue the use of extension cords and multiple type electrical
plugs and replace with permanent wiring in the following areas:
______________________________________________________________________
( ) D. Replace/Repair defective vents or chimneys from heating appliances in
the following areas:__________________________________________________
( ) E. Enclose heating appliances with approved construction/materials in
the following areas:__________________________________________________
( ) F. Provide adequate combustion air for all heating appliances in
accordance with manufacturer's recommendations.
(X) G. Maintain at least a 30 in. clearance between all electrical service
equipment and storage.
5. SPECIAL HAZARDS
( ) A. Store all flammable and combustible liquids and gases in approved
containers.
( ) B. Provide adequate ventilation for areas used for the storage or
handling of flammable or combustible liquids or gases.
( ) C. Install approved electrical equipment for areas used for the storage
or handling of flammable or combustible liquids or gases.
( ) D. Store all pressurized cylinders in the upright position with proper
supports, and with protective valve covers in place.
6. GENERAL
( ) A. Remove combustible waste and debris from the following areas:
______________________________________________________________________
(X) B. Improve general housekeeping in the following areas:
mechanical room
______________________________________________________________________
( ) C. Post "No Smoking" signs in the following areas:
______________________________________________________________________
( ) D. Complete and record fire drills at least:
______________________________________________________________________
( ) E. Maintain a clearance of at least 2 ft. between the ceiling and
storage.
( ) F. Provide appropriate posting of required fire safety information.
Remarks Lecture 45 people; class rm 24 people; ok
-------------------------------------------------------------------------
G: Remove storage from mechanical room
-------------------------------------------------------------------------
* Do not hang anything on automatic sprinkler heads.
-------------------------------------------------------------------------
( ) See attached supplemental report for additional comments.
Received by Barbara Keesecker /s/ Barbara Keesecker
----------------------- ---------------------
Print Sign
Reply To:
Inspector CM Cronauer /s/ CM Cronauer 791 4758
----------------------- ---------------------
Print Sign
Appeals to these requirements may be addressed to the Supervisor of the
Regional Office of the State Fire Marshall listed hereon. All appeal processes
will be conducted and administered in accordance with the provisions as
outlined in Article 38A of the Annotated Code of Maryland.
<PAGE> 94
________________________________________________________________________________
FIRE SAFETY INSPECTION
________________________________________________________________________________
NAME HAGERSTOWN BUSINESS COLLEGE
ADDRESS 18618 CRESTWOOD DR
HAGERSTOWN, MD ZIP 21742
OCCUPANCY DORMITORY 502 CODE
TELEPHONE 739 2670
MARYLAND STATE MARYLAND STATE FIRE MARSHALL [LOGO]
FIRE MARSHALL'S
OFFICE
DEPARTMENT OF
PUBLIC SAFETY AND
CORRECTIONAL SERVICES
A fire safety inspection of the above referenced location was conducted by
CM Cronauer on 2/2/96. As a result, the following violations of the State
Fire Prevention Code are noted for your immediate attention and compliance
within 30 days:
1. MEANS OF EGRESS
( ) A. Keep all exit doors unlocked and unobstructed.
( ) B. Keep all corridors/stairways clear and unobstructed.
( ) C. Repair exit doors, locks, and hardware for easy operation.
( ) D. Install/Repair normal exit illumination in the following areas:
______________________________________________________________________
( ) E. Install/Repair emergency lighting in the following areas:
______________________________________________________________________
( ) F. Install/Repair illuminated exit signs in the following areas:
______________________________________________________________________
2. FIRE PROTECTION FEATURES
( ) A. Install/Repair fire/smoke doors in the following areas:
______________________________________________________________________
( ) B. Install/Repair self-closing devices on doors in the following areas:
______________________________________________________________________
( ) C. Remove unauthorized hold-open devices on doors in the following areas:
______________________________________________________________________
( ) D. Provide flame spread certification for interior finish in the
following areas:______________________________________________________
3. FIRE PROTECTION EQUIPMENT
( ) A. Install/Repair manual fire alarm system in the following areas:
______________________________________________________________________
( ) B. Install/Repair smoke detectors in the following areas:
______________________________________________________________________
( ) C. Install automatic sprinkler protection in the following areas:
______________________________________________________________________
OK ( ) D. Provide quarterly testing and maintenance for the automatic sprinkler
system:_______________________________________________________________
( ) E. Replace/Repair automatic sprinkler system equipment as follows:
______________________________________________________________________
( ) F. Install/Repair hood extinguishing system in the following area:
______________________________________________________________________
( ) G. Provide semi-annual testing and maintenance for hood extinguishing
system.
( ) H. Install portable fire extinguishers in the following areas:
______________________________________________________________________
( ) I. Provide annual testing and maintenance for portable fire
extinguishers in the following areas:_________________________________
(X) J. Maintain adequate clearance and access to all fire protection
equipment.
( ) K. Maintain a minimum of 18" below sprinkler heads.
4. BUILDING SERVICE EQUIPMENT
( ) A. Provide cover plates for open electrical receptacles and junction
boxes in the following areas:_________________________________________
(X) B. Repair loose electrical fixtures, wiring, and switches in the
following areas:______________________________________________________
( ) C. Discontinue the use of extension cords and multiple type electrical
plugs and replace with permanent wiring in the following areas:
______________________________________________________________________
( ) D. Replace/Repair defective vents or chimneys from heating appliances in
the following areas:__________________________________________________
( ) E. Enclose heating appliances with approved construction/materials in
the following areas:__________________________________________________
( ) F. Provide adequate combustion air for all heating appliances in
accordance with manufacturer's recommendations.
(X) G. Maintain at least a 30 in. clearance between all electrical service
equipment and storage.
5. SPECIAL HAZARDS
( ) A. Store all flammable and combustible liquids and gases in approved
containers.
( ) B. Provide adequate ventilation for areas used for the storage or
handling of flammable or combustible liquids or gases.
( ) C. Install approved electrical equipment for areas used for the storage
or handling of flammable or combustible liquids or gases.
( ) D. Store all pressurized cylinders in the upright position with proper
supports, and with protective valve covers in place.
6. GENERAL
( ) A. Remove combustible waste and debris from the following areas:
______________________________________________________________________
(X) B. Improve general housekeeping in the following areas:
mechanical room
______________________________________________________________________
( ) C. Post "No Smoking" signs in the following areas:
______________________________________________________________________
( ) D. Complete and record fire drills at least:
______________________________________________________________________
( ) E. Maintain a clearance of at least 2 ft. between the ceiling and
storage.
( ) F. Provide appropriate posting of required fire safety information.
Remarks DORM STORAGE/PRINT ROOM/AND MECHANICAL ROOM: REMOVE EXCESSIVE
-------------------------------------------------------------------------
STORAGE. 30" CLEARANCE REQUIRED IN FRONT OF ELECTRICAL PANEL.
-------------------------------------------------------------------------
( ) See attached supplemental report for additional comments.
Received by BARBARA KEESECKER /s/ Barbara Keesecker
----------------------- ---------------------
Print Sign
Reply To:
Inspector CM CRONAUER /s/ CM Cronauer 7914758
----------------------- ---------------------
Print Sign
Appeals to these requirements may be addressed to the Supervisor of the
Regional Office of the State Fire Marshall listed hereon. All appeal processes
will be conducted and administered in accordance with the provisions as
outlined in Article 38A of the Annotated Code of Maryland.
<PAGE> 95
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIRE-X
SALES & SERVICE CORP. ANSUL Commercial & Industrial Fire Protection [LOGO]
- --------------------------------------------------------------------------------------------------------------
17227 Virginia Avenue - Hagerstown, Maryland 21740-7606 - (301) 582-0016 - (301) 582-0183 Fax FID# 52-1590945
</TABLE>
SOLD TO CUSTOMER # 2577 SHIPPED TO
PLEASE PAY FROM THIS
INVOICE: NO STATEMENT
HAGERSTOWN BUSINESS COLLEGE WILL BE SENT
18618 CRESTWOOD DRIVE
HAGERSTOWN, MD 21740
(301) 739-2670
--------------
TELEPHONE NO.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
DATE DATE SHIPPED SHIPPED VIA YOUR ORDER NO. INVOICE NO. F.O.B. TERMS
- ---------------------------------------------------------------------------------------------
10-12-95 9-29-95 PM 28243 2 MD net 30
- ---------------------------------------------------------------------------------------------
QUANTITY DESCRIPTION PRICE AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A complete inspection and maintenance procedure was
performed on your fire extinguishers at the above location
in accordance with NFPA 10, chapter 4. This included proper
dating, tagging, sealing & weighing of the units as well as
other applicable procedures as stated in NFPA 10. An
inspection/service report was issued detailing the status of
your facility's compliance with NFPA 10. SERVICE $73.50
PARTS 15.75
HAZ/MAT HANDLING FEE 2.68
TX EXEMPT
TOTAL $91.93
TERMS: Net 30 days from date of invoice: 1 1/2% INTEREST per month charged thereafter.
</TABLE>
<PAGE> 96
EXHIBIT 10
LIST OF LEASES, FINANCING AGREEMENTS, AND OTHER ENCUMBRANCES
RELATING TO REAL AND PERSONAL PROPERTY
1. Michigan National Bank Line of Credit (which will be released at or
prior to Closing with respect to the School Related Assets)
2. Those leases and agreements, if any, described on Exhibit 15
<PAGE> 97
EXHIBIT 11
LIST OF ACCREDITATION
1. Certification by United States Department of Education
2. Accredited by the Accrediting Council for Independent Colleges and
Schools (ACICS)
3. Approved by the Maryland Higher Education Commission
4. Registered in Pennsylvania by the Pennsylvania State Board of Private
Licensed Schools
5. Court Reporting Program approved by the National Court Reporters'
Association
6. Health Information Technology Program accredited by the Commission on
Accreditation of Allied Health Education Programs (CAAHEP) in cooperation with
the Council on Accreditation of the American Health Information Management
Association (AHIMA)
7. Phlebotemy Program approved by the National Accrediting Agency for
Clinical Laboratory Sciences
<PAGE> 98
[SEAL] UNITED STATES DEPARTMENT OF EDUCATION
OFFICE OF POSTSECONDARY EDUCATION
INSTITUTIONAL PARTICIPATION DIVISION
WASHINGTON, DC 20202-5323
Mr. Jim Gifford OPE ID No. 00794600
President
Hagerstown Business Colg
18618 Crestwood Dr
Hagerstown, MD 21742
Dear Mr. Gifford:
The Institutional Participation Division (IPD) is pleased to inform you that,
based upon the information included in your Application for Institutional
Participation (ED Form E40-34P), the Secretary of Education (Secretary) has
determined that Hagerstown Business Colg (Institution) satisfies the definition
of an eligible institution under the Higher Education Act of 1965, as amended
(HEA). The Institution will be listed in the next edition of the DIRECTORY OF
POSTSECONDARY INSTITUTIONS published by the U.S. Department of Education
(Department).
ENCLOSURES
Enclosed, please find a copy of the ELIGIBILITY AND CERTIFICATION APPROVAL
REPORT (ECAR) and the PROGRAM PARTICIPATION AGREEMENT (PPA) that has been
signed on behalf of the Secretary. In the PPA are listed the Federal student
financial assistance programs (Title IV, HEA programs) for which IPD has
certified the Institution.
Together, the PPA and the ECAR constitute IPD's determination that the
Institution has qualified to participate in programs under the Higher Education
Act of 1965, as amended (HEA) and the Federal student financial assistance
programs (Title IV, HEA programs).
The Institution must retain the ECAR and the PPA together.
OPE ID NUMBER
The OPE ID Number 00794600 is a unique identifier for the Institution. The OPE
ID Number will also be the Institution's identification number for the Title
IV, HEA programs. Please use the OPE ID Number in all communications with the
Department.
<PAGE> 99
Hagerstown Business Colg
00794600 Page 2
- --------------------------------------------------------------------------------
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
The ECAR contains a list of the HEA programs other than Title IV, HEA programs,
for which the Institution is eligible to apply. This list DOES NOT MEAN that
the Institution will automatically be eligible to participate in or receive
funds under any HEA competitive grant program. Information concerning
applications for, and the individual requirements of, the competitive grant
program can be obtained from:
Deputy Assistant Secretary
Office of Higher Education Programs
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, DC 20202-5131.
The ECAR also contains a Vocational Programs Section that lists the Non-Degree
Programs that IPD has determined are eligible programs for participation in the
Title IV, HEA programs. Please Note: (a) Vocational Programs that do not meet
the requirements of 34 CFR Parts 600 and 668 have not been approved and do not
appear in the ECAR; and (b) in order to comply with the requirements of 34 CFR
668(l), some Vocational Programs may have been approved for fewer credit hours
than requested in the Institution's application.
PROGRAM PARTICIPATION AGREEMENT
As explained in the PPA, Title IV HEA programs administered by participating
educational institutions are subject to applicable laws, regulations, and
guidelines.
Listed below are the appropriate telephone numbers for further information on
the HEA programs for which the Institution is approved:
- Federal Pell Grant Program (202) 708-7509
- Federal Family Education Loan Program (202) 708-9222
- Federal Direct Student Loan Program (202) 708-9951
- Federal Campus-Based Programs(1) (202) 708-9807
____________________
(1) The Federal Campus-Based Programs are (a) the Federal Supplemental
Educational Opportunity Grant Program, (b) the Federal Work-Study Program, and
(c) the Federal Perkins Loan Program.
<PAGE> 100
Hagerstown Business Colg
00794600 Page 3
- --------------------------------------------------------------------------------
Not more than one year before beginning to participate in any Title IV, HEA
program for which the Institution has not previously participated, the
Institution must participate in Precertification Training(2).
Participating educational institutions will be reviewed at least once every
four years to determine whether the institutions remain administratively
capable and financially responsible to administer Title IV programs and funds.
REPORTING AND REAPPLICATION REQUIREMENTS
The institution must report promptly to the Department certain changes and
actions that affect the institution's participation approval, as specified in
34 CFR 600 and 668, including, but not limited to:
- Change of name and/or address;
- Change in the way the institution measures educational program length;
- Change in the level of course offerings;
- Additions and/or closures of non-main campus locations that offer at
least 50% of an educational program;
- Change of primary accrediting agency;
- Change of the State agency that confers legal authority on the
institution to offer programs of postsecondary education;
- Change in ownership, whether or not that ownership change results in a
change in control of the institution;
- Change in exercise of a person's substantial control over the
institution, e.g., a change in the chief executive officer or members
of the board of trustees or board of directors; or
- New contract or significant modification of existing contract with a
third party servicer.
If the institution fails to report any such changes within ten days after the
change occurs, the ability of the institution to administer the Title IV
student financial assistance programs properly will be called into question.
As a consequence, we will consider whether it is necessary to monitor the
institution's receipt of Federal funds more closely. Failure to report changes
within the time frame required may also result in an adverse action being taken
against the institution in accordance with 34 CFR 668, Subpart G.
_____________________
(2) For information concerning Precertification Training, contact Team 3 at
the telephone number listed later in this Letter.
<PAGE> 101
Hagerstown Business Colg
00794600 Page 4
- --------------------------------------------------------------------------------
AUTOMATIC TERMINATION OF APPROVAL
This Approval for Institutional Participation automatically terminates on the
happening of any of the following events:
- 07/31/1999;
- The date the institution loses the legal authority to offer programs
of postsecondary education in the State in which it is located;
- The date the institution loses accreditation from its designated
primary accrediting agency;
- The date the institution ceases to offer all approved postsecondary
instruction;
- The date the institution merges with another institution;
- The date the institution undergoes a change in ownership resulting in
a change of control;
- The date the institution files for bankruptcy; or
- The date the institution otherwise ceases to meet the definition of
an eligible Proprietary institution of higher education
Please send all information or documentation required by this letter to:
if by mail:
U.S. Department of Education
Institutional Participation Division, Team 3
600 Independence Avenue, S.W.
Washington, DC 20202-5323
if by overnight mail/courier delivery:
U.S. Department of Education
Institutional Participation Division, Team 3
7th & D Streets, S.W., GSA Building, Room 3522
Washington, DC 20407
Please contact the IPD Team 3 if you have any questions concerning information
included in this Notice. Telephone numbers for Team 3 are:
(202) 205-3772 (202) 205-3778 (202) 205-3887 (202) 205-3888
Respectfully yours,
/s/ Robert E. Jamroz, Ph.D.
---------------------------
Robert E. Jamroz, Ph.D.
Acting Director
<PAGE> 102
Hagerstown Business Colg
00794600 Page 5
- --------------------------------------------------------------------------------
Enclosures:
Program Participation Agreement
Eligibility and Certification Approval Report
<PAGE> 103
<TABLE>
<CAPTION>
[SEAL]
INSTITUTIONAL PARTICIPATION DIVISION
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
DATE: 09/13/1995 PAGE A - 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NAME OF INSTITUTION: HAGERSTOWN BUSINESS COLG
ADDRESS: 18618 CRESTWOOD DR
HAGERSTOWN, MD 21742
CONGRESSIONAL DISTRICT: 06 ACTION DATE: 05/22/95
DEPARTMENT REGION: 03 ACTION: Reapprove Elig/Cert
REASON: Meets Statutory Requirement
- ------------------------------------------------------------------------------------------------------------------------------------
OPE ID : 007946 00 FEDERAL PELL GRANT ID : 00794600
EIN ID : 382530076 FEDERAL FAMILY EDUCATION LOAN ID : 00794600
IPEDS ID : FEDERAL DIRECT STUDENT LOAN ID :
CRS ID : 1 382530076 A3 FEDERAL WORK - STUDY ID : 00175000
PIN ID : 8279 FEDERAL SUPPLEMENTAL EDUCATION OPPORTUNITY GRANT ID : 00175000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
[SEAL]
INSTITUTIONAL PARTICIPATION DIVISION
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
DATE: 09/13/1995 PAGE A - 2
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INSTITUTION NAME : Hagerstown Business Colg ELIGIBLE : Y
OPE ID : 007946 00 INITIAL APPROVAL DATE : 05/23/84
WAIVER(S): **** End of Waivers ***
ACADEMIC CALENDAR : Trimester Hours
HIGHEST EDUCATIONAL PROGRAM OFFERED : Associate's Degree
- ------------------------------------------------------------------------------------------------------------------------------------
THE INSTITUTION IS ELIGIBLE TO APPLY FOR PARTICIPATION IN THE FOLLOWING PROGRAMS AUTHORIZED UNDER THE HIGHER EDUCATION ACT OF 1965,
AS AMENDED:
TITLE I : N TITLE IV : Y TITLE VII : N TITLE X : N TITLE XIII : N
TITLE II : N TITLE V : N TITLE VIII : N TITLE XI : N TITLE XIV : N
TITLE III : N TITLE VI : N TITLE IX : N TITLE XII : N TITLE XV : N
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE IV STUDENT FINANCIAL ASSISTANCE PROGRAMS
PROGRAM PARTICIPATION AGREEMENT
CERTIFIED : Certified EFFECTIVE DATE : 08/02/1995
LOAN DEFERMENT ONLY : N EXPIRATION DATE : 07/31/1999
PROGRAM CERTIFIED APPROVAL DATE PROGRAM CERTIFIED APPROVAL DATE
------- --------- ------------- ------- --------- -------------
FWS Com Serv Y 05/04/93 FWS Priv Sec Empl Y 05/22/95
FWS Job Loc Dev Y 05/04/93 FFEL Staff Y 11/23/88
FFEL Staff Unsub Y 05/22/95 FFEL PLUS Y 05/22/95
FFEL SLS N FPerkins Y 11/23/88
FSEOG Y 05/04/93 FPell Y 11/23/88
FDSLP Staff Y 05/22/95 FDSLP Staff Unsub Y 05/22/95
FDSLP PLUS Y 05/22/95
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
[SEAL]
INSTITUTIONAL PARTICIPATION DIVISION
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
DATE: 09/13/1995 ACCREDITATION SECTION PAGE B - 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INSTITUTION NAME : Hagerstown Business Colg
OPE ID : 007946 00
ACCREDITATION
FIRST
ACCREDITING AGENCY SCOPE TYPE ACCREDITATION STATUS CONFERRED
- ------------------------------------- ----- ---- -------------------- ---------
Accrediting Commission of Independent INS PRI Full Accreditation 01/01/68
Colleges and Schools
**** End of Accreditation Section ****
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
[SEAL]
INSTITUTIONAL PARTICIPATION DIVISION
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
DATE: 09/13/1995 STATE AUTHORIZATION SECTION PAGE C - 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INSTITUTION NAME : Hagerstown Business Colg
OPE ID 007946 00
STATE AUTHORIZATION
STATE AGENCY EFFECTIVE DATE AUTHORIZATION TYPE
- ------------------------------ -------------- ------------------------------------
MD Higher Education Commission 04/26/95 Institutional Authorization
**** End of State Authorization Section ****
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
[SEAL]
INSTITUTIONAL PARTICIPATION DIVISION
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
DATE: 09/13/1995 OFFICIALS SECTION PAGE D - 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INSTITUTION NAME : Hagerstown Business Colg
OPE ID : 007946 00
OFFICIALS
NAME AND ADDRESS TITLE PHONE FAX INTERNET
- ------------------------------------ --------------------------- --------------- --------------- ----------------------
Gifford, Jim President (301) 739-2670 (301) 791-7661
POB 2861
Hagerstown, MD 21741
McCarthy, Timothy President (301) 739-2670 (301) 791-7661
3290 W Big Beaver
Troy, MI 48084
Gilgore, Robert G Financial Aid (301) 739-2670 (301) 791-7661
Administrator
Doonan, Thomas A Director / General
3290 W Big Beaver Partner
Troy, MI 48084
Vlasic, Richard R Director / General
Partner
Vlasic, Michael A Director / General
Partner
Toma, H D Vice President
10430 Elizabeth Lake Rd
White Lake Township, MI 48386
**** End of Officials Section ****
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
[SEAL]
INSTITUTIONAL PARTICIPATION DIVISION
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
DATE: 09/13/1995 ADDITIONAL LOCATIONS SECTION PAGE E - 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INSTITUTION NAME : Hagerstown Business Colg
OPE ID : 007946 00
ADDITIONAL LOCATIONS
OPE ID NAME AND ADDRESS LOCATION TYPE APPROVED INITIAL APPROVAL DATE
- ----------------- ------------------------------------- --------------------- -------- ---------------------
**** End of Section ****
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
[SEAL]
INSTITUTIONAL PARTICIPATION DIVISION
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
DATE: 09/13/1995 VOCATIONAL PROGRAMS SECTION PAGE F - 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INSTITUTION NAME : Hagerstown Business Colg
OPE ID : 007946 00
VOCATIONAL PROGRAMS
CIP CIP NAME APPROVED FIRST OFFERED CREDIT HOURS CLOCK HOURS DURATION IN WEEKS
- ------- ------------------------------ -------- ------------- ------------ ----------- -----------------
51.0899 Health and Medical Assistants, Y 24 45
Other
51.1099 Health and Medical Laboratory Y 26 45
Technol./Technicians, Other
52.0302 Accounting Technician Y 50 45
52.0403 Legal Administrative Y 47 45
Assistant/Secretary
52.0404 Medical Administrative Y 51 60
Assistant/Secretary
52.0406 Receptionist Y 51 60
52.0407 Information Processing/Data Y 26 30
Entry Technician
52.0499 Administrative and Secretarial Y 50 60
Services, Other
**** End of Section ****
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
[SEAL]
INSTITUTIONAL PARTICIPATION DIVISION
ELIGIBILITY AND CERTIFICATION APPROVAL REPORT
DATE: 09/13/1995 OWNERSHIP SECTION PAGE G - 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INSTITUTION NAME : Hagerstown Business Colg
OPE ID : 007946 00
OWNERSHIP
EIN/SSN NAME OWNER TYPE PERCENT OWNED START DATE END DATE
- --------- ------------------------- ------------------------------- ------------- ---------- --------
382530076 O/E Learning INC. Corporation - Privately Held 100% 04/25/95
3290 West Big Beaver
Suite 128
Troy, MI 48084
**** End of Section ****
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 111
[LOGO] ACICS [LETTERHEAD] ACCREDITING COUNCIL FOR
INDEPENDENT COLLEGES AND SCHOOLS
August 21, 1996
ID Code: M00115
Mr. James E. Gifford
President
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, MD 21742
Dear Mr. Gifford:
The Council acted at its recent meeting to give your institution a new grant of
accreditation as a junior college through December 31, 2002.
The institution should be aware of the correct interpretation of Section 3-3-302
of the Accreditation Criteria (copy enclosed) related to the percentage of
faculty with advanced degrees or professional certification who are teaching
courses at the institution. Faculty teaching courses that do not require a
baccalaureate degree for the basis of hiring are not included in the numerator
or the denominator when calculating the percentage of courses being taught by
faculty possessing advanced degrees or professional certification.
The Council is pleased to have this continued relationship with your
institution. Please contact Jill DeAtley at (202) 336-6774 if you have any
questions.
Sincerely,
/s/ Stephen D. Parker
- ---------------------
Stephen D. Parker
Executive Director
cam
Enclosure
<PAGE> 112
ACCREDITING COUNCIL
FOR
INDEPENDENT COLLEGES AND SCHOOLS
[LOGO] ACICS
Hagerstown Business College
Hagerstown, Maryland
is accredited as a
Junior College
This accreditation, with all the rights, honors,
and privileges, is granted through
December 31, 2002
in testimony of institutional compliance with
the criteria of the Council.
/s/ Stephen D. Parker
----------------------------------------------
EXECUTIVE DIRECTOR
<PAGE> 113
[LETTERHEAD] THE MARYLAND HIGHER EDUCATION COMMISSION
[LOGO]
June 20, 1996
Mr. Jim Gifford
President
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, MD 21742
Dear Mr. Gifford:
The Maryland Higher Education Commission (the "Commission") has
reviewed the program changes by Hagerstown Business College. This review
entailed an analysis of the changes in accord with the Commission's Policies
and Procedures for Academic Program Proposals and the Minimum Requirements for
Degree-Granting Institutions.
The proposed program changes to the Legal Secretary, Medical
Assistant, Medical Transcriptionist, Medical Receptionist, and Health
Information Coding certificate programs do not require action by the Commission
and can be implemented as proposed. Further, the proposed changes to the
Professional Secretary, Computer Applications, Court Reporting, Medical
Secretary/Assistant, Medical Receptionist/Transcriptionist, Health Information
Technology, and Legal Assistant Associate of Applied Science degree programs
likewise do not require Commission action. Therefore, the following proposed
name changes are acceptable.
FORMER PROGRAM NAME NEW PROGRAM NAME
Business Administration - Marketing Business Administration
Clerk Typist/Receptionist Typist/Receptionist
Business Administration - Management Business Administration
Computerized Office Accounting Computerized Accounting
Data Entry Clerk Data Entry
Bookkeeper Computerized Accounting
This action does not include the proposal to use the term "Accounting"
to describe the program Business Administration-Accounting. The Minimum
Requirements for Degree-Granting Institutions (COMAR 13B.02.02.11(A)) states:
IF AN INSTITUTION ALREADY APPROVED BY THE STATE OR CHARTERED BY THE
GENERAL ASSEMBLY WISHES TO OFFER AN INSTRUCTIONAL PROGRAM NOT
SPECIFIED IN THE INSTITUTION'S CERTIFICATE OF APPROVAL, OR NOT
AUTHORIZED BY ITS CHARTER, OR BY AN APPROVAL OR RECOMMENDATION OF THE
COMMISSION, THE INSTITUTION SHALL SUBMIT A PROSPECTUS AND A REQUEST
FOR APPROVAL OR RECOMMENDATION THROUGH ITS GOVERNING BOARD TO THE
COMMISSION IN ACCORDANCE WITH INSTRUCTIONS PROVIDED BY THE SECRETARY.
<PAGE> 114
Mr. Jim Gifford
June 20, 1996
page 2
The Policies and Procedures for Academic Program Proposals defines a
"new program" to include a "substantial modification" of an existing program.
Because the disciplines of Business Administration and Accounting are
different, your desire to rename the program constitutes the introduction of a
new program and must be submitted for approval to the Commission.
If you have any questions or concerns on this matter, please call me
at 410-974-2971.
Sincerely,
/s/ David A. Sumler
--------------------------------------
David A. Sumler, Ph.D.
Director of Collegiate Affairs
DS:LM
<PAGE> 115
[LETTERHEAD] THE MARYLAND HIGHER EDUCATION COMMISSION
[LOGO]
August 9, 1996
Mr. Jim Gifford
President
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, MD 21742
Dear Mr. Gifford:
The Maryland Higher Education Commission (the "Commission") has
reviewed the program change proposal by Hagerstown Business College. This
review entailed an analysis of the changes in accord with the Commission's
Policies and Procedures for Academic Program Proposals and the Minimum
Requirements for Degree-Granting Institutions.
The proposed program change to Accounting does not require action by
the Commission and can be implemented as proposed. Therefore, the following
proposed name change is acceptable.
FORMER PROGRAM NAME NEW PROGRAM NAME
Business Administration - Accounting Accounting
If you have any questions or concerns on this matter, please call me
at 410-974-2971.
Sincerely,
/s/ David A. Sumler
-------------------------------------
David A. Sumler, Ph.D.
Director of Collegiate Affairs
DS:LM
<PAGE> 116
[LETTERHEAD] MARYLAND HIGHER EDUCATION COMMISSION
May 14, 1992
Ms. Cheryl M. Hyslop
Dean
Hagerstown Business College
12031 Hopewell Road
Hagerstown, Maryland 21740
Dear Ms. Hyslop:
Hagerstown Business College maintains full and unconditional approval
from the Maryland Higher Education Commission to operate in the State of
Maryland and to offer programs in accounting technologies, secretarial
technologies, and medical and legal assistance leading to the lower division
certificate and the associate's degree.
Cordially
/s/ Shaila R. Aery
------------------------------
Shaila R. Aery
Secretary
SRA:JAS:ds
<PAGE> 117
MARYLAND HIGHER EDUCATION COMMISSION
hereby states that
HAGERSTOWN BUSINESS COLLEGE
maintains full and unconditional approval to operate
in the State of Maryland and to offer programs in
accounting technologies
secretarial technologies
medical assistance
legal assistance
leading to the lower division certificate and
associate's degree
<PAGE> 118
Commonwealth of Pennsylvania
DEPARTMENT OF EDUCATION
333 Market Street
Harrisburg, PA 17126-0333
June 20, 1995
MR JAMES GIFFORD
CHIEF EXECUTIVE OFFICER
HAGERSTOWN BUSINESS COLLEGE
18618 CRESTWOOD DRIVE
HAGERSTOWN MD 21742
Dear MR GIFFORD :
Your school has been registered as an out-of-state school authorized
to solicit students in the Commonwealth of Pennsylvania under the provisions of
Act 174 of 1986 for the period from 07-01-1995 to 07-01-1997 or until this
registration is suspended or revoked for cause.
This registration authorizes licensed representatives of your school
to enroll students within the Commonwealth of Pennsylvania for the program(s)
on the enclosed listing.
As you know, representatives of your school who enroll students within
the Commonwealth must be licensed by the State Board of Private Licensed
Schools. If you have submitted admissions representatives' applications they
are being processed and will be forwarded under separate cover.
This registration applies only to the program titles, lengths and
tuition charges shown above. Please notify the State Board of Private Licensed
Schools of any proposed changes relative to these programs or for new programs;
change of address; change of director or a change of ownership.
Sincerely,
/s/ James G. Hobbs
------------------
JAMES G HOBBS
COORDINATING SECRETARY
STATE BOARD OF PRIVATE LICENSED SCHOOLS
Enclosure
<PAGE> 119
COMMONWEALTH OF PENNSYLVANIA
Department of Education
hereby states that
HAGERSTOWN BUSINESS COLLEGE
has been registered as an out-of-state school
authorized to solicit students in the
Commonwealth of Pennsylvania
under the provisions of Act 174 of 1986
July 1, 1995 to July 1, 1997
<PAGE> 120
COMMONWEALTH OF PENNSYLVANIA
Department of Education
October 25, 1996
SUBJECT: School Program Profile (PDE-3808)
TO: School Administrators
Licensed/Registered Private Schools
/s/ Pat Dowswell
------------------------------------
FROM: Pat Dowswell
Division of Private Licensed Schools
Enclosed is your current School Program Profile.
Please review the profile carefully and return any changes
using current procedures.
If you have any questions concerning this matter,
please contact me at (717) 783-8228.
<PAGE> 121
PDE-3808 SCHOOL PROGRAM PROFILE PAGE 162
4-00-00-940-9-0000 HAGERSTOWN BUSINESS COLLEGE 10/24/96
PDS840 18618 CRESTWOOD DRIVE HOBBS
CALENDAR SYSTEM: TRIMESTER HAGERSTOWN MD 21742
301-739-2670
<TABLE>
<CAPTION>
CIP CODE PROGRAM NAME TYPE PROGRAM DISC'D PROG-NEW TUITION
AWARD LENGTH YEAR TUITION TUITION EFF-DATE
<S> <C> <C> <C> <C> <C> <C> <C>
11.9999 000 COMPUTERIZED AAS 1365 CLOCK HOURS 8960
APPLICATIONS 70 CREDIT HOURS
22.0103 000 LEGAL ASSISTANT AAS 1215 CLOCK HOURS 8960
70 CREDIT HOURS
51.0707 000 HEALTH INFORMATION D 570 CLOCK HOURS 3840
CODING 30 CREDIT HOURS
51.0707 001 HEALTH INFORMATION AAS 1290 CLOCK HOURS 8960
TECHNOLOGY 70 CREDIT HOURS
51.0708 000 MEDICAL D 1095 CLOCK HOURS 6528
TRANSCRIPTIONIST 51 CREDIT HOURS
51.0801 000 MEDICAL ASSISTANT D 1095 CLOCK HOURS 6528
51 CREDIT HOURS
51.9999 000 PHLEBOTOMIST D 660 CLOCK HOURS 4096
32 CREDIT HOURS
52.0201 000 ACCOUNTING AAS 1290 CLOCK HOURS 8960
70 CREDIT HOURS
52.0201 001 BUS ADMIN/ AA 1470 CLOCK HOURS 1996 8960
MANAGEMENT 70 CREDIT HOURS
52.0201 002 BUSINESS ADMINISTRATION AAS 1230 CLOCK HOURS 8960
70 CREDIT HOURS
52.0302 000 COMPUTERIZED ACCOUNTING D 750 CLOCK HOURS 5248
41 CREDIT HOURS
52.0302 001 BOOKKEEPER D 705 CLOCK HOURS 1996 6400
50 CREDIT HOURS
52.0401 000 PROFESSIONAL SECRETARY AAS 1365 CLOCK HOURS 8960
70 CREDIT HOURS
52.0403 000 LEGAL SECRETARY D 825 CLOCK HOURS 6016
47 CREDIT HOURS
52.0404 000 MEDICAL SECRETARY/ AAS 1320 CLOCK HOURS 8832
ASSISTANT 69 CREDIT HOURS
52.0405 000 COURT REPORTER AAS 1470 CLOCK HOURS 8960
70 CREDIT HOURS
52.0406 000 MEDICAL RECEPTIONIST/ AAS 1335 CLOCK HOURS 8832
TRANSCRIPTIONIST 69 CREDIT HOURS
52.0406 001 MEDICAL RECEPTIONIST D 1050 CLOCK HOURS 6528
51 CREDIT HOURS
</TABLE>
<PAGE> 122
PDE-3808 SCHOOL PROGRAM PROFILE PAGE 163
4-00-00-940-9-0000 HAGERSTOWN BUSINESS COLLEGE 10/24/96
PDS840 18618 CRESTWOOD DRIVE HOBBS
CALENDR SYSTEM: TRIMESTER HAGERSTOWN MD 21742
301-739-2670
<TABLE>
<CAPTION>
TYPE PROGRAM DISC'D PROG-NEW TUITION
CIP CODE PROGRAM NAME AWARD LENGTH YEAR TUITION TUITION EFF-DATE
<S> <C> <C> <C> <C> <C> <C> <C>
52.0407 000 DATA ENTRY D 645 CLOCK HOURS 4096
32 CREDIT HOURS
52.0408 000 TYPIST/RECEPTIONIST D 975 CLOCK HOURS 6400
50 CREDIT HOURS
</TABLE>
<PAGE> 123
NCRA [LETTERHEAD]
June 5, 1995
Mr. James Gifford
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, MD 21742
Dear Mr. Gifford:
The Board on Approved Student Education has recently concluded its June meeting
where action was taken to confer a new grant of approval to your court reporter
education program. Approval is normally issued for four (4) years; however,
each program is subject to reexamination at any time if a question is raised as
to its compliance with the General Requirements and Minimum Standards.
Enclosed is a copy of the motion passed at the meeting concerning your
institution.
Your program will continue to be listed as an approved one in the Journal of
Court Reporting as well as in promotional mailings distributed to potential
students who request the information.
Congratulations, and BASE appreciates your support of its approval program.
Please do not hesitate to contact me for further information or assistance if
needed.
Sincerely,
/s/ D. Kay Frazier
- ---------------------
D. Kay Frazier, Chair
Board on Approved Student Education
DKF/dmg
Enclosure
<PAGE> 124
HAGERSTOWN BUSINESS COLLEGE
Hagerstown, Maryland
WHEREAS, The Board on Approved Student Education has considered
information, documents, and reports of the above-named
institution's court reporter education program, and finds
that it generally complies with the General Requirements
and Minimum Standards of the Board on Approved Student
Education,
THEREFORE
RESOLVED, that the above-named institution's court reporter education
program be approved.
<PAGE> 125
NATIONAL COURT REPORTERS ASSOCIATION
[NCRA LOGO]
HAGERSTOWN BUSINESS COLLEGE
COURT REPORTING PROGRAM
Has Been Approved by the
Board on Approved Student Education
APPROVED UNTIL DECEMBER 1996
The on-site court reporter education program of this institution has met the
General Requirements and Minimum Standards established by the
Board on Approved Student Education of the
National Court Reporters Association.
/s/ Brian E. Cartier
--------------------
Executive Director
<PAGE> 126
[AHIMA LETTERHEAD]
April 11, 1994
Patricia Brown, BS, RRA
Hagerstown Business College
Health Information Technician Program
18618 Crestwood Drive
Hagerstown, MD 21742
Dear Ms. Brown:
The Council on Accreditation has completed its review of the Progress Report you
submitted in September 1993 and has determined that all deficiency areas cited
in your last on-site visit report (Essentials II.C.3, III.E and Essential
III.F.3) have now been met. The Council congratulates you on your efforts to
bring your program into compliance with all of the Essentials criteria.
Because you were awarded the maximum five years of initial accreditation in
October, 1992, this progress report review does not change the timeframe for
your next on-site accreditation visit. Therefore, the next accreditation
on-site visit will occur in the 1997-98 academic year.
Sincerely,
/s/ Shirley Eichenwald
Shirley Eichenwald, MBA, RRA
Director, Education and Accreditation
cc: Casimer Kriechbaum, Jr., MA, Dean, Hagerstown Business College
Cheryl Hyslop, MA, President, Hagerstown Business College
L.M. Detmer, MHA, Secretary, CAAHEP
<PAGE> 127
CERTIFICATE OF ACCREDITATION
Committee on Allied Health Education and Accreditation
in cooperation with the
Council on Education of the American Health Information Management Association
presents this certificate to the
Medical Record Technology Program
Hagerstown Business College
Hagerstown, Maryland
on October 9, 1992
for being in substantial compliance with the
Essentials of an Accredited Educational Program for the
Medical Record Technician
next evaluation 1997-1998
/s/ Rhonda Karp [SEAL] /s/ Marion Pruchard
- ----------------- ----------------------------
CAHEA Chairperson Review Committee Chairperson
<PAGE> 128
[LOGO]
March 14, 1994
Kateri Frazier, MT (ASCP) BB
Program Director
Phlebotomy Program
Hagerstown Business College
1050 Crestwood Drive
Hagerstown, MD 21740-2797
Dear Ms. Frazier:
At the March 11-13, 1994 NAACLS Review Board meeting, the board approved the
attached action regarding your Phlebotomy Program. A certificate of approval is
enclosed.
Program approval is based on your program's activity from March 11, 1993 to the
present as evidenced by a progress report that was due November 1, 1993. In
order to assist your program in future administrative and financial planning, we
will notify you of the renewal of approval process on April 1, 1996. This will
allow you to submit the renewal documentation for your program by August 1,
1996, well in advance of the ending of your program's approval on April 30,
1997.
As a measure of quality assurance, we ask that you help us by completing the
enclosed Post Evaluation Process form. We consider your feedback critical to
the future improvement of our peer review process.
Please accept our congratulations on receiving NAACLS' approval for your
program.
Sincerely,
/s/ Cynthia Wells
Cynthia Wells, EdD, CLS(NCA), MT(ASCP)
Chairman, NAACLS Review Board
Enclosures - Certificate of Approval
- Post Evaluation Process Form
- Invoice
cc: Cheryl Hyslop, Director
Betty Warrenfeltz, Medical Division Director
CW/dpa
<PAGE> 129
[NAACLS LOGO]
THE NATIONAL ACCREDITING AGENCY
FOR CLINICAL LABORATORY SCIENCES
presents this
Certificate of Continued Approval
to
HAGERSTOWN BUSINESS COLLEGE
HAGERSTOWN, MARYLAND
In recognition of the Phlebotomy Program, which is consistent with the
Standards established by the NAACLS Review Board.
FROM APRIL 1, 1994 TO MARCH 31, 1997.
/s/ Cynthia L. Wells /s/
- ---------------------------- -------------------------------
Review Board Chairman Executive Director
<PAGE> 130
THE NATIONAL PHLEBOTOMY ASSOCIATION
WASHINGTON, D.C.
presents this
CERTIFICATE
to
Hagerstown Business College
FOR N.P.A. ACCREDITATION PHLEBOTOMY TRAINING PROGRAM
REGISTRATION NUMBER: C-0007
-----------------
SPECIALIZATION: Phlebotomy Course
------------------------
/s/ Sharon N. Jones /s/
- --------------------------------- [LOGO] ---------------------------------
EXECUTIVE DIRECTOR EDUCATIONAL PROGRAM PLANNER
January 1 - December 31, 1995
- ---------------------------------
DATE
[SEAL]
<PAGE> 131
[SEAL]
MARYLAND BOARD OF NURSING [LETTERHEAD]
December 8, 1995
Dr. Jim Gifford,
President,
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, MD 21742
Dear Dr. Gifford:
At its November meeting, the Board of Nursing met with you and Dr.
Kriechbaum to discuss the proposal to implement a License Practical Nursing
Program at Hagerstown Business College. The Board reviewed the resume of both
applicants for the position of Nursing Administrator and agrees that both
persons meet the qualification stated in the regulations.
The Board voted to authorized Hagerstown Business College to implement
a license practical nursing program in January 1996, with the understanding that
the nursing courses will not begin before May, 1996. The curriculum is to be
reviewed by the faculty and approved by the Board before the nursing courses
begin in May 1996.
Its the Board's understanding that the curriculum is based on five
modules of 9 weeks and that the modules provide a total of 36 credit hours.
Students will be able to complete the program in one calendar year.
Please remember the Board's professional staff is available as you
implement and prepare the program.
Sincerely,
/s/ Judith W. Ryan
---------------------------------
Judith W. Ryan, Ph.D., RN, CRNP-A
President
Maryland Board of Nursing
JWR/was
<PAGE> 132
EXHIBIT 12
POLICY MANUALS AND OTHER SCHOOL MATERIAL
1. Financial Aid Handbook and related material published by U.S.
Department of Education
2. Recruitment Training Manual
3. Hagerstown Business College Course Catalog
4. Instructional manuals on "CLASS" computer software system
<PAGE> 133
EXHIBIT 13
COHORT DEFAULT RATE EVALUATION MATERIAL
Cohort Year Cohort Default Rate
----------- -------------------
1991 10.5%
1992 4.6%
1993 10.6%
1994 8.4%
<PAGE> 134
[LOGO]
UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
MAY 1996
PRESIDENT
- --------- OPE ID: 007946
HAGERSTOWN BUSINESS COLG Borrowers in Default: 12
18618 CRESTWOOD DR Borrowers in Repayment: 143
HAGERSTOWN, MD 21742 FY 1994 PRE-PUBLICATION
COHORT DEFAULT RATE: 8.4%
Dear President:
I am pleased to announce that, based upon data currently available on the
National Student Loan Data System (NSLDS), the U.S. Department of Education
(Department) has calculated a fiscal year (FY) 1994 pre-publication cohort
default rate for your school. Your school's FY 1994 pre-publication cohort
default rate is set forth above.
The cohort default rate identified in this letter is called a pre-publication
rate because, pursuant to the Department's regulations, your school has the
opportunity to review and correct errors in the data that form the basis for
this rate before an official cohort default rate is disclosed to the public.
See, 34 C.F.R. 668.17(h). The information that was used to calculate your
school's pre-publication cohort default rate was provided to NSLDS by the
guaranty agencies. Therefore, if your school chooses to challenge its data,
any challenge must be sent to the guaranty agency that reported the data to
NSLDS. Your school has 30 calendar days from the receipt of the
pre-publication data to submit challenges to the applicable guaranty agencies.
Because your school's pre-publication cohort default rate is less than 20.0%,
the Department has not enclosed a copy of the data used to calculate your
school's pre-publication cohort default rate. If your school wishes to review
its data, it must request that data within ten (10) working days of its receipt
of this letter. An order form is enclosed at the end of the enclosed
informational booklet.
Please note that there are no official consequences associated with your
school's FY 1994 pre-publication cohort default rate and the pre-publication
cohort default rate will not be voluntarily released to the public by either
the Department or the guaranty agencies. When the Department calculates your
school's official FY 1994 cohort default rate later this year, it will be
released to the public and your school may be subject to applicable
consequences.
If you have any questions regarding your school's FY 1994 pre-publication
cohort default rate, the underlying data, or the challenge process, please
review the enclosed informational booklet or contact the Default Management
Hotline at 202-708-9396.
Very truly yours,
/s/ James D. Gette
James D. Gette, Acting Chief
Default Management Section
Enclosure
<PAGE> 135
EXHIBITS 14
TRADEMARKS ETC.
The Hagerstown Business College name and logo are attached. Neither the name
Hagertown Business College nor the HBC logo has been registered as a trademark
on the State or Federal level.
<PAGE> 136
[Hagerstown Business College LOGO] 18618 Crestwood Drive
Hagerstown, Maryland 21742
301-739-2670
800-HBC-2670
FAX 301-791-7661
<PAGE> 137
EXHIBIT 15
LIST OF MATERIAL CONTRACTS
1. Program Participation Agreement with the U.S. Department of Education
2. Contract for Perkins Loans - 3rd party that administers general
disbursement
3. Agreement with Williams & Fudge for collections
4. Agreement with Greencastle-Antrim School District to teach high school
juniors and seniors in certain business education programs
5. Pitney Bowes Postal Meter Lease: Annual maintenance and rental
6. Maintenance Agreement on Xerox Copy Machine
7. Telephone System: contract with Wiltel Telegration
8. Alarm System servicing: contract with Glessner
9. Fire Security System servicing: contract with Dynamark
10. Vending Agreement to provide vending services
11. Maintenance Agreement for electronic card catalog system in library
12. Clearinghouse service for subscription for periodicals for library
with Ebisco
13. Waste Removal agreement
14. Medical Waste Management Removal contract
15. Lawn Maintenance Agreement
16. Agreement with Heating and Cooling service (on per call basis)
17. Medisoft subscription agreement
18. Westlaw subscription agreement
19. Employment agreement described on Exhibit 16
<PAGE> 138
DEPARTMENT OF EDUCATION
OFFICE OF POSTSECONDARY EDUCATION
STUDENT FINANCIAL ASSISTANCE PROGRAMS
INSTITUTIONAL PARTICIPATION DIVISION [LOGO]
PROGRAM PARTICIPATION AGREEMENT
Effective Date of Approval: The date on which this Agreement is
signed on behalf of the Secretary of
Education
Approval Expiration Date: 07/31/1999
Name of Institution: HAGERSTOWN BUSINESS COLG
Address of Institution: 18618 CRESTWOOD DR
HAGERSTOWN, MD 21742
Office of Postsecondary Education Identification Number: 00794600
U.S. Department of Education Central Registry Service Number: 1382530076A3
THE EXECUTION OF THIS AGREEMENT BY THE INSTITUTION AND
THE SECRETARY IS A PREREQUISITE TO THE INSTITUTION'S INITIAL
OR CONTINUED PARTICIPATION IN ANY TITLE IV, HEA PROGRAM.
The postsecondary educational institution (Institution) listed above, referred
to hereafter as the "Institution," and the United States Secretary of
Education, referred to hereafter as the "Secretary," agree that the Institution
may participate in those student financial assistance programs authorized by
Title IV of the Higher Education Act of 1965, as amended, (Title IV, HEA
Programs) indicated under this Agreement and further agrees that such
participation is subject to the terms and conditions set forth in this
Agreement. As used in this Agreement, the term "Department" refers to the
U.S. Department of Education
SCOPE OF COVERAGE
This Agreement applies to all locations of the Institution as stated on the
most current ELIGIBILITY AND CERTIFICATION APPROVAL REPORT issued by the
Department. This Agreement covers the Institution's eligibility to participate
in each of the following listed Title IV, HEA programs, and incorporates by
reference the regulations cited.
- FEDERAL PELL GRANT PROGRAM, 20 U.S.C. 1070a et seq; 34 CFR Part 690.
- FEDERAL FAMILY EDUCATION LOAN PROGRAM, 20 U.S.C. 1071 et seq; 34 CFR Part
682.
- FEDERAL PERKINS LAON PROGRAM, 20 U.S.C. 1087aa et seq; 34 CFR Part 674.
- FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT PROGRAM, 20 U.S.C. 1070b
et seq; 34 CFR Part 676.
- FEDERAL WORK-STUDY PROGRAM, 42 U.S.C. 2751 et seq; 34 CFR Part 675.
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GENERAL TERMS AND CONDITIONS
1. The Institution understands and agrees that it is subject to and will
comply with the program statutes and implementing regulations for
institutional eligibility as set forth in 34 CFR Part 600 and for each
Title IV, HEA Program in which it participates, as well as the general
provisions set forth in Part F and Part G of Title IV of the HEA, and the
Student Assistance General Provisions regulations set forth in 34 CFR Part
668. THE RECITATION OF ANY PORTION OF THE STATUTE OR REGULATIONS IN THIS
AGREEMENT DOES NOT LIMIT THE INSTITUTION'S OBLIGATION TO COMPLY WITH OTHER
APPLICABLE STATUTES AND REGULATIONS.
2. a. The Institution certifies that on the date it signs this Agreement, it
has a drug abuse prevention program in operation that it has determined
is accessible to any officer, employee, or student at the Institution.
b. The Institution certifies that on the date it signs this agreement, it
is in compliance with the disclosure requirements of Section 485(f) of
the HEA (Campus Security Policy and Crime Statistics).
3. The Institution agrees to comply with --
a. Title VI of the Civil Rights Act of 1964, as amended, and the
implementing regulations, 34 CFR Parts 100 and 101 (barring
discrimination on the basis of race, color or national origin);
b. Title IX of the Education Amendments of 1972 and the implementing
regulations, 34 CFR Part 106 (barring discrimination on the basis of
sex);
c. The Family Rights and Privacy Act of 1974 and the implementing
regulations, 34 CFR Part 99;
d. Section 504 of the Rehabilitation Act of 1973 and the implementing
regulations, 34 CFR Part 104 (barring discrimination on the basis of
physical handicap); and
e. The Age Discrimination Act of 1975 and the implementing regulations, 34
CFR Part 110.
4. The Institution acknowledges that 34 CFR Parts 602 and 667 require
accrediting agencies, and State Postsecondary Review Entities (SPREs),
and the Secretary to share information about institutions. The Institution
agrees that the Secretary, any accrediting agency recognized by the
Secretary, or SPRE may share or report information to one another about the
Institution without limitation.
5. The Institution acknowledges that the HEA prohibits the Secretary from
recognizing the accreditation of any institution of higher education
unless that institution agrees to submit any dispute involving the final
denial, withdrawal, or termination of accreditation to initial arbitration
prior to any other legal action.
SELECTED PROVISIONS FROM
GENERAL PROVISIONS REGULATIONS, 34 CFR PART 668
By entering into this Program Participation Agreement, the Institution agrees
that:
(1) It will comply with all statutory provisions of or applicable to
Title IV of the HEA, all applicable regulatory provisions prescribed under that
statutory authority, and all applicable special arrangements, agreements, and
limitations entered into under the authority of statutes applicable to Title IV
of the HEA, including the requirement that the institution will use funds it
receives under any Title IV, HEA program and any interest or other earnings
thereon, solely for the purposes specified in and in accordance with that
program;
(2) As a fiduciary responsible for administering Federal funds, if the
institution is permitted to request funds under a Title IV, HEA program advance
payment method, the institution will time its requests for funds under the
program to meet the institution's immediate Title IV, HEA program needs;
(3) It will not request from or charge any student a fee for
processing or handling any application, form, or data required to determine a
student's eligibility for, and amount of, Title IV, HEA program assistance;
(4) It will establish and maintain such administrative and fiscal
procedures and records as may be necessary to ensure proper and efficient
administration of funds received from the Secretary or from students under the
Title IV, HEA programs, together with assurances that the institutions will
provide, upon request and in a timely manner, information relating to the
administrative capability and financial responsibility of the institution to--
(i) The Secretary;
(ii) The State postsecondary review entity designated under 34 CFR
part 667 for the State or States in which the institution or any of the
institution's branch campuses or other locations are located;
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(iii) A guaranty agency, as defined in 34 CFR part 682, that
guarantees loans made under the Federal Stafford Loan, and Federal PLUS
programs for attendance at the institution or any of the institution's branch
campuses or other locations;
(iv) The nationally recognized accrediting agency that accredits or
preaccredits the institution or any of the institutions's branch campuses,
other locations, or educational programs;
(v) The State agency that legally authorizes the institution and any
branch campus or other location of the institution to provide postsecondary
education; and (vi) In the case of a public postsecondary vocational
educational institution that is approved by a State agency recognized for the
approval of public postsecondary vocational education, that State agency;
(5) It will comply with the provisions of Section 668.15 relating to
factors of financial responsibility;
(6) It will comply with the provisions of Section 668.16 relating to
standards of administrative capability;
(7) It will submit reports to the Secretary and, in the case of an
institution participating in the Federal Stafford Loan, Federal PLUS, or the
Federal Perkins Loan Program, to holders of loans made to the institution's
students under that program at such times and containing such information as
the Secretary may reasonably require to carry out the purpose of the Title IV,
HEA programs;
(8) It will not provide any statement to any student or certification
to any lender under the Federal Stafford Loan, or Federal PLUS, Program that
qualifies the student for a loan or loans in excess of the amount that the
student is eligible to borrow in accordance with sections 425(a), 428(a)(2),
428(b)(1)(A) and (B), and 428H of the HEA;
(9) It will comply with the requirements of Subpart D of 34 CFR part
668 concerning institutional and financial assistance information for students
and prospective students;
(10) In the case of an institution that advertises job placement
rates as a means of attracting students to enroll in the institution, it will
make available to prospective students, at or before the time that those
students apply for enrollment--
(i) The most recent available data concerning employment statistics,
graduation statistics, and any other information necessary to substantiate the
truthfulness of the advertisements; and
(ii) Relevant State licensing requirements of the State in which the
institution is located for any job for which an educational program offered by
the institution is designed to prepare those prospective students; (11) In the
case of an institution participating in the Federal Stafford Loan, or Federal
PLUS Program, the institution will inform all eligible borrowers, as defined
in 34 CFR part 682, enrolled in the institution about the availability and
eligibility of those borrowers for State grant assistance from the State in
which the institution is located, and will inform borrowers from another State
of the source for further information concerning State grant assistance from
that State;
(12) It will provide the certifications described in paragraph (c)
of this section;
(13) In the case of an institution whose students receive
financial assistance pursuant to section 484(d) of the HEA, the institution
will make available to those students a program proven successful in assisting
students in obtaining the recognized equivalent of a high school diploma;
(14) It will not deny any form of Federal financial aid to any
eligible student solely on the grounds that the student is participating in a
program of study abroad approved for credit by the institution;
(15) In the case of an institution seeking to participate for the
first time in the Federal Stafford Loan and Federal PLUS programs, the
institution has included a default management plan as part of its application
under Section 668.12 for participation in those programs and will use the plan
for at least two years from the date of that application. The Secretary
considers the requirements of this paragraph to be satisfied by a default
management plan developed in accordance with the default reduction measures
described in Appendix D to 34 CFR part 668;
(16) In the case of an institution that changes ownership that results
in change of control, or that changes its status as a main campus, branch
campus, or an additional location, the institution will, to participate in the
Federal Stafford Loan and Federal PLUS programs, develop a default management
plan for approval by the Secretary and implement the plan for at least two
years after the change in control or status. The Secretary considers the
requirements of this paragraph to be satisfied by a default management plan
developed in accordance with the default reduction measures described in
Appendix D to 34 CFR part 668;
(17) The Secretary, guaranty agencies and lenders as defined in 34 CFR
part 682, nationally recognized accrediting agencies, the Secretary of Veterans
Affairs, State postsecondary review entities designated under 34 CFR part 667,
State agencies recognized under 34 CFR part 603 for the approval of public post
secondary vocational education, and State agencies that legally authorize
institutions and branch campuses or other locations of institutions to provide
postsecondary education, have the authority to share with each other any
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information pertaining to the institution's eligibility for or participation in
the Title IV, HEA programs or any information on fraud and abuse;
(18) It will not knowingly--
(i) Employ in a capacity that involves the administration of the Title
IV, HEA programs or the receipt of funds under those programs, an individual
who has been convicted of, or has pled nolo contendere or guilty to, a crime
involving the acquisition, use, or expenditure of Federal, State, or local
government funds, or has been administratively or judicially determined to have
committed fraud or any other material violation of law involving Federal,
State, or local government funds;
(ii) Contract with an institution or third-party servicer that has
been terminated under section 432 of the HEA for a reason involving the
acquisition, use, or expenditure of Federal, State, or local government funds,
or that has been administratively or judicially determined to have committed
fraud or any other material violation of law involving Federal, State, or
local government funds; or
(iii) Contract with or employ any individual, agency, or organization
that has been, or whose officers or employees have been--
(A) Convicted of, or pled nolo contendere or guilty to, a crime
involving the acquisition, use, or expenditure of Federal, State or local
government funds; or
(B) Administratively or judicially determined to have committed fraud
or any other material violation of law involving Federal, State, or local
government funds;
(19) It will complete, in a timely manner and to the satisfaction of
the Secretary, surveys conducted as a part of the Integrated Postsecondary
Education Data System (IPEDS) or any other Federal collection effort, as
designated by the Secretary, regarding data on postsecondary institutions;
(20) In the case of an institution that offers athletically related
student aid, it will comply with the provisions of paragraph (d) of this
section;
(21) It will not impose any penalty, including, but not limited to,
the assessment of late fees, the denial of access to classes, libraries, or
other institutional facilities, or the requirement that the student borrow
additional funds for which interest or other charges are assessed, on any
student because of the student's inability to meet his or her financial
obligations to the institution as a result of the delayed disbursement of the
proceeds of a Title IV, HEA program loan due to compliance with statutory and
regulatory requirements of or applicable to the Title IV, HEA programs, or
delays attributable to the institution;
(22) It will not provide, nor contact with any entity that provides,
any commission, bonus, or other incentive payment based directly or indirectly
on success in securing enrollments or financial aid to any persons or entities
engaged in any student recruiting or admission activities or in making
decisions regarding the awarding of student financial assistance, except that
this requirement shall not apply to the recruitment of foreign students
residing in foreign countries who are not eligible to receive Federal student
assistance. This provision does not apply to the giving of token gifts to
students or alumni for referring students for admission to the institution as
long as: the gift is not in the form of money, check, or money order; no more
than one such gift is given to any student or alumnus; and the gift has a value
of not more than $25;
(23) It will meet the requirements established pursuant to part H of
Title IV of the HEA by the Secretary, State postsecondary review entities
designated under 34 CFR part 667, and nationally recognized accrediting
agencies;
(24) It will comply with the refund provisions established in 668.22;
(25) It is liable for all improperly administered funds received or
refunded under the Title IV, HEA programs, including any funds administered by
a third-party servicer; and
(26) If the stated objectives of an educational program of the
institution are to prepare a student for gainful employment in a recognized
occupation, the institution will--
(i) Demonstrate a reasonable relationship between the length of the
program and entry level requirements for the recognized occupation for which
the program prepares the student. The Secretary considers the relationship to
be reasonable if the number of clock hours provided in the program does not
exceed by more than 50 percent the minimum number of clock hours required for
training in the recognized occupation for which the program prepares the
student, as established by the State in which the program is offered, if the
State has established such a requirement, or as established by any Federal
agency; and
(ii) Establish the need for the training for the student to obtain
employment in the recognized occupation for which the program prepares the
student.
(c) In order to participate in any Title IV, HEA program (other than
the SSIG and NEISP programs), the institution must certify that it--
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(1) Has in operation a drug abuse prevention program that the
institution has determined to be accessible to any officer, employee, or
student at the institution; and
(2)(i) Has established a campus security policy in accordance with
section 485(f) of the HEA; and
(ii) Has complied with the disclosure requirements of Section 668.47 as
required by section 485(f) of the HEA.
(d) In order to participate in any Title IV, HEA program (other
than the SSIG and NEISP programs), an institution that offers athletically
related student aid must--
(l) Cause an annual compilation, independently audited not less
often than every 3 years, to be prepared within 6 months after the end of the
institution's fiscal year, of--
(i) The revenues derived by the institution from the institution's
intercollegiate athletics activities, according to the following categories:
(A) Total revenues.
(B) Revenues from football.
(C) Revenues from men's basketball.
(D) Revenues from women's basketball.
(E) Revenues from all other men's sports combined.
(F) Revenues from all other women's sports combined;
(ii) Expenses made by the institution for the institution's
intercollegiate athletics activities, according to the following categories:
(A) Total expenses.
(B) Expenses attributable to football.
(C) Expenses attributable to men's basketball.
(D) Expenses attributable to women's basketball.
(E) Expenses attributable to all other men's sports combined.
(F) Expenses attributable to all other women's sports combined; and
(iii) The total revenues and operating expenses of the institution; and
(2) Make the compilation and, where allowable by State law, the
results of the audits required by paragraph (d)(1) of this section available
for inspection by the Secretary and the public.
(e) For the purposes of paragraph (d) of this section--
(l) Revenues from intercollegiate athletics activities allocable to a
sport shall include without limitation gate receipts, broadcast revenues and
other conference distributions, appearance guarantees and options, concessions,
and advertising;
(2) Revenues such as student activities fees, alumni contributions,
and investment interest income that are not allocable to a sport shall be
included in the calculation of total revenues only;
(3) Expenses for intercollegiate athletics activities allocable to a
sport shall include without limitation grants-in-aid, salaries, travel,
equipment, and supplies; and
(4) Expenses such as general and administrative overhead that are not
allocable to a sport shall be included in the calculation of total expenses
only.
(f)(1) A program participation agreement becomes effective on the date
that the Secretary signs the agreement.
(2) A new program participation agreement supersedes any prior program
participation agreement between the Secretary and the institution.
(g)(l)(i) With respect to an institution that has been certified other
than under a provisional certification--
(A) Except as provided in paragraphs (h) and (i) of this section, the
Secretary terminates a program participation agreement through the proceedings
in subpart G of this part.
(B) An institution may terminate a program participation agreement.
(C) If the Secretary of the institution terminates a program
participation agreement under paragraph (g) of this section, the Secretary
establishes the termination date.
(2) With respect to an institution that has been provisionally
certified, the Secretary revokes a provisional certification through the
proceedings in Section 668.13(f).
(h) An institution's program participation agreement automatically expires on
the date that--
(1) The institution changes ownership that results in a change in
control as determined by the Secretary under 34 CFR part 600; or
(2) The institution's participation ends under the provisions of
Section 668.26(a)(1), (2), (4), or (7).
(i) An institution's program participation agreement no longer applies
to or covers a location of the institution as of the date on which that
location ceases to be part of the participating institutions.
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IN WITNESS WHEREOF
the parties hereto have caused this Agreement to be executed by their duly
authorized representatives
Signature of Institution's
Chief Executive Officer /s/ Jim Gifford Date: 8/1/95
----------------------- -------------
Print Name and Title: Jim Gifford, President
-----------------------
For the Secretary: /s/ Robert E. Terry Date: Aug-2 1995
U.S. Department of Education ----------------------- --------------
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AMENDMENT
(Institutional - Campus Based)
This Amendment is made this 1st day of July, 1994, by and between the
designated Institution below ("Customer") and EduServ Technologies, Inc.
("EduServ").
WHEREAS, Customer and EduServ entered into a Servicing Agreement as
amended ("Agreement") whereunder EduServ agreed to perform certain services with
respect to Student Loans made or to be made under Title IV of the Higher
Education Act of 1965, as amended (the "Act").
WHEREAS, on April 29, 1994, the Department of Education promulgated
Interim Final Regulations (the "Regulations") which require, among other
things, that contracts between third party servicers and Institutions (as
defined under the Act) include certain mandated provisions.
WHEREAS, the parties desire to amend the Agreement to comply with the
requirements of the Regulations while maintaining the rights which the parties
had and have under the Agreement vis-a-vis one another.
NOW, THEREFORE, the Agreement is amended by adding the following
provisions:
1. So long as the same is required under Title IV of the Higher
Education Act or the regulations promulgated and in force
thereunder (the "Act"), EduServ will comply with the applicable
provisions of (i) the Act; (ii) all statutory provisions; and (iii)
any special arrangements, agreements, limitations, suspensions and
terminations entered into under the authority of the Act ("Other
Agreements") of which EduServ has actual written knowledge, to the
extent of the services contracted by EduServ to be performed for
Customer hereunder.
2. Customer hereby consents to and authorizes EduServ to refer to
the Office of the Inspector General of the Department of Education
for investigation any information indicating there is reasonable cause
to believe that Customer might have engaged in fraud or other criminal
misconduct in connection with Customer's administration of any Title
IV, HEA program or an applicant for Title IV, HEA program assistance
might have engaged in fraud or other criminal misconduct in connection
with his or her application. Customer agrees to defend, indemnify and
hold harmless EduServ from any action taken by EduServ in good faith
under this provision.
<PAGE> 145
3. So long as the same is required by the Act and is legally
enforceable, EduServ agrees to be jointly and severally liable with
Customer to the United States Secretary of Education for any
violation by EduServ of any statutory provision of or applicable to
Title IV of the Act, any regulations thereunder or any Other Agreement
of which EduServ has actual written notice as of the date of such
violation. Notwithstanding anything herein or in the Agreement to the
contrary, Customer agrees that it shall pay within the time frame
demanded by the Department of Education any monies for which the
Department of Education may hold EduServ and Customer jointly and
severally liable. In the event Customer fails to make such payment and
EduServ is required to make such payment as a result of the joint and
several liability provisions of this amendment or the Regulations,
Customer shall indemnify and hold harmless EduServ from all costs,
expenses (including reasonable attorney's fees) and payments made by
EduServ incurred as a result of Customer's failure to make payment to
the Department of Education as provided herein, including interest at
the rate of eighteen (18%) percent per annum on any such amounts paid
by EduServ to the Department of Education from the date paid.
4. Customer represents and warrants that it has not entered into, nor is
it subject to, any Other Agreements. In the event Customer
becomes subject to any Other Agreements, Customer shall immediately
notify EduServ and provide EduServ with a copy of such Other
Agreements. In the event EduServ is required to take on additional
liabilities, obligations or perform additional services as a result of
such Other Agreements, EduServ may immediately terminate the Agreement
and/or offer to amend the Agreement to take into account the economics
of such liabilities, obligations or services.
Except as otherwise amended herein, the terms and conditions of the
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and date first above written.
EDUSERV TECHNOLOGIES, INC. Hagerstown Business College
Customer
Print Institution Name
By: /s/ William F. Leahy, Jr. By: /s/ R.G. Gilgore
Name: WILLIAM F. LEAHY JR. Name: R. G. Gilgore
Title: Executive V.P. Marketing Title: Director of
Student Financial Assistance
<PAGE> 146
[WACHOVIA LETTERHEAD]
May 10, 1983
Mr. Richard Hajek
President
Hagerstown Business College
P. O. Box 722
Hagerstown, Maryland 21740
Dear Mr. Hajek:
Enclosed you will find your copy of Schedule A covering the servicing of
Hagerstown Business College's NDSL program. Your institution's program will be
serviced under WSI's Option I program, meaning that WSI will be performing all
past due contacts for delinquent borrowers.
The responsibility for further collection activities still rests with Hagerstown
Business College should an account age to 120 or more days past due. You can
still continue to place accounts with outside collection agencies through WSI's
DAP system as you are presently doing.
Wachovia Services values its relationship with Hagerstown Business College very
highly. If you are interested in other service options or should you have any
questions on WSI's servicing capabilities, please feel free to contact me at
the number given below.
Sincerely yours,
/s/ Kevin A. Laborde
Kevin A. Laborde
Marketing Representative
919/748-5608
KAL/bk
Enclosure
<PAGE> 147
WACHOVIA SERVICES, INC.
SCHEDULE A - N.D.S.L. SERVICING - OPTION 1
This Schedule attached to the Servicing Agreement for Hagerstown
Business College (the Customer), dated April 28, 1983, is considered an
integral part of the agreement between Wachovia Services, Inc. (the Company)
and the Customer.
The Company agrees to provide a data processing service to specifically
perform the reporting, billing, and servicing functions outlined in this
Schedule for N.D.S.L. accounts.
All governmental reporting on statistics, loan funds, refunds,
accounting reports, and similar required data will remain the function of the
Customer with supporting data being furnished by the Company, as available.
THE COMPANY AGREES TO:
1.1 Provide the Customer with the necessary forms and materials for
transferring loans and submitting loan account adjustments.
1.2 Provide the Customer with weekly, monthly, quarterly, and annual
reports to include monetary and non-monetary account data.
1.3. Provide the following services:
a. Send each Borrower, entitled to a nine or six month grace
period, a disclosure statement, an introductory letter,
information relative to loan provisions, and repayment
instructions ninety (90) days after separation.
b. Send each Borrower, entitled to a nine month grace
period, an audit statement, a grace expiration notice,
and a list of informative statements one hundred eighty (180)
days after separation.
c. Send each borrower a billing statement to be received thirty
(30) days before the due date of the first payment. This
statement, and subsequent bills (and coupon books issued
annually) are mailed to be received at least ten (10) days
before each due date.
d. Send each repayment borrower forms for deferment, postponement,
and cancellation.
e. Send each Borrower notices at 15 and 45 days past due.
f. Send each Borrower an electronic communication at sixty (60)
days past due.
<PAGE> 148
WACHOVIA SERVICES, INC.
g. Send each Borrower a Demand Letter at seventy-five (75) days
past due.
h. Make a collection telephone call to each borrower at ninety
(90) days past due. The Company will make three
separate attempts to contact each borrower.
i. Perform skip-tracing activities as available through the I.R.S.
THE CUSTOMER AGREES TO:
2.1. Adopt and use the Company's forms and procedures for the preparation
and transmittal of loan account information to the Company.
2.2. Transfer data on new loan accounts to the Company immediately after
initial advances are made.
2.3. Ensure that each Borrower, on ceasing to be a full-time student, is
fully informed as to the relationship between the Customer and
the Company, and the importance of maintaining contact with both.
2.4 Establish and maintain an account at a bank mutually agreed upon into
which payments received by the Company will be deposited.
2.5 Authorize the Company, as agent of the Customer, to review and make
tentative approval or disapproval of cancellations or deferments.
However, the final cancellation and deferment decisions are the
responsibility of the Customer.
2.6 Maintain trained staff as a contact for the Company. In the event the
Company is required to provide additional training to the Customer's
staff, the Customer agrees to pay all travel expenses related to such
training visits.
HAGERSTOWN BUSINESS COLLEGE WACHOVIA SERVICES, INC.
Customer
/s/ Richard J. Hajek /s/ Leslie D. Sari
_____________________________ _________________________
Name Richard J. Hajek Name Leslie D. Sari
Financial Aid Officer General Manager
_____________________________ _________________________
Title Title
May 3, 1983 May 9, 1983
_____________________________ _________________________
Date Date
/601A
<PAGE> 149
TO: Hagerstown Business College
THIS CONTRACT, made and entered into as of this 1st day of September, 1990, by
and between WILLIAMS & FUDGE, INC., hereafter called Collector and the above
stated College hereafter called College.
WITNESSETH:
WHEREAS, College has unpaid accounts which it desires
collected and Collector is qualified to collect such unpaid accounts and
desires to handle such accounts as referred for collection by College.
IT IS MUTUALLY AGREED AS FOLLOWS:
1) Collector agrees to accept for collection, upon terms,
conditions, and provisions herein set forth, unpaid accounts as College refers
for collection.
2) Collector shall promptly undertake, through proper and lawful
means the collection of all accounts referred by the College without regard to
intimidation, or harassment of debtor in the collection of accounts or violate
any guidelines established by the Federal Trade Commission.
3) In the event a claim, complaint, or legal process is filed
alleging threats, intimidation, harassment, deception, or any other improper
act or practice in violation of any federal or state consumer oriented act, and
the College, its agents, officers, or employees is alleged to be actually or
contingently liable, the collector agrees to defend such claim, complaint, or
legal process and to hold the College, its agents, officers, or employees,
harmless therefore as well as for any judgment recovered. Said provision
shall not apply in the event the College's own acts amount to a violation of the
above stated Federal or State consumer oriented acts.
4) Collector shall remit in full to the College the gross total of
all funds collected for the College by the tenth (10) day of each month during
the term of this agreement.
Collector will provide separate payments as well as separate monthly
accounting statements of all payments received and credited during said period.
College agrees to remit collection fees to Collector upon receipt of payments
and monthly statement as described above.
<PAGE> 150
5) The collection fee shall be thirty-three and one-third (33 1/3)
percent of the total amount collected. Said fee will be sole consideration
paid Collector. College shall not be liable for any cost or expense incurred
by Collector in the collection of accounts.
6) Collector shall have no authority to file suit on any account
referred by College. Written authority must be received by Collector from
College prior to filing suit on any accounts. Collector shall make every
effort to collect accounts prior to making suit recommendations. The
collection fee for all accounts approved for litigation shall be fifty (50)
percent.
7) Collector agrees to suspend action either temporarily or
permanently on any accounts referred for collection upon notification by
College.
8) College agrees to have had performed appropriate written demands
informing the debtor of the consequences of his failure to make payments prior
to turning accounts over to the Collector.
9) Collector agrees to implement thorough collection procedures in the
attempt to achieve a maximum recovery on debts. Such procedures are to include
a reasonable number of telephone calls along with a reasonable number of mail
efforts. Skip tracing procedures will be used wherever necessary. Legal
action will be taken when all other efforts fail providing written authority is
given by the College. Reasonable asset location will be performed by Collector
to satisfy judgements.
10) This contract may be terminated for any reason by either party
upon submission of thirty (30) day written notice thereof. Termination by
College for the cause, default, or negligence on the part of the Collector
shall be excused from the thirty (30) day notice.
IN WITNESS WHEREOF, the parties have executed this contract in
duplicate on the date written.
By: (Unreadable) (L.S.) By: /s/ Cheryl M. Hyslop (L.S.)
-------------------- ----------------------
Title: Vice President Title: Director
----------------- ------------------
Date: 8-6-90 Date: 8-13-90
----------------- ------------------
<PAGE> 151
WILLIAMS & FUDGE, INC.
[Letterhead]
CONTRACT ADDENDUM
This addendum as described below is to be incorporated into the existing
contract between Hagerstown Business College and Williams & Fudge, Inc., as
required by the United States Department of Education.
1. Pursuant to Federal Regulations pertaining to the Higher Education Act of
1965 Title IV, as amended; specifically those statutory provisions as set forth
in Section 668.25 (Contracts between an institution and third-party servicer),
Williams & Fudge, Inc., agrees to comply with all current and future applicable
requirements.
2. Williams & Fudge, Inc., further agrees to continue compliance with all
current and future provisions of The Fair Debt Collection Practice Act,
Consumer Credit Protection Act, National Defense Education Act of 1958, Title
II, and the Public Health Service Act Titles VII, and VIII.
Williams & Fudge, Inc. Acknowledgement of receipt
By:
- --------------------------- ----------------------
Gary L. Williams, President
Title: Director of Fiscal Operations
Date: December 1, 1994 ------------------------------
Date: 5/30/96
------------------------------
<PAGE> 152
Williams & Fudge, Inc.
[Letterhead]
TELEPHONE EXTENTIONS
<TABLE>
<S> <C> <C> <C>
Extention # Professional Name Familiar Name Collector #
- ----------- ----------------- ------------- ------------
117 Ashworth, T. Teri 38
111 Becknell, C. Crystal 28
108 Brantley, Susan Susan
109 Burleson, J. Jeff 24
119 Cline, E.T. Betsy 17
130 Crawford, T.M. Tracy 06
122 Drost, Barbara Barbara 02
128 Gravley, Leigh Anne Leigh Anne
107 Griffin, G.L. Gina 46
105 Hensel, T.H. Hope 34
135 Hoopingarner, M. Marsha 40
134 Horne, S. Shirley 41
116 Jones, T.F. Terry 14
115 Langley, E.M. Marrelle 15
120 Lee, Bronda J. B.J.
126 McDowell, S. Sandy 31
112 Parham, C. Cindy 29
104 Perrin, Robert Bob
114 Ramsey, T. Theresa 20
106 Smith, J. Jerry 11
131 Tillman, Lisa Lisa
118 Totherow, N. Nancy 30
123 Wallinford, Esther Esther
136 Wade, J. Jerome 43
110 Ward, S. Sherry 18
125 Warnick, D. Deanna 39
103 Wells, E.C. Ember 03
113 White, M.A. Marianna 05
132 Williams, Gary Gary
137 Williams, D.C. David 04
*** Please do not give out account representatives first name to borrowers ***
</TABLE>
<PAGE> 153
GREENCASTLE
ANTRIM
SCHOOL DISTRICT
E.O.E.
June 17, 1996
Dr. Jim Gifford
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, MD 21740
Dear Jim:
We have finally completed the journey through the forest of negotiations
and regulations and have arrived at a point where I can say that our project is
a go. Thank you for your patience.
As a part of our settlement with PSEA we have agreed to limit the program
to 35 students. That number is a reasonable maximum for us at this time. I
believe the current number enrolled is 22.
Attached is a copy of the yearly terms and conditions, a signed copy of
the restructured agreement and a copy of the student contract. Should you see
any problems, call. Please return, at your convenience, a copy of the agreement
carrying your signature.
Jack and Theresa continue to work through the details. I have asked Jack
to coordinate the Act 34 clearances. We are going to need copies for our files.
These are critical as we continue to be monitored by PSEA and others.
Again thank you for helping us through this fascinating process.
Sincerely,
/s/ P. Duff Rearick
P. Duff Rearick
Superintendent
cc: Jack Appleby
PDR/tmh
<PAGE> 154
EDUCATIONAL AGREEMENT BETWEEN
GREENCASTLE-ANTRIM SCHOOL DISTRICT
AND
HAGERSTOWN BUSINESS COLLEGE
Whereas it is the desire of the above-named parties to provide expanded
educational opportunities to the youth of Greencastle-Antrim School District,
and
Whereas it is the intent of Greencastle-Antrim School District to release
secondary school students for the purpose of completing secondary business and
secretarial courses or extended studies, and
Whereas it is the intent of Hagerstown Business College to provide educational
opportunities to those students released by Greencastle-Antrim School District,
and
Whereas it is the intent of the above-named parties to reduce overlap and
duplication of instruction in the educational programs of study that are similar
in content.
Be it herewith resolved that the following agreement is entered into:
1. Instructional faculty within the two educational systems will meet
to determine whether similarities in educational experiences
provided to students of the two systems appear to result in an
overlapping or duplication of instruction when a student completes
or wishes to complete a secondary business or secretarial
educational program of study. Where overlapping or duplication of
instruction appears to be evident, an attempt will be made on the
part of both systems to the granting of credit for learning
experiences at Hagerstown Business College. The method of
granting credit will be specified in individual letters of
agreement which will become a part of this agreement.
2. Greencastle-Antrim School District will provide for currently
enrolled secondary students a program of early release designed to
allow selected students to leave secondary educational facilities
for the purpose of completing secondary business and secretarial
courses or pursuing advanced student at Hagerstown Business
College in an approved program of study. The early release
program will provide for part-time as well as full-time release
for those students desiring to participate in the program.
3. Hagerstown Business College will provide for those secondary
students approved for early release a procedure whereby they may
enroll in career programs at the college for the purpose of
completing secondary business and secretarial courses or pursuing
advanced study.
The following policies shall govern the above agreement:
A. Identification Process for Selecting Students
1. Greencastle-Antrim School District will establish
criteria by which students will be selected to
participate in the early program of study. The
selection criteria will become a part of this
agreement.
<PAGE> 155
2. Hagerstown Business College will establish
prerequisites for entrance into program areas if it
appears prerequisites are desirable.
a. Specifics of any prerequisites established
will be included within letters of agreement
as they are developed.
b. An absence of specifications for articulation
between programs will not exclude credit for
courses of study at Hagerstown Business
College where such specifications have not
been formalized. Requests for admissions
into programs not articulated will be
processed individually and given all possible
consideration.
3. Minimum levels of competency must be determined by
either cognitive or psychomotor demonstrations of
proficiency. The manner of satisfying the level of
proficiency will be specified in the letters of
agreement.
B. Financial Considerations:
1. The Greencastle-Antrim School District shall be
responsible for all tuition and fees for students
selected by the District to participate in the
Hagerstown Business College program. Fees and
charges for educational programming shall be based
upon current College charges and shall be mutually
agreed to by the District and College.
2. The College will bill the District directly for all
agreed upon tuition and charges.
3. Reimbursement of tuition and fees requested for
students who may elect to withdraw from this
agreement will be based upon existing policies and
regulations in effect at Hagerstown Business
College.
Transportation:
Student transportation shall be the responsibility of the
Greencastle-Antrim School District.
D. Student Dismissals or Withdrawals
1. Secondary students who may be academically or
disciplinarily dismissed from Hagerstown Business College,
or students who may elect to withdraw from the college
prior to completing the academic year will be returned to
the Greencastle-Antrim School District for placement within
an existing program in the secondary school system.
2. Students who have not completed high school, but who enter
Hagerstown Business College under this agreement will fall
under the same rules and regulations established for all
students enrolled at Hagerstown Business College for
collegiate level education.
E. Identification of Program Areas for Articulation
1. Articulation efforts will be made in all career program
areas where there appears to be similarity or overlap in
instructional content. Maximum efforts will be made in the
area of business and secretarial education.
2. As new programs are offered at either level of education,
articulation efforts will be explored and implemented where
feasible.
<PAGE> 156
F. Faculty Sharing
Where faculty members at the secondary or postsecondary levels
possess exceptional skills or knowledge in their respective
program areas, and where presentations at the complementary level
would be beneficial to the respective program, faculty members
will be encouraged to share their expertise between the levels of
education. All faculty sharing activities will be coordinated
through the appropriate administrative channels prior to taking
place. A formal request will be made from the educational level
requesting a specific faculty member to share skills or knowledge.
G. Occupational Information Articulation
Greencastle-Antrim School District will cooperate toward
developing, disseminating, and presenting occupational information
to students within the public school system concerning the process
of choosing a career. Such information will include, as a
minimum, an orientation on career programs at the secondary and
postsecondary levels, and the articulation agreements that have
been made.
This agreement will become effective upon approval by Greencastle-Antrim School
District and Hagerstown Business College. Upon implementation, this agreement
will continue on an annual basis until one of the parties notifies in writing
the other party to end the agreement. Such petition to end this agreement must
be submitted one year in advance of the intent to terminate.
/s/ P. Duff Rearick
- --------------------------------------- ------------------------------
Superintendent President
Greencastle-Antrim School District Hagerstown Business College
<PAGE> 157
TERMS AND CONDITIONS BETWEEN THE
GREENCASTLE-ANTRIM SCHOOL DISTRICT
AND THE
HAGERSTOWN BUSINESS COLLEGE
FOR THE SCHOOL YEAR 1996-97
The following are the terms and conditions agreed to by the
Greencastle-Antrim School District and the Hagerstown Business College for the
school year 1996-97. These terms and conditions serve as attachment to the
Educational Agreement between the two education agencies.
A. Financial Considerations:
The Hagerstown Business College shall bill the Greencastle-Antrim
School District according to the following rate.
Tuition fee: $1,330 per semester per student
B. Planned Courses:
The Hagerstown Business College shall provide the
Greencastle-Antrim School District with planned course descriptions for
the listed courses.
Business Education Data Processing
Trimester 1 Trimester 1
1. Beginning Keyboarding 1. Introduction to Business
2. Principles of Accounting 2. Introduction to Data Processing
3. Business Law 3. English Essentials
4. Speedwriting 4. Orientation to College
5. Orientation to College 5. Beginning or Intermediate
Keyboarding
Trimester 2 Trimester 2
1. Intermediate Keyboarding 1. Principles of Accounting I
2. Office Management 2. Business Law
3. Principles of Accounting 2 3. Data Information Processing
4. Data Information Processing or 4. Work Information Processing I
Word Information Processing 1 5. English Composition
or Word Information Processing 2
5. Professional Life
C. Schedule:
Students shall be in attendance at the Hagerstown Business College
between the hours of 8:30 a.m. and 12:00 p.m. Daily attendance recording
shall be the responsibility of the Greencastle-Antrim High School. The
semester schedule shall follow the College's schedule.
D. Supervision:
The Greencastle-Antrim School District shall provide a program
supervisor.
<PAGE> 158
E. Faculty Certification:
The Hagerstown Business College shall provide a listing of faculty
and their credentials on a yearly basis to the Greencastle-Antrim School
District.
F. Grading:
Grade reporting shall be provided on a six week basis by the
College. The District shall be responsible for providing appropriate
forms.
<PAGE> 159
GREENCASTLE-ANTRIM HIGH SCHOOL
Student Contract
Hagerstown Business College Articulation
The following contract represents an expanded educational opportunity for
a Greencastle-Antrim high school student who desires to complete training in
secondary business and secretarial courses, or extended studies at the
Hagerstown Business College. The student must accept all of the following terms
of agreement to participate in the educational program.
1. The student must be willing to attend off campus classes at the Hagerstown
Business College. These classes will occur during first semester of the school
year. These classes will be scheduled between 8:30 a.m. and 12:30 p.m. The
student will return to home school for an afternoon home school class period,
periods 7 & 8.
2. The student will be expected to be in attendance each day for their
assigned homeroom period. This permits the student to remain in contact with
the daily events occurring at the home school.
3. Transportation will be provided for the student by the school district to
and from the Hagerstown Business College campus. Individual student driving
privileges may be approved on a selective basis due to a student's educational
program with prior parental approval.
4. Students who enter Hagerstown Business College under this agreement will
fall under the same rules and regulations established for all students enrolled
at Hagerstown Business College for collegiate level education.
5. A student who may be academically or disciplinarily dismissed from the
Hagerstown Business College, or who have elected to withdraw from the college
prior to completing the semester will return to the Greencastle-Antrim High
School and be placed within an existing program.
<PAGE> 160
6. All student rules and procedures that are applicable for a student while in
attendance in the Greencastle-Antrim High School apply to the students attending
the Hagerstown Business College program. In addition, all rules and regulations
that are applicable to students of the Hagerstown Business College apply to all
the Greencastle-Antrim student participants.
7. Student participants will finish their Hagerstown Business College
coursework before the ending date of the first semester at the high school due
to a difference in program calendars. All student participants must do one or
all of the following:
a. Complete an approved 30 hour community service project.
b. Participate in a morning work release program or internship
experience.
c. Participate in an independent study program for enrichment or
remediation.
d. Develop with the program coordinator an alternative education plan
unique to personal career goals.
Student Signature: Date
------------------------ -----------------
Parent Signature:
------------------------
<PAGE> 161
[PITNEY BOWES Letterhead]
HAGERSTOWN BUSINESS
COLLEGE
18618 CRESTWOOD DR
HAGERSTOWN MD 21742-2752
Dear Valued Customer:
Thank you for your continued use of Pitney Bowes for your mailing and shipping
requirements. We hope that you have been totally satisfied with your equipment
and you have our commitment to continue to do anything reasonable to insure
your satisfaction.
Our surveys have continuously shown that customers with our "Comprehensive
Maintenance Agreements" are more satisfied than those without.
We feel the reason for this is due to the extra added value you receive when
you select this option. With an annual "Comprehensive Maintenance Agreement"
you will receive:
1) Ability to budget your service costs
2) Unlimited service calls
3) All parts and labor are included (no hidden costs)
4) Ability to schedule preventative check-ups prior to a large
mailing, or whenever you deem necessary
If you would like to take advantage of our offer just sign the space provided
and begin enjoying the benefits of our complete Comprehensive Maintenance
Agreement today! Please detach the bottom portion of this letter and return it
in the postage paid envelope provided, making sure the return address below can
be seen through the window. If you have any questions, please call me at (800)
522-0020.
Sincerely,
/s/ Debra A. Lee
Service Support Representative
[First Class Permit]
009
Company Name: HAGERSTOWN BUSINESS
Account Number: 15244214886 Date Mailed: 06/08/95
Authorized Signature:
---------------------------------------------------------
Print name of Signer:
---------------------------------------------------------
(tax not included in the cost)
<TABLE>
<CAPTION>
Model # Serial # Annual Cost $
<S> <C> <C>
E675 0002740 244.00
E683 0003557 166.00
5820 0131826 160.00
</TABLE>
<PAGE> 162
[PITNEY BOWES Letterhead]
March, 1995
Good News from POSTAGE BY PHONE(R)
Now you can get emergency advances 24 hours a day,
6 days a week through our automated system.
Dear POSTAGE BY PHONE(R) Customer:
On March 27, 1995 we introduced a new, emergency advance system. Now you can
get postage advances, automatically, through the voice response unit.
This capability will allow you to get an advance 24 hours a day, Monday through
Saturday. It will also reduce the time you need to spend on the phone, and
there is no increase to the current administrative charges for this enhanced
service. Of course, if you wish, you will always be able to talk to a Customer
Service Agent. (Note: Customer Service Agents are available from 8:00 A.M. to
8:00 P.M. EST Monday through Friday, and from 8:00 A.M. to 3:00 P.M. EST on
Saturday).
To qualify for automated advances, you must have reset your meter in the prior
three months and you must have taken an advance through a Customer Service
Agent previously. If you have any questions about your eligibility, please
contact us at 1-800-243-7800 (please enter 0 at the prompt).
This system is easy to use, and the voice response unit will guide you through
the steps. But before calling, you should be prepared to provide the following
information:
- POSTAGE BY PHONE(R) Request Code
- POSTAGE BY PHONE(R) Account Number
- Meter Serial Number
- Meter Access Code
(or postage unused and used for mechanical meters)
- Postage Reset Dollars
- Do you wish to do an advance?
- The check number and dollar amount of the check you will
send to cover the advance
- Date check was mailed
- Contact phone number
If any difficulties arise, your call will be automatically transferred to a
Customer Service Agent.
We appreciate the opportunity to serve you, and hope that you will benefit from
this new enhancement to the POSTAGE BY PHONE(R) System.
Sincerely
/s/ Sue Couture
Sue Couture
Vice President
<PAGE> 163
XEROX
_____________________________________________________________________________
XEROX Corporation
8180 Greensboro Drive, Suite 600
McLean, Virginia 22102
(703) 902-2560
November 11, 1996
Mr. Jim Gifford, President
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, Maryland 21742
Re: Serial #6W6204545
Dear Mr. Gifford:
Thank you for your continued interest in the Xerox Corporation. Pursuant to my
conversation with Barbara Keesecker on Thursday, November 7th, Xerox has agreed
to the following:
-Issue an additional credit in the amount of $400 ($80 x 5 months)
-Continue to bill you at your current maintenance rate of $220/month
and .0102/copy
I am concerned about the miscommunication from our local Sales Agent, Reliable
Office Technologies Corporation since customer satisfaction is our number one
priority. I have taken the necessary actions to ensure that this situation
will not re-occur.
I am confident that we will continue to provide Hagerstown Business College
with our highest level of service. If I can be of any further assistance,
please contact me at (703) 902-2560.
Sincerely,
XEROX CORPORATION
United States Customer Operations
/s/ A. Lynn Edmonds
A. Lynn Edmonds
Vice President and General Manager
Maryland/Virginia Customer Business Unit
ALE/dl
<PAGE> 164
<TABLE>
<S> <C> <C>
AGREEMENT MUST BE LEGIBLE (TYPED OR PRINTED NEATLY)
[DynaWatch Logo] [DynaWatch Logo]
DYNAWATCH INC.
P.O. BOX 2068
HAGERSTOWN, MD 21742-2068 Company Code #
PHONE 1-800-826-2688 66692
LOCAL CUSTOMERS 733-8000 Account #
Date 1-7-91 A-1683
</TABLE>
ALARM MONITORING SERVICE AGREEMENT
SUBSCRIBER
Name Hagerstown Business College
--------------------------------------------------------------------------
(Dorm)
Address/Apt. # 18618 Crestwood Drive
------------------------------------------------------------------
City Hagerstown State Md. Zip 21742
---------------------------------- ----------------- -----------
- -------------------------------------------------------------------------------
Cross Street/Township/Nearest intersection
Tel. No. (301) 739-2670
- -------------------------------------------------------------------------------
FRANCHISE
Name Glessner Protective Svs., Inc.
--------------------------------------------------------------------------
Address 1216 Sherman Avenue
-----------------------------------------------------------------------
City Hagerstown State Md. Zip 21740
---------------------------------- ----------------- -----------
Tel. No. (301) 797-1280
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
Communicator Make and Model # 1486 Wire Panel
-------------------------------------------------
[ ] Extended [X] Standard Reporting (check one)
Using Subscriber Tel. Line #
--------------------------------------------------
Notify alarm co. Alarm Conditions [ ] Yes [X] No
PASS CODE [ ]
CODE UNDER STRESS [ ]
LOCAL AUTHORITIES TO BE NOTIFIED
Code No. Name
Fire Central Tel # ( ) 791-1211
- --------------------------------------- --- --------
Low Tel # ( )
- --------------------------------------- --- --------
Battery Call Sub. List Tel # ( )
- --------------------------------------- --- --------
Tel # ( )
- --------------------------------------- --- --------
AUTHORIZED INDIVIDUALS TO BE NOTIFIED
Name Tel. No.
1. Sharon Sprecker ( ) 739-2004
----------------------- --- --------
2. Cheyrl Hyslop ( ) 824-6159
----------------------- --- --------
3. ( )
----------------------- --- --------
4. ( )
----------------------- --- --------
5. ( )
----------------------- --- --------
6. ( )
----------------------- --- --------
[ ] Check here for monitoring of opening & closing activations.
[ ] Printouts to be sent weekly/monthly to subscriber/alarm company: circle
appropriate response.
<TABLE>
<CAPTION>
Daily Monday Tuesday Wednesday Thursday Friday Saturday Sunday *Window
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Open Times
- ----------------------------------------------------------------------------------------------------------------------------------
Close Times
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Opening and Closing Windows (time in which it is OK for an Opening or Closing
signal to be received without DynaWatch taking action).
i.e. - The business opens 9-5 Mon.-Fri. However, the first employee usually
arrives 15 min. early and will leave 10 or 15 min. after 5 p.m. You need to
allow at least a 15 min. window for openings & closing. LIST ALL TIMES IN
EASTERN STANDARD TIME.
Early Opens or Opens during normal closed hours DynaWatch should:
(number in order or priority)
Log Only Call Premises for P/C Call Al's
-- -- --
Dispatch Police Call alarm co.
-- --
Other
-----------------------------------------------------
Open not received Disregard Call Al's Call Premises for P/C
-- -- --
Call alarm co. other
-- ------------------------
Closing signal not received during normal time DynaWatch should:
(number in order of priority)
Disregard Call Premises for P/C Dispatch Police Call Al's
-- -- -- --
Call alarm co. other
-- -----------------------
[ ] Standard Reporting Codes [ ] 1 - Fire [ ] 2 - Panic/Holdup
[ ] 3 - Burglary [ ] 4 - other
----------- ---------------
[ ] Extended Reporting Codes: Check Codes That Apply
CODE/ZONE DESCRIPTION/LOCATION ACTION DYNAWATCH IS TO TAKE
- --------- -------------------- ---------------------------
[ ] 3-1 (01) Fire-Dormitory Full Stations
-------------------------------------------------------------
[ ] 3-2 (99) Low Battery
-------------------------------------------------------------
[ ] 3-3
-------------------------------------------------------------
[ ] 3-4
-------------------------------------------------------------
[ ] 3-5
-------------------------------------------------------------
[ ] 3-6
-------------------------------------------------------------
[ ] 3-7
-------------------------------------------------------------
[ ] 3-8
-------------------------------------------------------------
[ ] 3-9
-------------------------------------------------------------
[ ] C1-CF Closings (see above)
[ ] B1-BF Openings (see above)
[ ] D1-D9 Closings with zone shunted
-----------------------------------
[ ] 1F Key Pad Fire
------------------------------------------------
[ ] 2F Key Pad Holdup/Panic
----------------------------------------
[ ] 4F Key Pad Emergency
-------------------------------------------
[ ] 5F Power Failure
-----------------------------------------------
[ ] 6F Power Restore
-----------------------------------------------
[ ] 7F Low Battery
-------------------------------------------------
[ ] Other
-------------------------------------------------------------
PLEASE NOTE THAT ANY CHANGES OR CORRECTIONS MUST BE MADE
IN WRITING TO DYNAWATCH.
SUBJECT TO TERMS AND CONDITIONS OF THIS AGREEMENT
(INCLUDING THOSE ON REVERSE SIDE)
Additional Information
------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
Subscriber and installer have reviewed and approved Signature of Franchise
the information set forth above.
--------------------------------------------
- ------------------------------------------------- Title Date
Signature of Subscriber Title (if Applicable) Signature of Authorized Agent (if applicable)
--------------------------------------------
Title Date
Approved: DynaWatch Inc. By: Title: Date:
---------------------------- ----------------------------- ------------------------
WHITE & CANARY, DYNAWATCH-PANIC INSTALLER - GOLDENROD, SUBSCRIBER
</TABLE>
<PAGE> 165
<TABLE>
<S> <C> <C>
KEEP ON TEST UNTIL WEDNESDAY ANTIETAM MONITORING SYSTEM Installed
SEPT. 18, 1985 A Division of Antietam Answering Service, Inc. 10 Sept. 1985
(301) 733-9292 914 Corbett Street Dana Proctor
Hagerstown, MD 21740
INSTALLER CODE OFFICE USE DATE A-608
1 82 - ONLY M M D D Y Y SUBSCRIBER CODE
9 - 10 - 85 A-608
</TABLE>
ALARM MONITORING SERVICE AGREEMENT
SUBSCRIBER
Hagerstown Business College
- -------------------------------------------------------------------------------
NAME SPOUSE
18618 Crestwood Drive
- -------------------------------------------------------------------------------
ADDRESS STREET SUITE/APT. NO.
Hagerstown, Maryland 21742
- -------------------------------------------------------------------------------
CITY COUNTY STATE ZIP CODE
( ) (301) 739-2670
- -------------------------------------------------------------------------------
HOME TEL. NO. BUSINESS TEL. NO.
SEE BELOW FOR SIGNATURE
INSTALLER
Glessner Protective Services, Inc.
- -------------------------------------------------------------------------------
COMPANY NAME
1216 Sherman Avenue
- -------------------------------------------------------------------------------
ADDRESS STREET SUITE NO.
Hagerstown, Maryland 21740
- -------------------------------------------------------------------------------
CITY COUNTY STATE ZIP CODE
(301) 797-1280 ( )
- -------------------------------------------------------------------------------
BUSINESS TEL. NO. EMERGENCY TEL. NO.
/s/ AUDREY B. SANDERS
- -------------------------------------------------------------------------------
SIGNATURE OF INSTALLER REPRESENTATIVE
TYPE OF
TRANSMITTER Tested Conditions Calls
--------------- --------- ----------- -----
CHECK ONE Private Home [ ] Apartment [ ] Office [ ] Store [ ]
Factory [ ] Other [ ] College
---------------------------------------
STREET DIRECTIONS TO PREMISES
MUST BE WRITTEN OR PRINTED CLEARLY -- NO DIAGRAMS
BE CAREFUL
TO ASCERTAIN AND VERIFY
THE EMERGENCY NUMBERS
SUBMITTED FOR NOTIFICATION
ARE
CURRENT AND CORRECT.
ALL ALARMS EXCEPT HOLD-UP SIGNALS ARE FIRST VERIFIED WITH SUBSCRIBER, IF YOU DO
NOT WANT VERIFICATION CHECK HERE [ ] DO NOT CALL SUBSCRIBER TO VERIFY ALARM.
NOTIFICATION INSTRUCTIONS: E.G. Fire, Burglary, Hold-up, Medical, Freezer, Heat,
Appliance, Flood, Equipment.
LOCAL AUTHORITY NOTIFICATION
LIST IN ORDER OF PRIORITY
<TABLE>
<CAPTION>
Code
No. CONDITION LOCATION Area Code TEL NO. NAME
- ----------------- ------------------------------------------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C>
1 Burg Student Lounge Door 791-3820 Sheriff's Dept.
- ----------------- ------------------------------------------- --------- -------- ---------------
2 Burg Beam Towards Elec. Room Sheriff's Dept.
- ----------------- ------------------------------------------- --------- -------- ---------------
3 Burg Beam towards President's Office
- ----------------- ------------------------------------------- --------- -------- ---------------
4 Burg Beam towards Foyer Entrance
- ----------------- ------------------------------------------- --------- -------- ---------------
5 Burg Side Door towards Dorm.-Tamper Box
- ----------------- ------------------------------------------- --------- -------- ---------------
6 Burg Front Dble. Doors-Delay Sheriff's Dept.
- ----------------- ------------------------------------------- --------- -------- ---------------
7 Burg Knox Box (Keys, for Outside)
- ----------------- ------------------------------------------- --------- -------- ---------------
8 Temperature Monitoring - Call Subscriber List
- ----------------- ------------------------------------------- --------- -------- ---------------
</TABLE>
INSTALLER
If Installer is to be called list here.
( )
- -------------------------------------------------------------------------------
SUBSCRIBER DESIGNATED CALL
LIST IN ORDER OF PRIORITY
Area Code TEL. NO. NAME
- --------- -------- ----
(301) 739-2004 Sharon Sprecker
- -------------------------------------------------------------------------------
(301) 824-6159 Cheryl Hyslop
- -------------------------------------------------------------------------------
( )
- -------------------------------------------------------------------------------
( )
- -------------------------------------------------------------------------------
( )
- -------------------------------------------------------------------------------
( )
- -------------------------------------------------------------------------------
SUBJECT TO TERMS AND CONDITIONS OF THIS AGREEMENT (INCLUDING THOSE ON THE
REVERSE SIDE) THE SUBSCRIBER AGREES TO SUBSCRIBE FOR THE ANTIETAM MONITORING
SYSTEM
SUBSCRIBER MUST SIGN PAGES 1, 2 & 3
/s/ [unreadable]
- --------------------------------------
Signature of Subscriber
ACCEPTED: Antietam Monitoring System
By: /s/ Hilda Jane Rhodes
----------------------------------
Date: October 2, 1985
-------------------------------
FOR OFFICE USE ONLY Typed by ......... Checked by ..........
<PAGE> 166
WETZEL'S SNACKS N' MORE
8832 RABBIT ROAD NORTH
GREENCASTLE, PA 17225
This agreement is entered into between HAGERSTOWN BUSINESS COLLEGE and BONNIE
K. WETZEL, owner of the Drink Machine, the Snack Machine, and the Dollar Bill
Changer.
It is mutually agreed that Wetzel's Snacks N' More will install these machines
at no cost to Hagerstown Business College.
It is also agreed that the machines may be removed at the request of either
party, with a thirty day notice, by the owner of the machines, or their
representative.
It is also agreed that the machine owner will pay a ten percent net commission
on all snacks in the snack machine and a twelve percent net commission on all
drinks in the drink machine. This shall be done on a monthly basis.
For service or questions, call the above owner at 717-597-8945.
This equipment is to be installed at:
HAGERSTOWN BUSINESS COLLEGE
18618 Crestwood Drive
Hagerstown, MD 21740
301-739-2670
- ------------------------------------- ----------- ----------
(Authorized Location Signature) (Title) (Date)
Acceptance of Machine(s)
- ------------------------------------- ----------
(Machine Owner) (Date)
Acceptance of Location
Page 1 of 2
<PAGE> 167
It is mutually agreed that HAGERSTOWN BUSINESS COLLEGE will purchase a Coffee
Vending Machine. This machine shall be serviced by Bonnie K. Wetzel, owner of
WETZEL'S SNACKS N' MORE. It is agreed that the owners of WETZEL'S SNACKS N'
MORE shall take full responsibility for servicing this machine. Servicing
shall include repairing the machine should it breakdown, however, HAGERSTOWN
BUSINESS COLLEGE agrees to purchase the parts needed to repair the machine.
WETZEL'S will assume the full cost of any labor needed to repair the machine.
Servicing shall also include the day to day operations of the machine such as
purchasing the supplies, filling it, cleaning it, etc. WETZEL'S SNACKS N' MORE
agrees to pay HAGERSTOWN BUSINESS COLLEGE thirty percent net commission. This
shall be paid monthly.
Page 2 of 2
<PAGE> 168
THE LIBRARY CORPORATION INVOICE
P.O. BOX 557 INVOICE # 14995
WINCHESTER, VA 22604-0557 Fed. Tax # 52-1043428
800-624-0559 TER. 03 DATE OF INVOICE
FAX 304-229-0295 10/31/95
Carol Bailey
TO: Hagerstown Business College SHIP TO: Hagerstown Business College
18618 Crestwood Drive 18618 Crestwood Drive
Hagerstown, MD Hagerstown, MD
21742 21742
(1.5% INTEREST PER MONTH AFTER 30 DAYS)
<TABLE>
Caption>
===================================================================================================================================
ACCOUNT NO. DATE SHIPPED SHIPPED VIA TERMS. YOUR ORDER NUMBER
930167 10/30/95 FIRST CLASS NET 1022
QUANTITY DESCRIPTION UNIT PRICE AMOUNT
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
1 BIBLIOFILE
PAC SOFTWARE 500.00 500.00
Includes user manual and software
for your public access catalog.
1 PAC SUPPORT & BI-ANNUAL UPDATES 11/95 - 10/96 250.00 250.00
Software support & enhancements, toll-
free 800# service, plus bi-annual
catalog updates.
SHIPPING & HANDLING 20.00
-----------------------
TOTAL (US) 770.00
-----------------------
</TABLE>
<PAGE> 169
THE LIBRARY CORPORATION INVOICE
P.O. BOX 557 INVOICE # 14994
WINCHESTER, VA 22604-0557 Fed. Tax # 52-1043428
800-624-0559 TER. 03 DATE OF INVOICE
FAX 304-229-0295 10/31/95
Carol Bailey
TO: Hagerstown Business College SHIP TO: Hagerstown Business College
18618 Crestwood Drive 18618 Crestwood Drive
Hagerstown, MD Hagerstown, MD
21742 21742-2797
(1.5% INTEREST PER MONTH AFTER 30 DAYS)
<TABLE>
Caption>
===================================================================================================================================
ACCOUNT NO. DATE SHIPPED SHIPPED VIA TERMS. YOUR ORDER NUMBER
930167 10/30/95 FIRST CLASS NET 1022
QUANTITY DESCRIPTION UNIT PRICE AMOUNT
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
1 BIBLIOFILE
PAC SETUP FEE 250.00 250.00
1 PAC SPECIAL PROGRAMMING 3746 RECORDS 37.46 37.46
-----------------------
TOTAL (US) 287.46
-----------------------
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
PURCHASE ORDER
1022
<S> <C>
[LOGO] Hagerstown Business College
18618 Crestwood Drive
Hagerstown, Maryland 21742 THIS NUMBER MUST APPEAR ON ALL
(301) 739-2670 CORRESPONDENCE. INVOICES, SHIPPING
PAPERS AND PACKAGES.
TO: SHIP TO:
The Library Corporation Hagerstown Business College Library
Research Park 18618 Crestwood Drive
Inwood WV 25428 Hagerstown, MD 21742-2797
Attention: Mary Light Attention: Carol Bailey, Library
DATE ORDERED DATE WANTED SHIP VIA TERMS F.O.B.
7/25/95
PLEASE ENTER OUR ORDER FOR THE FOLLOWING - TO BE SHIPPED AS DIRECTED
QUANTITY DESCRIPTION UNIT PRICE AMOUNT
Confirming telephone conversation 7/25/95
Conversion of Hagerstown Business College Library
database to public access catalog.
Services and products approximately as follows:
Set up fee 250
Software per station (1) 500
Update biannually 250
Fee per record @ 1 cent (1c.) for approx. 7,000 records 70
1057.46
CONDITIONS
Goods are subject to our inspection and approval. BY /s/ Jim Gifford
To avoid errors, note specifications carefully ----------------------------------
and if unable to complete orders as written notify PURCHASING AGENT
us promptly.
</TABLE>
<PAGE> 171
10/31/95
Called Barbara Coffenberger
at Library Corporation
She quoted costs as follows:
All same except number of records
3,746 = $37.46
making total now 1,057.46
gave this info to Bart
<PAGE> 172
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
- ----------------------------------------------------------------------------------------------------------------------------------
RB-S-64535-03 10-10-96 7366194 1
- ------------------------------------------------------------------------------------------------------------------------------------
TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
040606006 1 AMERICAN FAMILY PHYSICIAN IR 3854929N 1 YR R 92.00 92.00
ISSN# 0002-838X 01/01/97
/COMES ALSO WITH/ FAMILY
PRACTICE MANAGEMENT
CLAIMS MUST BE MADE WITHIN
4 MOS US/6 MOS OTHERS/AFTER
THIS TIME ISSUES MAY BE
PURCHASED AT SINGLE ISSUE RATE
PUBL MONTHLY WITH 2 ISSUES
PUBL IN FEB, MAY, SEPT, & NOV
ON THE 1ST & 15TH
VOL 55 STARTS 01-97
PID# 0933548
043831007 1 AMERICAN JOURNAL OF NURSING MO 3855175N 1 YR R 45.00 45.00
/LIBRARY VERSION/ /**/ 01/01/97
ISSN# 0002-936X
VOL 97, 1997
161677000 1 BUSINESS WEEK /**/ /FOR US/ WK 3856353N 1 YR R 49.95 49.95
ISSN# 0007-7135 01/01/97
WHEN CLAIMING ALLOW FOUR
TO SIX WEEKS FROM ENTRY DATE
FOR DELIVERY
PUBL EACH MONDAY EXCEPT FIRST
WEEK IN JAN
162641005 1 BYTE /SURFACE MAIL/ IR 3868886N 1 YR R 29.95 29.95
ISSN# 0360-5280 12/01/96
PUBL MONTHLY WITH ONE
SPECIAL IBM ISSUE IN OCT
PID# 9100 002098903
204711006 1 CHRISTIANITY TODAY /**/ IR 3857162N 1 YR R 24.95 24.95
ISSN# 0009-5753 01/01/97
PUBL 1 ISSUE A MONTH WITH
2 ISSUES IN APR OCT
VOL 41 STARTS 01-97
205449002 1 CHRONICLE OF HIGHER EDUCATION IR 3857188N 1 YR R 75.00 75.00
/SURFACE MAIL/ 01/01/97
ISSN# 0009-5982
/INCLS/ ACADEME TODAY
CHRONICLE OF HIGHER EDUCATION
ALMANAC/& EVENTS & TRAVEL IN
ACADEME
CLAIMS MUST BE MADE WITHIN
3 MONTHS
PUBL WEEKLY EXC LAST WEEK OF
AUG & LAST 2 WEEKS OF DEC
COMBINATION
CONTINUED ON NEXT PAGE
- ------------------------------------------------------------------------------------------------------------------------------------
PAY THIS INVOICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFER
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
IS SUBMITTED TO YOU BY EBSCO IN ITS TERMS: PAYMENT DUE ON SOUTHTRUST BANK
CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
EBS-40-1 EBSCO'S FEDERAL I.D. NO. 63-6014186 TO ALL PUBLISHERS. PAPER LOGO] ACCT#: 70 001 057
</TABLE>
<PAGE> 173
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
- ----------------------------------------------------------------------------------------------------------------------------------
RB-S-64535-03 10-10-96 7366194 2
- ------------------------------------------------------------------------------------------------------------------------------------
TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
205458011 1 CHRONICLE OF HIGHER EDUCATION AN
ALMANAC
ISSN # 1043-7967
/COMES ALSO WITH/ CHRONICLE
OF HIGHER EDUCATION
PUBL AS A SEP ISS OF CHRONICLE
231916008 1 CONGRESSIONAL DIGEST OR 3857485N 1 YR R 4500 4500
ISSN # 0010-5899 01/01/97
CLAIMS MUST BE MADE WITHIN
90 DAYS OF PUBLICATION DATE
5.00 PER ISSUE AFTER 90 DAYS
PUBL MONTHLY WITH JUN/JUL
AND AUG/SEP ISSUES COMBINED
CANCELLATIONS MADE AFTER
SUB HAS STARTED WILL BE
PRORATED & CHARGED A 5.00 FEE/
PUBLISHER ISSUES REFUNDS
1 TIME PER YEAR /NOV OR DEC/
& SENDS LIST OF CANCELLATIONS
W/CHECK FOR ALL REFUNDS
VOL 76 STARTS 01-97
234883858 1 CONSUMER REPORTS /**/ MO 3857551N 1 YR R 2400 2400
ISSN # 0010-7174 01/01/97
/INCLS/ CONSUMER REPORTS
BUYING GUIDE / SUBSCRIPTIONS
ACTIVE IN DECEMBER/
CONSUMER REPORT PUBL MO WITH
BUYING GUIDE PUBL DEC
COMBINATION
VOL 62 STARTS 01-97
234901007 1 CONSUMER REPORTS BUYING AN
GUIDE
/COMES ALSO WITH/ CONSUMER
REPORTS / FOR SUBSCRIPTIONS
ACTIVE DURING THE MONTH OF
DECEMBER/
CURRENT YEAR EDITION PUBL IN
DEC OF PRIOR YEAR
BOOK RETURNS MUST BE SENT TO
ST MARTINS PRESS/ %HADDON
CRAFTSMEN/ O"NEILL HIGHWAY
DUNMORE PA 18512
240886002 1 COSMOPOLITAN /**/ MO 3869407N 1 YR N 2497 2497
ISSN # 0010-9541 01/01/97
PUBL WILL EXTEND UP TO 3
TIMES IN A 12MO PERIOD. AFTER
THAT CUST MUST PAY FOR MISSED
ISSUES.
VOL 222 STARTS 01-97
277335162 1 DISCOVER /**/ MO 3858121N 1 YR R 3495 3495
ISSN # 0274-7529 01/01/97
CONTINUED ON NEXT PAGE
- ------------------------------------------------------------------------------------------------------------------------------------
PAY THIS NOTICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
IS SUBMITTED TO YOU BY EBSCO IN ITS TERMS: PAYMENT DUE ON SOUTHTRUST BANK
CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
EBS-40-1 EBSCO'S FEDERAL I.D. NO. 63-6014186 TO ALL PUBLISHERS. PAPER LOGO] ACCT#: 70 001 057
</TABLE>
<PAGE> 174
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
- ----------------------------------------------------------------------------------------------------------------------------------
RB-S-64535-03 10-10-96 7366194 3
- ------------------------------------------------------------------------------------------------------------------------------------
TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MISSING ISSUES REPLACED FREE
IF CLAIMED WITHIN 6 MO OF ISS
DATE/CLAIMS AFTER 6 MOS MUST
PAY SINGLE ISSUE RATE/NO SUBS
EXTENDED FOR OUT OF STOCK ISS
VOL 18 STARTS 01-97
319857421 1 SA
347436008 1 FORBES BW 3870331N 1 YR R 5700 5700
/**/ 01/01/97
ISSN # 0015-6914
/INCLS/ FORBES ASAP/ FORBES
FYI/ FORBES MAGAZINE ANNUAL
REPORT ON AMERICAN INDUSTRY/
& FORBES ANNUAL DIRECTORY
SPECIAL ISS PUBL OCT
COMBINATION
VOL 159 STARTS 01-97
PID# 27427632
347441057 1 FORBES ANNUAL DIRECTORY AN
/COMES ALSO WITH/ FORBES
347441107 1 FORBES ASAP OR
ISSN # 1078-9901
/COMES WITH/ FORBES
347445579 1 FORBES FYI OR
ISSN # 1066-9205
/COMES WITH/ FORBES
347449696 1 FORBES MAGAZINE /ANNUAL REPORT AN
ON AMERICAN INDUSTRY/
/COMES WITH/ FORBES
PUBL JAN
370483000 1 GLAMOUR /**/ MO 3870449N 1 YR N 1500 1500
ISSN # 0017-0747 01/01/97
VOL 95 STARTS 01-97
387039209 1 HASTINGS CENTER MEMBERSHIP OR 3859707N 1 YR R 7556 7556
/ALL EXCEPT GR0UP SUBS/ 01/01/97
/INCLS/ HASTINGS CENTER
REPORT
CLAIMS MUST BE MADE WITHIN
90 DAYS
MEMBERSHIP TITLE
NONCANCELLABLE
387039373 1 HASTINGS CENTER REPORT BM
ISSN # 0093-0334
/COMES WITH/ HASTINGS
CONTINUED ON NEXT PAGE
- ------------------------------------------------------------------------------------------------------------------------------------
PAY THIS NOTICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
IS SUBMITTED TO YOU BY EBSCO IN ITS TERMS: PAYMENT DUE ON SOUTHTRUST BANK
CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
EBS-40-1 EBSCO'S FEDERAL I.D. NO. 63-6014186 TO ALL PUBLISHERS. PAPER LOGO] ACCT#: 70 001 057
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
- ----------------------------------------------------------------------------------------------------------------------------------
RB-S-64535-03 10-10-96 7366194 4
- ------------------------------------------------------------------------------------------------------------------------------------
TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CENTER MEMBERSHIP
CLAIMS MUST BE MADE WITHIN
90 DAYS
PUBL JAN MAR MAY JUL SEP NOV
MEMBERSHIP TITLE
428151351 1 INFORMATION PLEASE ALMANAC AN 3870904N 1 YR R 10.95 10.95
ATLAS AND YEARBOOK 11/01/96
/ PAPER / / ALL EXC CANADA /
ISSN # 0073-7860
/ FORMERLY / INFORMATION
PLEASE ALMANAC
CURRENT YR PUBL NOV OF PRIOR
YEAR
459056610 1 JAMA : JOURNAL OF THE AMERICAN OR 3860469N 1 YR R 160.00 160.00
MEDICAL ASSOCIATION - 11/01/96
US ED / FOR US & US
POSSESSIONS ONLY /
ISSN # 0098-7484
CLAIMS MUST BE MADE WITHIN 3
MOS US / 6 MOS ALL OTHERS
PUBL ON WEDNESDAY
1) * 1 & 2 YRS ONLY
PID # 150077002 150077002
464435197 1 JOB OPPS / JOB OPPORTUNITIES AN STANDING ORDER
IN BUSINESS/ / FOR US /
/SPLIT FROM/ PETERSONS JOB
OPPORTUNITIES FOR BUSINESS
AND LIBERAL ARTS GRADUATES
PUBL AUG
PRODUCTS MAY NOT BE RETURNED
BEFORE 90 DAYS BUT MUST BE
RETURNED W/N 1 YR OF INVOICE
UNLESS DAMAGED/PRODUCT RETURN
ADDRESS PETERSONS ITP
DISTRIBUTION CENTER 7625
EMPIRE DRIVE FLORENCE KY 41042
1) **WAS PETERSONS JOB
2) OPP
465784007 1 JOURNAL OF ACCOUNTANCY MO 3860539N 1 YR R 56.00 56.00
ISSN # 0021-8448 01/01/97
/ COMES ALSO WITH/ AMER INST
OF CERTIFIED PUBLIC
ACCOUNTANTS MEMBERSHIP
CLAIMS FOR MISSING ISSUES
MUST BE MADE WITHIN 6 MOS
OF PUBLICATION DATE
VOL 183 STARTS 01-97
466343407 1 JOURNAL OF AHIMA / AMERICAN MO 3871187N 1 YR R 72.00 72.00
HEALTH INFORMATION 12/01/96
MANAGEMENT ASSOCIATION/
ISSN # 1060-5487
CONTINUED ON NEXT PAGE
PAY THIS INVOICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
IS SUBMITTED TO YOU BY EBSCO IN ITS TERMS: PAYMENT DUE ON SOUTHTRUST BANK
CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
EBS-40-1 EBSCO'S FEDERAL I.D. NO. 63-6014186 TO ALL PUBLISHERS. PAPER LOGO] ACCT #: 70 001 057
</TABLE>
<PAGE> 176
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
- ----------------------------------------------------------------------------------------------------------------------------------
Rb-S-64535-03 10-10-96 7366194 5
- ------------------------------------------------------------------------------------------------------------------------------------
TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
/FORMERLY/ JOURNAL OF THE
AMERICAN MEDICAL RECORD ASSN
/COMES ALSO WITH / AMERICAN
HEALTH INFORMATION MANAGEMENT
ASSOCIATION MEMBERSHIP
CLAIMS MUST BE MADE WITHIN
4 MONTHS OF ORIG DATE OF ISSUE
1 YEAR ONLY
PID# 0374318
474087343 1 JOURNAL OF COLLEGE STUDENT BM 3860768N 1 YR R 4500 4500
DEVELOPMENT /FORMERLY/ 01/01/97
JOURNAL OF COLLEGE STUDENT
PERSONNEL
ISSN #0897-5264
VOL 38 STARTS 01-97
521199133 1 LEGAL ASSISTANT TODAY BM 3861621N 1 YR R 5298 5298
/FORMERLY/ 01/01/97
LEGAL PROFESSIONAL
ISSN #1051-3663
PUBL JAN MAR MAY JULY SEP NOV
524849007 1 LIBRARY JOURNAL OR 3861671N 1 YR R 9450 9450
ISSN #0363-0277 01/01/97
CLAIMS MUST BE MADE WITHIN
6 MONTHS
PUBL WEEKLY EXCEPT JAN JULY
AUG & DEC PUBL MONTHLY
VOL 122 STARTS 01-97
545542441 1 MANANGING OFFICE TECHNOLOGY MO 3862006N 1 YR R 4500 4500
/FORMERLY/ MODERN OFFICE 01/01/97
TECHNOLOGY /SURFACE MAIL/
ISSN #1070-4051
/INCORPS/ OFFICE
CLAIMS MUST BE MADE WITHIN
3 MONTHS US CANADA/4 MOS OTHERS
VOL 42 STARTS 01-97
PID# 408161
565815008 1 MERCK INDEX /FOR US ONLY/ OR EBSCO WILL ORD WHEN CURRENT
ISSN #0076-6518
PUBL EVERY 7 YEARS
1) *PUBL EVERY 7 YEARS
2) ORD 12TH EDITION
565823002 1 MERCK MANNUAL OF DIAGNOSIS & IR EBSCO WILL ORD WHEN CURRENT
THERAPY /HARDBOUND ED/ /FOR
PHYS TECHNICAL COLLEAGUES &
PROF LIB ONLY/ /FOR US ONLY/
ISSN #0076-6526
PUBL EVERY 5 YEARS
1) *ORD 17TH EDITION
612117002 NATIONAL GEOGRAPHIC /ALL MO 3862611N 1 YR R 2650 2650
CONTINUED ON NEXT PAGE
- ------------------------------------------------------------------------------------------------------------------------------------
PAY THIS NOTICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
IS SUBMITTED TO YOU BY EBSCO IN ITS TERMS: PAYMENT DUE ON SOUTHTRUST BANK
CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
EBS-40-1 EBSCO'S FEDERAL I.D. NO. 63-6014186 TO ALL PUBLISHERS. PAPER LOGO] ACCT#: 70 001 057
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
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WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
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EXC CANADA/ /SURFACE MAIL/ 01/01/97
/**/
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16
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GEOGRAPHIC SOC MEMBERSHIP
CLAIMS MUST BE MADE WITHIN
1 YEAR
VOL 191 STARTS 01-97
628447005 1 NEW SCIENTIST - UK ED WK 3862973N 1 YR R 14000 14000
F /INCLS INDEX/ FOR US/ 01/01/97
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3 MOS
NONCANCELLABLE
VOL 153 STARTS 01-97
PID# XSC692 HAGER01911123
630829000 1 NEW YORK TIMES BOOK REVIEW WK 3863048N 1 YR R 5200 5200
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ISSN # 0028-7806
/COMES ALSO WITH/ NEW YORK
TIMES - NATIONAL ED /DAILY &
SUNDAY/ ONLY
CLAIMS FOR MISSING ISSUES
MUST BE MADE WITHIN 8 WKS OF
PUBLICATION DATE/FOR FASTER
RECEIPT CALL 800/631-1222 FOR
WEEK OF NON-DELIVERY
648097723 1 NURSING /FOR RENEWALS ONLY/ MO 3863195N 1 YR R 4200 4200
/ALL EXCEPT AUSTRALIA NZ 01/01/97
PNG SO PACIFIC ISLANDS &
CANADA/ /**/
ISSN # 0360-4039
/INCORPS/ NURSING UPDATE/
NURSING LIFE
CLAIMS MUST BE MADE WITHIN
60 DAYS US/90 DAYS OTHERS
CLAIM ISSUE BY MONTH NOT VOL
VOL 27 STARTS 01-97
PID# 461624 SHG E0000093
650787005 1 OCCUPATIONAL OUTLOOK QUARTERLY QR 3872944N 1 YR R 1950 1950
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ISSN # 0199-4786
CLAIMS MUST BE MADE WITHIN
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VOL 41 1997
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658633003 1 OMNI /**/ /AVAILABLE ON MO
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CONTINUED ON NEXT PAGE
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Pay THIS NOTICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
IS SUBMITTED TO YOU BY EBSCO IN ITS TERMS: PAYMENT DUE ON SOUTHTRUST BANK
CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
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</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
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YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
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RB-S-64535-03 10-10-96 7366194 7
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TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
683727002 1 PEOPLE WEEKLY /**/ /US ONLY/ WK 3863795N 1 YR R 93.08 93.08
/BL5R0/ /SURFACE MAIL/ 01/01/97
/0012/
ISSN # 0093-7673
CLAIMS MUST BE MADE WITHIN 3
MOS/AFTER 3 MOS WILL BE CHRGD
AT SINGLE ISSUE RATE/NO SUBS
EXTENDED FOR OUT OF STOCK ISS
VOL 47 STARTS 01-97
PID# 15505683
687523878 1 PETERSONS GUIDE TO FOUR-YEAR AN STANDING ORDER
COLLEGES /FOR US/
ISSN # 0894-9336
/SPLIT FROM/ PETERSONS
ANNUAL GUIDE TO UNDERGRADUATE STUDY
/COMES ALSO WITH/ PETERSONS
COLLEGE GUIDANCE SET CURRENT YR ED
PUBL JUL OF PRIOR YEAR
PRODUCTS MAY NOT BE RETURNED
BEFORE 90 DAYS BUT MUST BE
RETURNED W/N 1 YR OF INVOICE
UNLESS DAMAGED/PRODUCT RETURN
ADDRESS PETERSONS ITP
DISTRIBUTION CENTER 7625
EMPIRE DRIVE FLORENCE KY 41042
687523878 1 PETERSONS GUIDE TO FOUR-YEAR AN STANDING ORDER
COLLEGES /FOR US/
ISSN # 0894-9336
/SPLIT FROM/ PETERSONS
ANNUAL GUIDE TO UNDERGRADUATE
STUDY
/COMES ALSO WITH/ PETERSONS
COLLEGE GUIDANCE SET
CURRENT YR ED PUBL JUL OF
PRIOR YEAR
PRODUCTS MAY NOT BE RETURNED
BEFORE 90 DAYS BUT MUST BE
RETURNED W/N 1 YR OF INVOICE
UNLESS DAMAGED/PRODUCT RETURN
ADDRESS PETERSONS ITP
DISTRIBUTION CENTER 7625
EMPIRE DRIVE FLORENCE KY 41042
687524454 1 PETERSONS GUIDE TO TWO-YEAR AN STANDING ORDER
COLLEGES /FOR US/
ISSN # 0894-9328
/SPLIT FROM/ PETERSONS
ANNUAL GUIDE TO UNDERGRADUATE
STUDY
/COMES ALSO WITH/ PETERSONS
COLLEGE GUIDANCE SET
CURRENT YR EDITION PUBL IN
CONTINUED ON NEXT PAGE
PAY THIS INVOICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
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CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
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</TABLE>
<PAGE> 179
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
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YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
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RB-S-64535-03 10-10-96 7366194 8
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TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AUG OF THE PRIOR YEAR
PRODUCTS MAY NOT BE RETURNED
BEFORE 90 DAYS BUT MUST BE
RETURNED W/N 1 YR OF INVOICE
UNLESS DAMAGED/PRODUCT RETURN
ADDRESS PETERSONS ITP
DISTRIBUTION CENTER 7625
EMPIRE DRIVE FLORENCE KY 41042
687524454 1 PETERSONS GUIDE TO TWO-YEAR AN STANDING ORDER
COLLEGES /FOR US/
ISSN # 0894-9328
/SPLIT FROM/ PETERSONS
ANNUAL GUIDE TO UNDERGRADUATE
STUDY
/COMES ALSO WITH/ PETERSONS
COLLEGE GUIDANCE SET
CURRENT YR EDITION PUBL IN
AUG OF THE PRIOR YEAR
PRODUCTS MAY NOT BE RETURNED
BEFORE 90 DAYS BUT MUST BE
RETURNED W/N 1 YR OF INVOICE
UNLESS DAMAGED/PRODUCT RETURN
ADDRESS PETERSONS ITP
DISTRIBUTION CENTER 7625
EMPIRE DRIVE FLORENCE KY 41042
694842006 1 PHYSICIANS DESK REFERENCE AN 3863940N 1 YR R 76.20 76.20
/LIBRARY HOSPITAL VERSION/ 01/01/97
/FOR US & US POSSESSION/
/**/
ISSN # 0093-4461
VOL 51, 1997
ONLY CANCELLABLE IN CASE OF
DUPLICATE ORDER
CANCELLATION
NONCANCELLABLE
1) *VOL 51
694842014 1 PHYSICIANS DESK REFERENCE SA 3863941N 1 YR R 27.20 27.20
/SUPPLEMENT/ /FOR US/ 01/01/97
PUBL MAY SEP
NONCANCELLABLE
694845017 1 PHYSICIANS DESK REFERENCE FOR AN 3863942N 1 YR R 50.20 50.20
NONPRESCRIPTION DRUGS 03/1/97
/**/ /FOR US & US
POSSESSIONS/
ISSN # 1044-1395
PUBL MAR
NONCANCELLABLE
1 YEAR ONLY
1) *1997 EDITION
712001007 1 PRACTICAL ACCOUNTANT MO 3864224N 1 YR R 69.95 69.95
ISSN # 0032-6321 01/01/97
CONTINUED ON NEXT PAGE
PAY THIS INVOICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
IS SUBMITTED TO YOU BY EBSCO IN ITS TERMS: PAYMENT DUE ON SOUTHTRUST BANK
CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
EBS-40-1 EBSCO'S FEDERAL I.D. NO. 63-6014186 TO ALL PUBLISHERS. PAPER LOGO] ACCT #: 70 001 057
</TABLE>
<PAGE> 180
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
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RB-S-64535-03 10-10-96 7366194 9
- ------------------------------------------------------------------------------------------------------------------------------------
TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VOL 30 STARTS 01-97
001714179 005623145
728771007 1 PROFESSIONAL MEDICAL ASSISTANT BM 3864394N 1 YR R 30.00 30.00
/PMA/ 01/01/97
ISSN # 0033-0140
PUBL JAN MAR MAY JUL SEP NOV
NONCANCELLABLE
VOL 30 STARTS 01-97
735846008 1 PSYCHOLOGY TODAY /**/ BM 3864462N 1 YR R 21.00 21.00
ISSN # 0033-3107 01/01/97
CLAIMS MUST BE DATE RATHER
THAN ISSUE OR VOL NUMBER
PUBL JAN MAR MAY JUL SEP NOV
CANCELLATIONS ARE ACCEPTABLE
DURING THE FIRST 3 MONTHS OF
THE SUBSCRIPTION TERM ONLY
VOL 30 STARTS 01/97
759146004 1 REGAN REPORT ON MEDICAL LAW MO 3864768N 1 YR R 52.00 52.00
ISSN # 0034-3188 01/01/97
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VOL 30 STARTS 01-97
785338633 1 RN : NATIONAL MAGAZINE FOR MO 3864893N 1 YR R 35.00 35.00
NURSING /**/ 01/01/97
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CLAIMS MUST BE MADE WITHIN
60 DAYS AND WILL BE CHARGED
$5.00 PER COPY
VOL. 60 STARTS 01-97
804607000 1 SCIENCE NEWS /DCU/ WK 3865246N 1 YR R 49.50 49.50
/SURFACE MAIL/ 01/01/97
ISSN # 0036-8423
A9
02-96 CLAIMS MUST BE MADE
WITHIN 90 DAYS DOMESTIC/
180 DAYS FOREIGN
PUBL ON SATURDAYS
VOL 151 STARTS 01-97
805613007 1 SCIENCES /NY/ BM 3865279N 1 YR R 21.00 21.00
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VOL 37 STARTS 01-97
810322008 1 SECRETARY /SURFACE MAIL/ IR 3865348N 1 YR R 19.00 19.00
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/ALSO COMES WITH/
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AUG OCT NOV
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PAY THIS INVOICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
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CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
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</TABLE>
<PAGE> 181
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
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- ------------------------------------------------------------------------------------------------------------------------------------
TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VOL 57 STARTS 01-97
PID# 7471220
835767005 1 SOUTHERN LIVING MO 3865712N 1 YR R 28.00 28.00
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844927004 1 SPORTS ILLUSTRATED /C90M9//**/ WK 3865876N 1 YR N 80.46 80.46
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MOS/AFTER 3 MOS WILL BE CHRGED
AT SINGLE ISS RATE/NO SUBS
EXTENDED FOR OUT OF STOCK ISS
PUBL WEEKLY WITH SPECIAL
ISSUES IN FEB & SEP
VOL 86 STARTS 01-97
851433763 1 STATISTICAL ABSTRACT OF THE AN 1 YR STANDING ORDER
UNITED STATES - PAPER ED 03/01/97
ISSN# 1063-1690
867213001 1 SURVEY OF CURRENT BUSINESS MO 3874334N 1 YR R 59.00 59.00
ISSN# 0039-6222 11/01/96
/INCORPS/ BUSINESS
CONDITIONS DIGEST/ GPO/
CLAIMS MUST BE MADE WITHIN
6 MONTHS
NONCANCELLABLE AFTER SIX
MONTHS OF ENTRY - PRO RATA
REFUND AFTER DEDUCTION OF
$8.00 CANCELLATION CHARGE
WITHIN SIX MONTHS OF ENTRY
918170549 1 USA TODAY /NY/ /FORMERLY/ MO 3866762N 1 YR R 225.00 225.00
INTELLECT 01/01/97
ISSN # 0161-7389
USA TODAY MAGAZINE IS PUBL
JAN MAR MAY JUL SEP NOV/
NEWSLETTER IS PUBL FEB APR
JUN AUG OCT DEC
NONCANCELLABLE
919295014 1 US GOVERNMENT MANUAL - LIBRARY AN 1 YR R STANDING ORDER
EDITION /MD/ 01/01/97
USUALLY PUBL ANNUALLY IN SEP
1)*1997 EDITION
920055001 1 US NEWS & WORLD REPORT - WK 3866824N 1 YR R 44.75 44.75
REGULAR ED/**/ /HJGT/ 01/01/97
ISSN # 0041-5537
CLAIMS MUST BE MADE WITHIN
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PAY THIS INVOICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
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</TABLE>
<PAGE> 182
<TABLE>
<CAPTION>
[EBSCO SUBSCRIPTION [EBSCO INDUSTRIES PLEASE ALLOW DOMESTIC
SERVICES LOGO] INC LOGO] PUBLISHERS 60 TO 90 DAYS
INVOICE FROM DATE OF INVOICE TO
BEGIN SERVICE.
1163E SHREWSBURY AVENUE /800/ 526-2337
SHREWSBURY NJ 07702 /908/ 542-8600 FAX /908/ 544-9777
SUBSCRIBER
BILL TO: SEND MAGAZINES TO: CODE IS
30-20-10 AA
HAGERSTOWN BUSINESS COLL/LIB HAGERSTOWN BUSINESS COLL/LIB
18618 CRESTWOOD DR 18618 CRESTWOOD DR
HAGERSTOWN MD 21742 HAGERSTOWN MD 21742
WHEN MAKING REMITTANCE, AND WHEN INQUIRING ABOUT THIS INVOICE, PLEASE REFER TO BOTH THE INVOICE NUMBER AND ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------------------------------------------------
YOUR PURCHASE ORDER NO. ACCOUNT NO. DATE REF. CODE INVOICE NO. PAGE NO.
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RB-S-64535-03 10-10-96 7366194 11
- ------------------------------------------------------------------------------------------------------------------------------------
TERM N PRICE N
ORDER NUMBER ---------- / --------------- E
TITLE NUMBER QTY. NAME OF PUBLICATION FREQ TO PUBLISHER START DATE R UNIT EXTENSION T
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
/CARRIER/ /FOR WASHINGTON 11/01/96
DC & SURROUNDING AREAS IN
VIRGINIA W VIRGINIA & MD/
ISSN # 0190-8286
CLAIMS FOR MISSING ISSUES
MUST BE MADE WITHIN 30 DAYS
DOMESTIC & 45 DAYS FOREIGN
WITH A MAXIMUM CLAIMS OF NO
MORE THAN 3 ISS PER YEAR &
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PID# 2942918
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ISSN # 0043-7441 01/01/97
PUBL JAN MAR MAY JUL SEP NOV
VOL 49 STARTS 01-97
963780507 1 WORKING WOMAN /SURFACE MAIL/ MO 3867399N 1 YR R 11.97 11.97
ISSN# 0145-5761 09/01/97
964302004 1 WORLD ALMANAC & BOOK OF FACTS AN 3875887N 1 YR R 9.95 9.95
/PAPER EDITION/ 11/01/96
/SURFACE MAIL/
ISSN # 0084-1383
ALL CLAIMS MUST INCLUDE
COPIES OF FRONT & BACK OF
CANCELLED CHECK & ORDER FORM
PUBL NOV
CURRENT YEAR EDITION PUBL IN
NOV OF PREVIOUS YEAR
NONCANCELLABLE
1 YEAR ONLY
1)*1997 EDITION
PLEASE SUPPLY YOUR TAX EXEMPT #:
--------------------------------------------------------------------
INVOICE SUBTOTAL 2579.24
LESS DISCOUNT 51.58
INV SUBTOTAL AFTER DS 2527.66
NET AMOUNT DUE 2527.66
PAY THIS INVOICE IN FULL. THERE SHOULD TITLE NUMBERS IN BOLD PRINT REFLECT RECENTLY UPDATED PRICES. US$ WIRE TRANSFERS
BE NO PARTIAL PAYMENTS. THIS INVOICE CAN BE SENT TO:
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CAPACITY AS YOUR AGENT. RECEIPT OF INVOICE [100% BIRMINGHAM, AL 35290
EBSCO GUARANTEES PAYMENT RECYCLED ABA: 062000080
EBS-40-1 EBSCO'S FEDERAL I.D. NO. 63-6014186 TO ALL PUBLISHERS. PAPER LOGO] ACCT #: 70 001 057
</TABLE>
<PAGE> 183
<TABLE>
<S> <C> <C>
[BFI LOGO] WASTE
SYSTEMS
BROWNING-FERRIS INDUSTRIES REASON CODE _____
ACCOUNT NO. ________________ LOCATION CODE __________________ SALESPERSON _____
_____ NEW ACCOUNT _____ REINSTATE CUSTOMER _____ OTHER CHANGE SALES
_____ NEW SERVICE LOCATION _____ CHANGE SERVICE LEVEL TERRITORY _____
</TABLE>
BILLING INFORMATION
CUSTOMER (BUSINESS) NAME
--------------------------------------------------------
OR:
-----------------------------------------------------------------------------
LAST FIRST PREFIX SUFFIX
STREET NUMBER:
------------------------------------------------------------------
STREET NAME:
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
CITY: STATE:
---------------------------------------------- ----------------------
ZIP: PHONE: ( ) - -
----------------------------- ---------- ----------------
FAX: ( ) - -
---------- ----------------
CONTACT:
------------------------------------------------------------------------
NUMBER OF INVOICES REQUIRED: ___________
INV. PAGE BRK BY SERV LOC. (____) (Y/N)
SERVICE LOCATION INFORMATION
CUSTOMER NAME
-------------------------------------------------------------------
OR: Hagerstown Business College
-----------------------------------------------------------------------------
LAST FIRST PREFIX SUFFIX
STREET NUMBER: 18618
------------------------------------------------------------------
STREET NAME: Crestwood Dr.
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
CITY: Hagerstown STATE: MD
---------------------------------------------- ----------------------
ZIP: 21740 PHONE: ( ) - -
----------------------------- ---------- ----------------
CONTACT:
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SERVICE DESCRIPTION
- -----------------------------------------------------------------------------------------------------------------------------------
ZERO MIN MONTHLY
CONT. VOL ON PICK UP/ EST TCKT EST. DISP MIN HAUL EQUIP.
LINE NO. SYSTEM QTY SIZE CODE FREQ COMP CALL HAUL RATE HAULS FLAG MNTS SITE HAULS RATE CHARGES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N 1 01009 1 8 2 $ 298.33
---------------------------------------------------------------------------------------------------------------------------------
E 2
---------------------------------------------------------------------------------------------------------------------------------
W 3
- -----------------------------------------------------------------------------------------------------------------------------------
O 4
---------------------------------------------------------------------------------------------------------------------------------
L 5
---------------------------------------------------------------------------------------------------------------------------------
D 6
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OTHER SERVICES:__________________________________________________________
OTHER CHARGES:
=========================================================================
CUSTOMER DEPOSIT:_____________________________________________________________
DEPOSIT RETURN DATE:__________________________________________________________
SPECIAL EVENT END DATE:_______________________________________________________
P.O. NUMBER:__________________________________________________________________
P.O. AMENDMENT NUMBER:________________________________________________________
JOB NUMBER:___________________________________________________________________
AFFILIATION:__________________________________________________________________
RECEIPTS REQUIRED?_____________ (Y/N) SYSTEM CP NO.
SPECIAL BILLING?_______________ (Y/N)
C.O.D.?________________________ (Y/N)
P.O. DURATION__________________
P.O. EFF. DATE:________________ P.O. END DATE ________________
JOB EST. COMPL. DATE___________
SPECIAL INSTRUCTIONS:_________________________________________________________
==============================================================================
Date of Agreement: 9 / 7 / 95 Effective Service Date: 9 / 5 / 95
------------- --------------
The undersigned individual signing this Agreement on behalf of Customer
acknowledges that he or she has read and understands the terms and conditions of
this Agreement and that he or she has the authority to sign the Agreement on
behalf of Customer.
<TABLE>
<CAPTION>
<S> <C>
TERMS: NET 10 DAYS /s/ Hagerstown Business College
BROWNING-FERRIS INDUSTRIES ---------------------------------------------------
WESTERN MARYLAND 417 (CUSTOMER NAME)
11710 GREENCASTLE PIKE
HAGERSTOWN, MARYLAND 21740 BY (SIGNATURE) /s/
---------------------------------------------------
- ------------------------------------------------- NAME (PLEASE TYPE OR PRINT):
(NAME OF OPERATING BROWNING-FERRIS -------------------------------------
INDUSTRIES SUBSIDIARY)
TITLE (PLEASE TYPE OR PRINT):
BY/TITLE /s/ -------------------------------------
-----------------------------------------
</TABLE>
TERMS AND CONDITIONS
ARTICLE 1
SERVICES RENDERED
Customer grants to the undersigned (BFI) the exclusive right to collect and
dispose of all Customer's Waste Materials (which include recylable materials)
and agrees to make the payments as provided for herein and BFI agrees to furnish
such services and equipment specified above, all in accordance with the terms of
this Agreement.
ARTICLE II
TERM
THE INITIAL TERM (THE "INITIAL TERM") OF THIS AGREEMENT IS THREE YEARS FROM THE
DATE BFI'S EQUIPMENT IS DELIVERED TO CUSTOMER'S LOCATION ("EFFECTIVE SERVICE
DATE"). THIS AGREEMENT SHALL AUTOMATICALLY RENEW FOR SUCCESSIVE THREE YEAR
TERMS (THE "RENEWAL TERM") THEREAFTER UNLESS EITHER PARTY SHALL GIVE WRITTEN
NOTICE OF TERMINATION BY CERTIFIED MAIL TO THE OTHER AT LEAST SIXTY (60) DAYS
PRIOR TO THE TERMINATION OF THE INITIAL TERM OR ANY RENEWAL TERM.
ARTICLE III
WASTE MATERIALS
The Waste Material to be collected and disposed of by BFI pursuant to this
agreement is all solid waste (including recycleable materials) generated by
Customer (the "Waste Material"). Waste Material specifically excludes and
Customer agrees not to deposit in BFI's equipment or place for collection by BFI
any radioactive, volatile, corrosive, highly flammable, explosive, biomedical,
infectious, biohazardous, toxic or hazardous material as defined by applicable
federal, state, provincial or local laws or regulations ("Excluded Waste").
ARTICLE IV
TITLE
BFI shall acquire title to the Waste Material when it is loaded into BFI's
truck. Title to and liability for any Excluded Waste shall remain with Customer
and Customer expressly agrees to defend, indemnify and hold harmless BFI from
and against any and all damages, penalties, fines and liabilities resulting from
or arising out of the deposit of Excluded Waste in BFI's trucks, containers or
other equipment.
The Terms and Conditions continue on the reverse side of this page.
<PAGE> 184
ARTICLE V
PAYMENTS
Customer agrees to pay BFI on a monthly basis for the services and/or equipment
furnished by BFI in accordance with the charges and rates provided for herein.
Payment shall be made by Customer to BFI within ten (10) days of the receipt of
an invoice from BFI. BFI may impose and Customer agrees to pay a late fee for
all past due payments, such late fee as determined by BFI in an amount not to
exceed the maximum rate for same allowed by applicable law.
ARTICLE VI
RATE ADJUSTMENTS
Because disposal and fuel costs constitute a significant portion of the cost of
BFI's services provided hereunder, Customer agrees that BFI may increase the
rates hereunder proportionately to adjust for any increase in such costs or any
increases in transportation costs due to changes in location of the disposal
facility. Customer agrees that BFI may also increase the rates from time to
time to adjust for increases in the Consumer Price Index, and Customer agrees
that BFI may also proportionately pass through to Customer increases in the
average weight per container yard of the Customer's Waste Materials, increases
in BFI's costs due to changes in local, state or federal rules, ordinances or
regulations applicable to BFI's operations or the services provided hereunder,
and increases in taxes, fees or other governmental charges assessed against or
passed through to BFI (other than income or real property taxes). BFI may only
increase rates for reasons other than those set forth above with the consent of
the Customer. Such consent may be evidenced verbally, in writing or by the
actions and practices of the parties.
ARTICLE VII
SERVICE CHANGES
Changes to the type, size and amount of equipment, the type or frequency of
service, and corresponding adjustments to the rates, may be made by agreement of
the parties, evidenced either in writing or by the practices and actions of the
parties, without affecting the validity of this Agreement and this Agreement
shall be deemed amended accordingly. This Agreement shall continue in effect
for the term provided herein and shall apply to changes of and new services
address location of the Customer within the area in which BFI provides
collection service.
ARTICLE VIII
RESPONSIBILITY FOR EQUIPMENT
The equipment furnished hereunder by BFI shall remain the property of BFI;
however Customer acknowledges that it has care, custody and control of the
equipment while at the Customer's location and accepts responsibility for all
loss or damage to the equipment (except for normal wear and tear or for loss or
damage resulting from BFI's handling of the equipment) and for its contents.
Customers agrees not to overload (by weight or volume), move or alter the
equipment, and shall use the equipment only for its proper and intended purpose.
Customer agrees to indemnify, defend and hold harmless BFI against all claims,
damages, suits, penalties, fines and liabilities for injury or death to persons
or loss or damage to property arising out of Customer's use, operation or
possession of the equipment. Customer agrees to provide unobstructed access to
the equipment on the scheduled collection day. If the equipment is inaccessible
so that the regularly scheduled pick up cannot be made, BFI will promptly notify
the Customer and afford the Customer a reasonable opportunity to provide the
required access; however BFI reserves the right to charge an additional fee for
any additional collection service required by Customer's failure to provide such
access.
ARTICLE IX
DAMAGE TO PAVEMENT
Customer recognizes the difficulty of ensuring that the Customer's pavement or
driving surface is adequate to bear the weight of BFI's vehicles. Therefore,
Customer agrees that Customer will be responsible for any damage to Customer's
pavement, curbing or other driving surfaces resulting from the weight of BFI's
vehicles providing service at the Customer location.
ARTICLE X
LIQUIDATED DAMAGES
In the event Customer terminates this Agreement prior to its expiration other
than as a result of a Default by BFI or BFI terminates this Agreement for
Customer's Default (including nonpayment), Customer agrees to pay to BFI as
liquidated damages a sum calculated as follows: (1) if the remaining term under
this Agreement is six or more months, Customer shall pay its most recent monthly
charges multiplied by six; or (2) if the remaining term under this Agreement is
less than six months, Customer shall pay its most recent monthly charge
multiplied by the number of months remaining in the term. Customer expressly
acknowledges that in the event of an unauthorized termination of this Agreement,
the anticipated loss to BFI in such event is estimated to be the amount set
forth in the foregoing liquidated damages provision and such estimated value is
reasonable and is not imposed as a penalty. In the event Customer fails to pay
BFI all amounts which become due under this Agreement, or fails to perform its
obligations hereunder, and BFI refers such matter to an attorney, Customer
agrees to pay, in addition to the amount due, any and all costs incurred by BFI
as a result of such action, including, to the extent permitted by law,
reasonable attorneys' fees.
ARTICLE XI
SUSPENSION AND TERMINATION FOR CAUSE
If, during the term of this Agreement, either party shall be in breach of or
default in any provision of this Agreement ("Default"), the other party may
suspend or terminate its performance hereunder until such delinquency or default
has been corrected, provided, however, that no termination shall be effective
unless and until the complaining party has given written notice of default to
the other party and the other party has failed to cure such Default within at
least ten (10) days thereafter. In the event any such Default remains uncured
for a period of ten (10) days, the complaining party may terminate this
Agreement by giving the other party written notice of such termination; such
termination to become effective upon receipt of such notice.
ARTICLE XII
ASSIGNMENT
Neither party shall assign this Agreement without the prior written consent of
the other party, except that BFI may assign this Agreement to any corporation or
entity affiliated with BFI without Customer's consent.
ARTICLE XIII
OPPORTUNITY TO PROVIDE ADDITIONAL SERVICES
BFI values the opportunity to meet all of Customer's nonhazardous waste
collection and disposal needs. Customer will provide BFI the opportunity to
meet those needs and to provide, on a competitive basis, any additional
nonhazardous waste collection and disposal services during the term of this
Agreement.
ARTICLE XIV
EXCUSED PERFORMANCE
Neither party hereto shall be liable for its failure to perform or delay in
performance hereunder due to contingencies beyond its reasonable control
including, but not limited to, strikes, riots, compliance with laws or
governmental orders, fires and acts of God and such failure shall not constitute
a Default under this Agreement.
ARTICLE XV
BINDING EFFECT
This Agreement is a legally binding contract on the part of both B.F.I. and
Customer and their respective heirs, successors and assigns, in accordance with
the terms and conditions set out herein.
ARTICLE XVI
ENTIRE AGREEMENT
This Agreement represents the entire understanding and agreement between the
parties hereto and supersedes any and all prior agreements, whether written or
oral that may exist between the parties regarding same.
<PAGE> 185
STATEMENT
Date 3-8 1996
TO Hagerstown Business College
Proposal for 1996 Mowing Season TERMS
IN ACCOUNT WITH
WILLIAMS LAWN CARE
12584 ITNYRE ROAD
SMITHSBURG, MD 21783 Phone# 824-2787
Mowing & Trimming Grass,
Keepng Weeds out of flower beds
each time $150.00
Bush trimming, mulching is
extra.
Mowing rough area when needed $ 30.00
Lawn Mowing
Leaf Clean-up [Picture]
Mulching
WILLIAMS LAWN CARE
Dean Williams
12534 Itnyre Road Walter Williams
Smithsburg, MD 21783 (301) 824-2787
<PAGE> 186
[MEDISOFT LETTERHEAD]
September 20, 1995
To Whom it May Concern:
MediSoft Patient Accounting software is protected under the copyright laws of
the United States of America. Its license agreement states that each licensed
copy of the software is to be used on no more than one computer.
As an educational institution, MediSoft specifically grants your school a
waiver of the license agreement limitation that prohibits installation of the
software on more than one computer. YOU MAY INSTALL MEDISOFT PATIENT ACCOUNTING
SOFTWARE ONTO ALL COMPUTERS IN YOUR FACILITY NEEDED TO SUPPORT YOUR USE OF THE
SOFTWARE FOR EDUCATIONAL PURPOSES. You may not release copies of the software
to your students for use on their personal computers or copy the software for
any other purpose.
Should you have any questions on this matter, please contact me at (800)
333-4747.
Sincerely,
MEDISOFT
/s/ Jeff Ward
- -------------------
Jeff Ward
Marketing Director
<PAGE> 187
Schedule A to WESTLAW(R) Subscriber Agreement
Plan 3B Educational Institution Service [LOGO]
Available only to paralegal, law
librarianship or graduate tax programs.
1. AUTHORIZED USE
Subscriber may select one or more usage options entitling it to authorized use
(as defined below) of certain WESTLAW databases and Features. "Authorized Use"
shall mean use solely for educational purposes by Subscriber's faculty,
administration and staff ("Personnel") and students. Any other use is strictly
prohibited except as provided under paragraph 4 below. No access to DIALOG(R)
or WESTLAW is permitted hereunder. Access to certain other Features and
databases may be restricted by West. Subscriber may elect a different option
by giving West at least 30 days prior written notice; provided, however, that
no usage option may be adopted for less than a three month period.
2. USAGE OPTIONS AND CHARGES
Subscriber may select any one or more of the following usage options:
A. UNLIMITED USAGE OPTIONS. Subscriber shall pay the annual usage
charge indicated for each Unlimited Usage Option password requested.
Annual usage charges shall be billed in twelve equal monthly
installments.
NUMBER OF
PASSWORDS ANNUAL CHARGE
REQUESTED (PER PASSWORD)
1 a. Unrestricted: $1,260
---- Unlimited access at any time
---- b. Off-peak: $960
Unlimited access during off-peak hours
only (3:30 p.m. to 9:00 a.m. CST
Mon.-Fri. and all day Sat. and Sun.)
B. HOURLY USAGE OPTIONS. Under the Hourly Usage Options, Subscriber
shall pay a single annual subscription charge of $100 (regardless of
the number of options selected) and the hourly usage charge indicated
below. The annual subscription charge shall be waived for Subscribers
selecting both an Unlimited Usage Option and an Hourly Usage Option.
Subscriber may request a reasonable number of passwords.
NUMBER OF
PASSWORDS
REQUESTED HOURLY CHARGE
a. Unrestricted: $15
---- Allows access and use at any time
---- b. Off-peak: $12
Allows access and use during off-peak
hours only (3:30 p.m. to 9:00 a.m. CST
Mon.-Fri. and all day Sat. and Sun.)
3. OFFLINE TRANSMISSION
Subscriber may, as indicated below or at any time upon 30 days prior written
notice to West, elect access to offline transmission. Subscriber shall pya
offline transmission charges at the rate of $.02 per standard format line for
all offline transmission. Offline transmission charges apply to printing and
downloading to attached and stand-alone storage devices.
Subscriber requests access to offline transmission
4. NON-AUTHORIZED USE
Subscriber may also permit use of WESTLAW for non-educational purposes or use
by persons other than Subscriber's students and Personnel ("Non-Authorized
Use") by completing Schedule L to WESTLAW Subscriber Agreement. Charges for
Non-Authorized Use shall be billed as set forth in Schedule L and shall be in
addition to Subscriber's Schedule A Plan 3B Charges.
5. GATEWAYS
Subscriber may elect to subscribe to one or more Gateway by completing Schedule
H to WESTLAW Subscriber Agreement. Upon completing Schedule H, Subscriber
shall be issued one password for use in accessing Gateways. Charges for
Gateways selected by Subscriber shall be as set forth on Schedule H or in the
Additional Terms applicable to the particular Gateway. Such charges shall be
in addition to Subscriber's Schedule A Plan 3B Charges.
6. TRAINING
A. Instructors. A basic WESTLAW training session will be provided at
no charge at WESTLAW Training Centers for Subscriber's Personnel who will
use or instruct others in the use of WESTLAW and for Subscriber's students
who will supervise or instruct other students in the use of WESTLAW.
B. West Instruction Program. A West instruction program ("Instruction
Program") is available at a charge of $1,500 to Subscribers selecting an
Unlimited Usage Option. Each Instruction Program will be conducted on
Subscriber's premises for up to seven consecutive days. Subscriber shall
propose dates and the specific location of the Instruction Program to West
in writing at least 45 days prior to the desired commencement date of each
Instruction Program.
i. Equipment and Use. During the Instruction Program, West
shall install on Subscriber's premises up to five workstations (the
"Equipment") and telecommunications lines for use as a WESTLAW training
center ("Training Center"). Subscriber shall receive up to 10 hours of
WESTLAW training, to be provided at the Training Center, and
appropriate instructional materials. West shall issue one password for
each workstation that shall permit unlimited access to end use of the
same WESTLAW databases and Features available under Subscriber's Plan
3B Unlimited Usage Option. When not in use for training purposes, the
Training Center shall be available for access to and use of WESTLAW by
Subscriber's Personnel and students.
ii. Software. WESTLAW software may be installed on the
Equipment prior to delivery to Subscriber. In addition, certain third
party software may also be installed on the Equipment. WESTLAW
software and any such third party software (collectively "Software")
will be provided to Subscriber subject to the terms of the applicable
software licenses, copies of which will be included in the user
documentation supplied with the Equipment. Subscriber agrees to be
bound by and comply with all such licenses. NOTWITHSTANDING ANYTHING
CONTAINED IN SUCH LICENSES, COPYING OF THE SOFTWARE IN WHOLE OR IN PART
IS STRICTLY PROHIBITED.
<PAGE> 188
iii. Equipment Warranty and Limitation of Liability. West shall maintain the
Equipment in good working order or, at its option, replace the Equipment;
provided, however, that Subscriber shall be responsible for all damage to or
loss of the equipment caused by misuse, abuse, negligence or theft.
EXCEPT AS SPECIFICALLY PROVIDED HEREIN OR IN APPLICABLE LICENSE AGREEMENTS, THE
EQUIPMENT AND SOFTWARE ARE PROVIDED "AS IS," WITHOUT WARRANTY OF ANY KIND.
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF
PERFORMANCE, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
SUBSCRIBER'S EXCLUSIVE REMEDY AND WEST'S AND WP'S ENTIRE LIABILITY HEREUNDER,
IF ANY, FOR ANY CLAIM(S) MADE AGAINST THEM, INDIVIDUALLY OR JOINTLY. FOR
DAMAGES, INCLUDING ANY CLAIM(S) FOR PROPERTY DAMAGE OR PERSONAL INJURY.
REGARDLESS OF THE FORM OF ACTION, WHETHER BASED IN CONTRACT OR NEGLIGENCE, FOR
WHICH WEST OR WP IS LEGALLY LIABLE SHALL BE LIMITED TO THE AMOUNT OF THE
CHARGES PAID BY SUBSCRIBER FOR THE INSTRUCTION PROGRAM. In no event shall West
or WP be liable to Subscriber for any claim(s) relating in any way to
Subscriber's inability or failure to perform legal or other research or related
work or to perform such legal or other research or work property or completely
or for any lost profits or other consequential, exemplary, incidental, indirect
or special damages relating in whole or in part to Subscriber's rights
hereunder or use of, or stability to use, the Equipment or Software, even if
West or WP has been advised of the possibility of such damages.
7. Responsibility for Certain Matters
Subscriber shall be responsible for all access to and use of WESTLAW (including
both Authorized and Non-Authorized Use). Data, WESTLAW Features, Gateways and
Software by Subscriber's Personnel and students or by means of Subscriber's
equipment or passwords issued to Subscriber hereunder, whether or not Subscriber
has knowledge of or authorizes such access and use. All such access and use
shall be governed by the terms and conditions of the Subscriber Agreement
between Subscriber and West.
8. Reservations of Rights
West reserves the right to modify the terms and conditions of this Agreement
from time to time, including, but not limited to, the right to restrict access
to certain WESTLAW databases, services and Features, to impose usage or other
limitations, or to discontinue or substitute usage options.
<PAGE> 189
Schedule B4 to WESTLAW(R) Subscriber Agreement
WESTLAW Software Order Form [WESTLAW LOGO]
Personal Computer Software
(complete Section 1 on reverse side only if using a LAN)
IBM(R) and compatibles for MS-DOS
(stand-alone and LAN)
IBM and compatibles for Microsoft Windows(TM) 3.1
or higher, with a 486 or higher processor and 8 MB
or more RAM
IBM and compatibles for Microsoft Windows(TM) 3.0
or higher, with a 386 processor
Macintosh(R)
Minicomputer Software
(complete Section 2 on reverse side)
DEC VAX(R)/VMS(TM)
OFFICEPOWER(R)
UNIX(R)
Wang(R) VS
Other Terminal/Computer Access
(WESTLINK(R) or other software access,
complete Section 3 on reverse side)
WESTLAW SOFTWARE
WESTMATE(R) WESTCheck(R)
Quantity Quantity
site(s)* site(s)*
- ------ ------
site(s)* site(s)*
- ------ ------
site(s)* site(s)*
- ------ ------
site(s)* site(s)*
- ------ ------
WESTMATE and WEST Check
Quantity
site(s)*
- ------
site(s)*
- ------
site(s)*
- ------
site(s)*
- ------
Not Requesting Software
For those locations that currently do not have any individual passwords, a firm
password will be issued for each site license requested herein, unless
otherwise noted.
Please check if applicable:
DO NOT issue any firm password(s)
- -----
* A "site" means all personal computers, servers and minicomputers
(including networked systems) with the same operating system platform at a
single location or at different locations that are connected by a single
networked system. A "networked system" means any combination of two or
more terminals that are electronically linked and capable of sharing the
use of a single software product. A location may include more than one
site and require more than one license.
SOFTWARE ORDER
Please send the WESTLAW Software ordered above for the site(s) identified below
and enter one subscription to the ordered Software for each such site. All
orders are subject to approval and acceptance by West in St. Paul, Minnesota.
LICENSE AGREEMENT
Subscriber understands and agrees that the Software, including each new version
thereof, is licensed by West under the WESTLAW Software License Agreement, a
copy of which will be enclosed with each copy of the Software. By opening the
package and using the Software (including each new version), Subscriber agrees
to be bound by the terms and conditions of the accompanying License Agreement.
If Subscriber does not so agree, Subscriber must return the copy of the
Software to West and any fee paid will be refunded.
SUBSCRIPTION
West may issue new versions of the ordered Software from time to time. One
copy of any such version issued during the one year period following the
effective date of this Schedule B4 shall be provided at no charge for each
subscription at each site identified below. Thereafter, Subscriber shall pay
the then-current subscription fee for each such new version. Charges are
exclusive of sales, use and other taxes, which are the responsibility of
Subscriber. At least one subscription is required for each site.
<TABLE>
<CAPTION>
<S> <C>
SUBSCRIBER Address of Equipment if at Different Location:
Signature /s/ Jim Gifford This location is Branch Office
------------------------------------ -----
Name (please print) Jim Gifford Residential Office
------------------------------------ -----
Title President X Main Office
------------------------------------ -----
Firm Name Hagerstown Business College Firm Name
------------------------------------ --------------------------------------
Address 18618 Crestwood Drive Address
------------------------------------ --------------------------------------
Hagerstown, MD 21742
------------------------------------ --------------------------------------
------------------------------------ --------------------------------------
------------------------------------ Contact
Contact Diane Chamberlin --------------------------------------
------------------------------------ Telephone
Telephone 301-739-2670 --------------------------------------
------------------------------------
Date August 15, 1996
------------------------------------
</TABLE>
<PAGE> 190
[MEDICUS SYSTEMS LETTERHEAD]
April 20, 1995
Ms. Beth Shanholtzer
Director, Health Information Technology
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, MD 21742
Dear Beth:
Enclosed please find one (1) original of the Letter of Agreement for the use of
the Clinical Data System by the medical record program students of Hagerstown
Business College.
This Agreement has been executed by Gerald L. Hansberger, Vice President,
Finance and is for your files. Should you have any questions regarding this
document, please feel free to call me.
Sincerely,
/s/ Linda V. Islami
Linda V. Islami
Contract Administrator
enclosure
<PAGE> 191
[MEDICUS SYSTEMS LETTERHEAD]
February 20, 1995
Ms. Beth Shanholtzer
Director, Health Information Technology
Hagerstown Business College
18618 Crestwood Drive
Hagerstown, MD 21742
Dear Beth:
This Letter of Agreement outlines the terms and conditions under which
Hagerstown Business College (the "Client") will lease fifteen (15) copies each
of the Medicus Systems Corporation ("Medicus") Clinical DataSystem(TM)'s PC
EncoderPlus, PC CPTPlus and Clinical & Financial Optimizer Software (the
"Software") at no charge for a period of one (1) year from the first day of the
month following delivery of the Software. Medicus reserves the right to ship
the Software at anytime within thirty (30) days of contract execution.
This Agreement will renew annually unless notice of termination is given by
either party, in writing, at least ninety (90) days prior to renewal. Upon
termination of this Agreement, the security devices, software, and
documentation, including any copies thereof, must be returned to the designated
Medicus office.
The Software will be used by the Client for the sole purpose of educating the
Client's students regarding computer-assisted encoding systems.
Software
The Software includes the programs, computer code, routines, subroutines,
documentation, systems descriptions, user manuals, methodologies, concepts,
formulae, indices, edits, tables, comparative and other data, data books,
forms, screens, reports, proposals and other written material and proprietary
knowhow ("Knowhow") constituting or delivered in connection with our
proprietary software product or products listed in this Agreement along with
any subsequent solutions, modifications, refinements, enhancements, additions
and releases relating to Knowhow and any other proprietary Knowhow delivered or
disclosed to you by us.
<PAGE> 192
Ms. Beth Shanholtzer
February 20, 1995
Page Two
License
We hereby grant you a nonexclusive and nontransferable license for use during
the term of this Agreement of the Software listed herein on the fifteen (15)
computers located at and servicing your facility. Use of the Software for the
benefit of any organization other than your organization, including uses
involving rebilling or consulting for any other organization, or for any
application not described in this Agreement is expressly prohibited.
Nondisclosure
You agree that the Software is the property of Medicus, or, in the case of
third party owned software, the property of Medicus' licensors. You further
agree that you will not, at any time, unless you have received our prior
written permission: (1) use the Software in any public based medical
information system, copy or duplicate or permit anyone else to copy or
duplicate any physical embodiment of the Software, or (2) examine, list,
decompile, disassemble, create or attempt to create, or permit anyone else to
examine, list, decompile, disassemble, create or attempt to create, the source
programs or object programs of the Software or any part thereof or any
substantially similar software from the source or object module or other
information in tangible or intangible form made available pursuant to this
Agreement. You agree to notify us of the circumstances surrounding any
unauthorized possession, use or knowledge of any part of the Software or
physical embodiment thereof or other information made available pursuant to
this Agreement. The provisions of this Nondisclosure section shall survive
expiration or termination of this Agreement.
<PAGE> 193
Ms. Beth Shanholtzer
February 20, 1995
Page Three
This Letter of Agreement shall be valid for letters returned on or before
February 28, 1995. Please indicate your acceptance of the contents of this
Letter of Agreement by having the appropriate person sign below. Return both
originals and a purchase order for any fees due to the attention of Cynthia
Gralapp, Contract Administrator at our Evanston office. We will return one
fully executed original for your files.
Sincerely,
/s/ Jeff A. Timbrook
Jeff A Timbrook
Regional Sales Manager
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
indicated below.
MEDICUS SYSTEMS CORPORATION HAGERSTOWN BUSINESS COLLEGE
By: /s/ Gerald L. Hansberger By: /s/ Jim Gifford
--------------------------------- --------------------------------
Name: Gerald L. Hansberger Name: Jim Gifford
------------------------------- ------------------------------
Title: Vice President, Finance Title: President
------------------------------ -----------------------------
Date: March 13, 1995 Date: March 3, 1995
------------------------------- ------------------------------
<PAGE> 194
EXHIBIT 16
EMPLOYMENT AGREEMENTS
1. Letter agreement with Director for Health Information Technology.
2. Letter agreement with Director of Placement.
3. Letter agreement with Registrar
4. O/E Employee Handbook
<PAGE> 195
[LOGO]
M E M O R A N D U M
TO: Lisa Copenhaver
FROM: Jim Gifford
DATE: March 1, 1994
RE: Letter of Appointment
We are pleased to appoint you to the position of Registrar of Hagerstown
Business College. For as long as student enrollment warrants or college
requirements dictate, your status shall be considered as full-time, non-exempt
and your appointment as employment at will.
As renumeration for fulfilling the duties and obligations as Registrar you will
be paid an annual salary of $16,000 with a non-regular merit salary review
within six months of the effective date of your appointment. As additional
compensation, you may receive a $3.00 per credit-hour bonus for every
re-starting student that you have contacted who earns a grade (excluding I or W)
for the registered credit-hours at the end of the term. The definition of a
re-starting student for this purpose shall be one who has incurred a financial
obligation in a previous term; has completely withdrawn from school; and one who
re-starts after one term, but within one year of withdrawal from school. Your
bonus plan is to remain confidential and should it become known to other staff
members, may result in discontinuation of the bonus plan.
We look forward to a professional relationship with you. Our strength and
success depends upon the professionalism and dedication of our staff. Your
interest and encouragement to training our students will be greatly appreciated.
<PAGE> 196
[HBC LOGO]
January 22, 1996
Ms. Marcia Dean
1060 Beechwood Drive
Hagerstown, Maryland 21742
Dear Marcia:
I am very pleased that you have agreed to remain the Director of Placement with
certain modifications. This letter is to confirm our conversation regarding the
director's duties.
As Director of Placement your annual salary will be $24,000 effective February
1st, 1996. The minimum work schedule of 25 hours per week will be arranged and
may vary each trimester. Your responsibilities as director include:
1. Development of sources in the job market which may offer employment to
students and alumni.
2. Making the community aware of Hagerstown Business College, its programs
and courses, and the qualifications of its students and graduates.
3. Maintaining contact with various employment agencies to determine their
manpower and training needs developing a lead source for new students.
4. Educate students in areas of resume writing, employee/employer relations,
career enhancement, dress protocol, time management, and interviewing
techniques by teaching Professional Life courses which varies between one to
three classes per trimester.
5. Informing students and alumni of available jobs and arranging interviews for
them with prospective employers.
6. Maintaining up-to-date files of placement information concerning students
and alumni.
<PAGE> 197
page two
Letter to Ms. Marcia Dean concerning modification of responsibilities
dated January 22, 1996
7. Organize, supervise, and conduct on-campus visits by potential employers,
such as the annual Employment Expo.
8. Conduct annual follow-up survey of graduates in order to determine their
employment status of reporting placement statistics.
9. Planning college graduation exercises.
10. Maintain current market research as to career opportunities and employment
opportunities provided by Maryland Job Service.
11. Develop placement brochure and coordinate printing as required.
I trust you will continue to add your talent and expertise in areas not limited
by the ones itemized above. I look forward to a mutually beneficial working
relationship.
Sincerely,
/s/ Jim Gifford
Jim Gifford
President
<PAGE> 198
[Logo]
18618 Crestwood Drive
Hagerstown, Maryland 21742
301-739-2670
800-HBC-2670
FAX 301-791-7661
April 26, 1994
Beth Shanholtzer, R.R.A.
Director, Medical Records
Martinsburg City Hospital 25401
Dear Beth:
I am very pleased that you have accepted the HIT Director's position with
Hagerstown Business College. This letter is to confirm our phone conversation
of April 26th, 1994 regarding the director's duties.
As program director, your start date will be June 1, 1994 and you will be paid
an annual salary of $22,000. The work schedule agreed upon was Monday,
Wednesday, and Friday per week. Your responsibilities as director include:
* working a minimum of 21 hours/week
* teaching a minimum of 2 day classes and 1 night class per trimester
* hiring for vacancies in HIT schedule
* covering or finding appropriate coverage for illnesses, vacations, etc.,
within the HIT department
* working a 50 week year including trimester breaks and non-scheduled class
breaks
* recruiting new sites
* scheduling a meeting with all current internship sites to evaluate
internship experiences this past year
* visiting all contracted sites at least once per trimester
* keeping internship contracts current
* holding 1 office hour/week per class
* revising student HIT handbook before Fall 94
* helping with HIT curriculum development
* attending scheduled faculty meetings and in-services
* evaluating whether the Coding Certificate should continue to be offered
Pat Brown is willing to assist you whenever you need her! She and I are both
looking forward to working with you. Call me with any questions.
Sincerely,
Kateri
Kateri Frazier
Medical Department Chair
<PAGE> 199
EXHIBIT 17
EMPLOYEE BENEFIT PLANS
1. O/E Automation, Inc. Employees' Retirement Income Plan (terminated
10/31/95, final distribution pending IRS determination letter)
2. O/E Savings Plan (401(K)/Profit Sharing)
3. Health/Dental Insurance
4. Long Term Disability Insurance
5. Group Term Life Insurance
6. Vacation (accrual policy)
7. Other benefits provided in the O/E Employee Handbook
<PAGE> 200
O/E AUTOMATION, INC.
and SUBSIDIARIES
TROY, MICHIGAN 48084
Revised 8/95
<PAGE> 201
O/E AUTOMATION, INC.
EMPLOYMENT POLICY HANDBOOK
REVISED AUGUST 1, 1995
APPLICATION OF POLICY HANDBOOK
This Policy Handbook applies to all employees of O/E Automation, Inc. and its
subsidiaries. From time to time, O/E Automation, Inc. and all of its
subsidiaries are collectively referred to herein as the "Company".
<PAGE> 202
CONTENTS
<TABLE>
<S> <C>
INTRODUCTION 1
About the Company 2
COMPANY POLICIES 3
Employment at Will Policy 3
Equal Employment Opportunity 4
Harassment 4
Employment of Family Members 5
Definitions of Employment 6
Introductory Period 7
Term of Employment 7
Internal Information Ownership 8
Software License Compliance 8
Alcohol and Drug Abuse 9
Social Event Policy 9
Work Assignment 9
Work Week and Work Schedule 10
Overtime 10
Attendance 11
Personnel Records 11
Security and Emergency Policies 11
Promotions 12
Resignation 12
Work Rules 13
PAY POLICIES 14
Total Compensation 14
Performance Reviews 14
Wage Review 15
Pay Day 15
Wage and Tax Statement 15
Benefits 15
Paid Holidays 16
Vacations 17
Vacation Pay Upon Termination 18
Sick Days 18
Medical Leaves of Absence 19
Funeral Leave 19
</TABLE>
<PAGE> 203
<TABLE>
<S> <C>
Jury Duty 20
Military Leave 20
BENEFITS 21
Health Insurance Plan 21
Long Term Disability Benefits 21
Life Insurance 21
Pension Plan 21
401K 21
COMMUNICATIONS 22
Open-Door Policy 22
A Final Note 22
PERSONNEL COORDINATORS LISTING 23
Questions? 24
ACKNOWLEDGMENT 25
Signature Statement 25
Employee's Copy 26
</TABLE>
<PAGE> 204
INTRODUCTION
We have prepared this handbook to acquaint our employees with our current
personnel policies and procedures. Please read it carefully and keep it for
future reference.
To those of you who are newcomers to O/E, we extend a special welcome. This
handbook is designed as a get-acquainted book to let you know who we are, what
we do and how we operate.
To those of our employees of longer standing, this is a greeting...and a thank
you, You have helped make O/E more than a place to work. To a lot of us it's a
second home and we'd like, with your help and cooperation, to continue to
improve it. One of the things you can do is to assist and give guidance to our
new employees.
Whether you are a new employee or one of long standing, this handbook should be
helpful in answering your questions about O/E and the programs that affect you
in your job. Periodically, you will be sent additions or changes to the
booklet. If at any time you have questions about the information, please do
not hesitate to ask your Personnel Coordinator.
1
<PAGE> 205
ABOUT THE COMPANY
O/E was founded in 1979 by Robert J. Vlasic. In May of 1982, the Company was
incorporated. The original mission was to lease office equipment to
corporations in the Detroit area. That mission has grown to encompass a wide
range of computer services offered to major corporations nationwide.
Today the O/E family of companies includes O/E Systems, Inc.; O/E Learning,
Inc.; O/E Management Services, Inc.; O/E MidAtlantic, Inc.; O/E Midwest, Inc.
ABOUT OUR CUSTOMERS
O/E does business in one of the most competitive industries in the world:
systems integration, computer leasing and the delivery of technology based
solutions. There are other routes our customers could take and end up with
somewhat the same results. And when compared financially to other
alternatives, O/E is usually not the least expensive.
One of the reasons our customers favor O/E is the satisfaction and peace of
mind received by obtaining their equipment, training, software, service and
support from a single reliable source. We provide innovative solutions to our
customers' specific needs, and in the process, build strong, long-lasting
relationships.
2
<PAGE> 206
COMPANY POLICIES
EMPLOYMENT AT WILL POLICY
This Employee Handbook is an important document intended to help you become
acquainted with the Company and its rules and procedures. However, you must
understand that this Employee Handbook only serves as a guide and does not
amount to a contract between the Company and you or any other employee.
YOU MUST ALSO UNDERSTAND THAT YOU ARE, AND SHALL REMAIN AT ALL TIMES, AN
"EMPLOYEE AT WILL" OF THE COMPANY. This means that you may terminate your
employment at any time, for any reason or no reason whatsoever, and the Company
may terminate your employment at any time for any reason or no reason
whatsoever. This "employment at will" relationship is not altered or modified
by the Company's granting of any benefits, including, but not limited to, stock
options or profit sharing benefits, which provide for vesting based upon length
of employment.
THE "EMPLOYMENT AT WILL" RELATIONSHIP CANNOT BE MODIFIED OR ALTERED UNLESS
EXPRESSED IN WRITING, SPECIFICALLY STATING SUCH UNDERSTANDING, AND SIGNED BY
THE PRESIDENT OF O/E AUTOMATION, INC. No person other than the President of
O/E Automation Inc. has authority to enter into any agreement for employment
for any specified period of time, or to make any agreement contrary to the
foregoing statement.
3
<PAGE> 207
EQUAL EMPLOYMENT OPPORTUNITY
O/E is an equal opportunity employer and will not discriminate against any
employee or applicant with regard to sex, religion, race, color, national
origin, age, height, weight, marital status, political beliefs, or disability
or handicap that does not substantially impair the performance of essential job
functions, in accordance with all applicable laws. Additionally, laws
regarding veterans' status are fully observed. This policy relates to all of
the Company's employment practices including hiring, transfers, promotion,
layoffs, compensation, benefits and training.
To assist in maintaining full compliance with the above policy, the Company has
designated a Personnel Coordinator. If you feel that you have been the subject
of discrimination, that a co-worker or applicant has been subjected to
discrimination, or that other violations of the above policy have occurred or
are occurring, you are encouraged to discuss the activity with the Personnel
Coordinator who will investigate the matter and recommend any disciplinary
action which may be appropriate. The Company will not retaliate against any
employee who makes a good faith report of alleged discriminatory conduct, even
if the employee was in error.
HARASSMENT
O/E prohibits harassment of any kind by and of its employees. Harassment can
take many forms. It may be, but is not limited to, words, signs, jokes,
pranks, intimidation, physical contact or violence. Harassment may be, but is
not necessarily, sexual in nature. Sexual harassment may include unwelcome
sexual advances, requests for sexual favor, other verbal or physical contact of
a sexual nature when such conduct creates an intimidating environment, prevents
an individual from effectively performing the duties of his/her position, or
when such conduct is made a condition of employment or compensation, either
implicitly or explicitly.
4
<PAGE> 208
As a Company employee, you are responsible for keeping our work environment
free of harassment. Any employee who becomes aware of an incident of
harassment, whether by witnessing the incident or being told of it, must report
it to the Personnel Coordinator or any officer of the Company with whom you
feel comfortable. If you feel that you have experienced harassment, report the
incident immediately to the Personnel Coordinator or any officer with whom you
feel comfortable ("Officer" includes any Vice President, President or Chairman
of an O/E company). Appropriate investigation and disciplinary action will be
taken. All reports will be promptly investigated with due regard for the
privacy of everyone involved. The Company will not retaliate against any
employee who makes a good faith report of alleged harassment, even if the
employee was in error.
The Company accepts no liability for harassment of one employee by another
employee. Any individual who makes unwelcome advances, threatens or in any way
harasses another employee is personally liable for such actions and their
consequences. The Company will not provide legal, financial or any other
assistance to an individual accused of harassment if a legal complaint is
filed.
EMPLOYMENT OF FAMILY MEMBERS
The Company discourages the employment of persons related to each other.
Exceptions may be made particularly in the cases of part-time summer help but
only with the prior approval of the President or Chairman of the Company.
5
<PAGE> 209
DEFINITIONS OF EMPLOYMENT
The nature of your employment is employment at will. This means that you may
terminate your employment at any time and for any reason. Likewise, your
employer may terminate your employment at any time, with or without cause.
Your at-will status cannot be modified or altered unless specifically done so
in writing and signed by the President of O/E Automation. The following are
classes of employees that are all at-will employees:
A Full-Time Employee is one who is normally scheduled to work at least forty
(40) hours per week.
A Part-Time Employee is one who is normally scheduled to work less than a forty
(40) hour work week and is expected to work regularly on a year-round basis.
Part-time employees are eligible for certain employee benefits.
A Temporary Employee is one who is hired on a short-term basis and has been
employed by the Company for less than twelve (12) continuous months or if
assigned to a specific project, for the contracted time of that project.
He/she can be paid on a salaried or hourly basis and is not eligible for any
employee benefits.
Employees who transfer to an affiliate O/E company will retain their original
date-of-hire for purposes of employee benefits.
Every new employee should understand what his/her job is, what is expected in
that job, and how that job contributes to the overall success of the Company.
Every job is important, and the Company cannot succeed without every employee
doing his/her best.
6
<PAGE> 210
We all work together as a team and, as in any team effort, each of us must do
his/her best or else the whole team will suffer.
Whenever you have a work performance related problem, you would normally take
it to your supervisor, who is in the best position to give your problem
immediate attention.
INTRODUCTORY PERIOD
In order for the Company to become acquainted with you and for you to learn
about the Company, the first ninety (90) calendar days of employment will be
used as an introductory period.
During this introductory period you will not be eligible to receive the normal
employee benefits offered to full-time employees (i.e., medical and dental
insurance, life insurance, disability insurance). Completion of the
introductory period does not guarantee continued employment for any specified
period of time, nor does it require that an employee be terminated only "for
cause".
Once you have completed the introductory period, you will be classified as a
regular employee with your service dating back to the time you were hired.
TERM OF EMPLOYMENT
Any employee may leave employment at any time or be terminated at any time,
with or without reason. No person other than the President of O/E Automation
has authority to enter into any agreement for employment for any specified
period of time, or to make any agreement contrary to the foregoing statement.
No such agreement contrary to the foregoing shall be enforceable unless reduced
to writing and signed by the President of O/E Automation and the employee.
7
<PAGE> 211
INTERNAL INFORMATION OWNERSHIP
O/E Automation is the owner of all information contained in Company files or
carried on Company communication lines. These include computer and voice in
addition to various storage media, such as paper, tape, and diskettes. As
such, the Company reserves the right without notice to access, monitor, secure
or destroy this information.
Employees who have access to such information are expected to treat it
accordingly and in a confidential manner. Copying and/or removing internal
information from the premises or disclosing such information to non-employees,
without proper authorization, is prohibited. Violations of this policy will be
disciplined appropriately and may lead to discharge.
SOFMARE LICENSE COMPLIANCE
It is the policy of O/E to adhere to the terms of all software licenses to
which it is a party and to obey the restrictions applicable to copyrighted
materials contained therein.
O/E employees or contractors shall not duplicate any licensed software or
related documentation for use either on premises or elsewhere unless expressly
authorized to do so by agreement with the licensor.
O/E employees or contractors shall not provide licensed software to any
outsiders, including clients, customers, contractors, or others. O/E employees
or contractors shall not use any software given them by clients, customers,
consultants, or vendors without tangible evidence that their use of such
software does not violate copyright laws or other intellectual property rights
of others. Licensed software shall be used on local area networks or multiple
8
<PAGE> 212
machines only in accordance with applicable license agreements. Every O/E
employee is responsible for complying with this policy.
Employees who know of violations of this policy must report such violations to
the Director of Information Systems or other appropriate officer of the
Company.
ALCOHOL AND DRUG ABUSE
Alcohol and drug abuse problems will be dealt consistently with the
requirements of the Americans with Disabilities Act, the Michigan Handicappers'
Civil Rights Act, and other applicable laws.
SOCIAL EVENT POLICY
The O/E companies frequently sponsor social activities to encourage camaraderie
and reward a job well done. The sole purpose is social and recreational. By
inviting our employees to these events we are not requiring the performance of
any business function. Rather, employees who attend an O/E social activity are
voluntary social guests.
While alcohol may be available at an O/E social event, our employees should
feel no pressure whatsoever by the Company to consume it. If you choose to
drink, we expect you to act responsibly and refrain from excessive alcohol
consumption.
WORK ASSIGNMENT
Your work assignment will be given to you by your supervisor or team leader. A
team leader, when used, will have discussed the schedule of work with your
supervisor. Your supervisor is responsible for scheduling and maintaining the
quality standards to meet customer and Company requirements.
9
<PAGE> 213
It is important for the efficient operation of the Company that we all do the
work that must be done to meet the needs of our customers. This means that
from time to time you may be asked to do work which you do not ordinarily do
and you may be asked to learn new work.
WORK WEEK AND WORK SCHEDULE
The regular work week commences on Monday and runs through Friday. A regular
work week consists of five (5) consecutive business days of eight (8) hours
each. The work week can be extended to include holidays, Saturdays or Sundays,
and employees may be required to work overtime.
All employees receive a one (1) hour lunch or one half (1/2) hour lunch and two
(2) 15 minute breaks. Your supervisor will advise you of the normal lunch
periods for your department. The scheduling of breaks is within the discretion
of the supervisor. Employees are expected to be at their work stations and
ready to work at starting time and at the end of each break or lunch period.
OVERTIME
If overtime work is necessary, you will be advised as much in advance as
possible and will receive pay at the rate of time and one-half (1/2) for the
actual time worked in excess of forty (40) hours in a payroll work week. All
overtime must be authorized by your supervisor in advance. Overtime is time
and one half (1/2), even when it falls on a holiday. All managers and
supervisory personnel are exempt from overtime.
In scheduling overtime, every effort is made to accommodate the personal needs
of our employees. Whenever overtime work is scheduled, it is important to the
Company that you work the overtime hours scheduled.
10
<PAGE> 214
ATTENDANCE
Attendance control is important in maintaining consistent operation. It is
your responsibility to notify your supervisor by telephone of an expected
absence or tardiness. This must be done as soon as possible (no later than the
first hour of the work day) so that arrangements can be made to have your job
covered.
All supervisors and managers must fill out an attendance form documenting the
absence.
PERSONNEL RECORDS
Each employee has a permanent personnel record. It is your obligation to keep
your Personnel Coordinator advised in writing the following changes for fringe
benefit and record keeping purposes: name, address, telephone number, marital
status, dependent status, and emergency contact.
Prompt notice of any changes facilitates our ability to properly administer
payrolls and employee benefit programs. Forms are available from your
Personnel Coordinator.
For your best interests, keep your Personnel Coordinator informed of any
courses, programs or technical organization functions that you have
participated in and any certificates you may have earned. This will become a
part of your permanent file and may be helpful in considering you for job
transfers and promotions.
SECURITY POLICY
All visitors must check in with the receptionist at the front desk, and
visitors must be escorted to Company areas.
11
<PAGE> 215
PROMOTIONS
The Company believes that appropriate forms of training and education,
diligently pursued and successfully completed, contribute to employee
development and benefit both the employee and the Company.
In addition, such training and education may assist an employee in benefiting
from the Company's philosophy of "promotion from within", whenever such
promotions are consistent with an employee's capabilities and the Company's
best interest.
RESIGNATION
In order to ensure continuing stability in our organization, we ask that you
provide at least two weeks notice should you decide to terminate your
employment. Employees who provide the requested notice will receive accrued
but unused vacation pay, as set forth in the section on vacations.
Company keys and any company-issued assets or materials must be returned to
your Personnel Coordinator upon your termination. The Director of I.S. should
be notified to make any system adjustments for security issues.
Just as any employee may resign at any time and for any reason, the Company
reserves the right to release an employee at any time with or without cause.
12
<PAGE> 216
WORK RULES
TELEPHONE CALLS:
Courtesy and consideration in handling phone calls impress the caller with the
interest and efficiency of our company. The Company has formal written
"Telephone Answering Procedures" for everyone that regularly answers the
telephone. Ask your Personnel Coordinator for a copy if your job includes
telephone usage.
The telephone on your desk or in your department is a business phone and should
not be used for personal calls. Please ask your family and friends to call
only in regard to serious or emergency matters.
DRESS:
We expect each employee to guide his/her personal appearance and attire by
standards which are in keeping with the Company's best interest, as well as the
employee's health and safety.
Every employee is asked to use discretion and mature judgment regarding
appearance and attire.
HOUSEKEEPING:
We all have a responsibility for keeping our work areas neat and orderly. We
must each do our part to assure that good housekeeping and safe work areas are
maintained.
13
<PAGE> 217
PAY POLICIES
TOTAL COMPENSATION
There are two forms of compensation you receive from the Company. The first is
the direct compensation you receive in your paycheck. The second is the
indirect compensation you receive as benefits which are explained in the
"Benefits" section of this booklet. These benefits help provide various forms
of protection for you and your family that you would otherwise have to finance
yourself. Your direct and indirect pay together provide your total
compensation.
PERFORMANCE REVIEWS
At the Company's discretion, your job performance will be discussed with you at
least once each year. During the review, the employee and his or her
supervisor should discuss the employee's past performance and any changes which
may be needed in the future. To confirm that the review took place, both the
employee and his or her supervisor will sign the performance review form, and a
copy of the review will be given to the Personnel Coordinator to place in the
employee's file.
Employees are encouraged to discuss any questions they may have as to career
growth opportunities within the company and to make suggestions that might
enhance their job satisfaction.
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<PAGE> 218
WAGE REVIEW
The Company has adopted a policy of only reviewing employee wage rates each
December in light of the employee's performance, the company's performance and
economic conditions. However, this may vary according to the Company's
performance, the employee's performance and economic conditions.
PAY DAY
You will be paid twice monthly: ON THE 15TH AND THE LAST DAY OF THE MONTH. Your
Personnel Coordinator will deliver your paycheck to you personally or it will
be mailed to you or electronically deposited for you, if you so choose. If a
pay day falls on a holiday, the working day immediately prior to the holiday
will be the pay day. If a pay day falls on a weekend, the pay day will be the
Friday preceding the weekend.
WAGE AND TAX STATEMENT
Each year you will receive a statement showing your total earnings and the
amount of taxes deducted from your salary during the year. This statement
(Form W-2) will be given to you or mailed by January 31st of the following year
so you may have it when you file your income tax return.
BENEFITS
Only full time employees are eligible for fringe benefits. To qualify for
fringe benefit programs, a full-time employee must have completed the ninety
(90) day probationary period and must meet the necessary eligibility
requirements of the respective benefit program.
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<PAGE> 219
PAID HOLIDAYS
You will be paid eight (8) hours pay for the following holidays at your
straight time hourly rate:
NEW YEAR'S DAY THANKSGIVING DAY
MEMORIAL DAY DAY AFTER THANKSGIVING
INDEPENDENCE DAY CHRISTMAS DAY
LABOR DAY GOOD FRIDAY, 1/2 day
Christmas Eve Day and New Year's Eve Day are also paid holidays when they fall
on a normally scheduled work day.
To qualify for holiday pay, you must have completed the probationary period and
have worked the last scheduled work day prior to and the next scheduled work
day immediately following the holiday, unless excused by your supervisor. The
Company may adjust holiday schedules based upon the day of the week that the
holiday is celebrated.
If a holiday falls within your vacation, you will receive an extra day of
vacation at your regular rate in addition to your paid vacation. Probationary
employees will receive holidays off, but without pay.
Paid holidays are subject to revision for O/E Learning schools.
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<PAGE> 220
VACATIONS
Only full-time employees earn vacation days. Vacation must be approved by your
supervisor in advance of the vacation period. Paid vacations are based on your
length of continuous service with O/E.
<TABLE>
<CAPTION>
Continuous Service Vacation
- ------------------ --------
<S> <C>
Less than one year 1 day per full month worked up
to a maximum of 10 days
One to five years 10 days
Six years but less 15 days
than 15
More than 15 years 20 days
</TABLE>
Vacation days must be taken in the same fiscal year (November 1 through October
31) in which they are earned. Exceptions may be made due to year-end closing,
but only with the prior approval of the President or Chairman of the Company.
Annual paid vacations shall be available based on the following schedule:
<TABLE>
<CAPTION>
Continuous Service Vacation
- ------------------ --------
<S> <C>
Through first 5 years .83 days per full month worked
to a maximum of 10 days per
fiscal year
Beginning at 6 years, but 1.25 days per full month worked
less than 15 years to a maximum of 15 days per
fiscal year
</TABLE>
17
<PAGE> 221
<TABLE>
<CAPTION>
Continuous Service Vacation
- ------------------ --------
<S> <C>
15 years plus 1.66 days per full month worked
to a maximum of 20 days per
fiscal year
</TABLE>
The Company requests that each employee notify his or her supervisor of
vacation plans as far in advance as possible. A schedule is issued at the
beginning of each fiscal year for employees to indicate definite, as well as
tentative vacation days.
Employees are encouraged to take individual vacation days and not take more
than one consecutive week at a time. Vacation requests should be submitted on
forms provided for that purpose. Earned vacation days cannot accumulate into a
succeeding year. If an employee takes vacation over and above what they have
accrued, they must get prior approval from the President or Chairman of the
Company.
Upon written request, employees may be permitted to use vacation days in a
fiscal year before they are earned. However, if the employee does not remain
employed through the end of the fiscal year, the Company may request
reimbursement from the employee for the advanced vacation taken but not earned
as of the employee's last day worked.
VACATION PAY UPON TERMINATION
If you provide the requested notice when your employment terminates, you will
receive payment for vacation time accrued but not used.
SICK DAYS
Our sick day policy is for five (5) days within our fiscal year. The plan will
be explained in detail to you by your Personnel Coordinator. Sick days do not
accumulate to succeeding fiscal years.
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<PAGE> 222
MEDICAL LEAVES OF ABSENCE
If you qualify for leave under the Family and Medical Leave Act of 1993, unpaid
leaves of absence will be granted for periods of no more than twelve (12)
weeks, unless as required to provide longer periods by state or federal law.
Request must be made in writing, for:
1. Maternity Leave or placement of a child for adoption or foster care
2. Illness Leave (Physical or Mental)
3. Leave to care for a seriously ill spouse, child or parent
All leaves, whether maternity or illness leave, shall be treated in the same
fashion. An employee who requests a leave of absence will be granted such
leave, in the discretion of the Company after exhausting his or her personal
and vacation days.
The Company's policy is intended to fully comply with all provisions of the
Family and Medical Leave Act of 1993 and any other similar federal, state or
local law, to the extent the same applies to the Company. In the event any
provision herein relating to medical leaves of absence provides less rights
than provided by such laws, the policy is deemed amended to provide the greater
rights afforded by such laws.
FUNERAL LEAVE
If there is a death in the employee's immediate family, the Company will pay
for work time missed up to three normal working days while arranging for or
attending the funeral. Immediate family includes father, mother, child,
sister, brother, spouse, mother-in-law and father-in-law. The above policy
applies to both natural and step-relatives.
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<PAGE> 223
JURY DUTY
After twelve (12) months of employment, a full-time employee who is summoned
and reports for jury duty on a regularly scheduled work day will be paid by the
Company for each day spent in performing jury duty.
The Company pays the difference between the employee's regular pay and the
daily jury fee paid by the court (not including travel allowances or
reimbursement of expenses). The maximum paid leave duration is limited to ten
(10) days in any calendar year. These provisions are not applicable to an
employee who volunteers for jury duty.
MILITARY LEAVE
The Company shall comply with all applicable federal laws concerning the rights
of employees who have entered the military service of the United States.
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<PAGE> 224
BENEFITS
The group insurance programs are explained in other booklets which are given to
you at the completion of the probationary period.
HEALTH INSURANCE PLAN
A Health Insurance Plan is provided for all regular, full-time employees and
their eligible dependents.
LONG TERM DISABILITY BENEFITS
In case of prolonged absence due to illness or injury, the Company provides
insurance which protects you with income continuation. This plan is described
in a separate booklet, which is provided to all new full-time employees.
LIFE INSURANCE
You are also covered by life insurance, as well as accidental death and
dismemberment insurance. Full details of this plan are described in a booklet,
which is provided to all new full-time employees.
PENSION PLAN
The Company has a pension plan for eligible employees with details set out in a
Summary Pension Plan document available from your Personnel Coordinator.
401K
The Company has a 401K plan for eligible employees set out in a Summary Plan
document with details available from your Personnel Coordinator.
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<PAGE> 225
COMMUNICATIONS
OPEN-DOOR POLICY
Your immediate supervisor is the person you should go to with questions and
requests for help with work-related problems. Your immediate supervisor may
suggest that you discuss your problem/question with the department manager. If
you do not feel comfortable talking to your supervisor, please talk with your
Personnel Coordinator.
This is one of the most important policies we have at O/E. You are urged to
use it whenever you feel it is necessary. A genuine effort will be made to
help solve your problem.
A FINAL NOTE
We hope that your work here will be satisfying and enjoyable. We also hope
that with your mutual understanding of our common goals, together we will build
a strong and profitable future for all of us.
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<PAGE> 226
PERSONNEL COORDINATORS
<TABLE>
<CAPTION>
COORDINATOR COMPANY TELEPHONE
- ----------- ------- ---------
<S> <C> <C>
Treasa Bloodgood O/E Automation 810-649-4400
Roger Mundy O/E Learning 810-649-4400
Sharon Lutz O/E Management Services 810-643-3414
Pamela Leonard O/E Systems 810-643-3459
Steve Zachary O/E Mid-Atlantic 410-561-3007
Bassam Khayo O/E Midwest 513-872-1032
Candace Post O/E Systems - Chicago 312-629-2041
Mary Curole O/E Systems - Atlanta 404-264-8665
Beth Linden O/E Recruiter 810-643-6683
</TABLE>
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<PAGE> 227
QUESTIONS?
If you have a specific question about anything in this handbook, please contact
your Personnel Coordinator at your location. In addition, the following people
are experts in handling issues regarding:
PAYROLL / TIME SHEETS / ATTENDANCE / SALARY CHANGES
BILLIE BILICKI 810-649-4400
810-643-0728 FAX
BENEFITS / ADDRESS AND INSURANCE STATUS CHANGES:
MARRIAGE, BIRTH OF CHILD, DIVORCE, ETC.
TREASA BLOODGOOD 810-649-4400
810-643-0728 FAX
24
<PAGE> 228
ACKNOWLEDGMENT
I hereby acknowledge that I have received a copy of the O/E Automation, Inc.
and Subsidiaries (collectively, the "Company") Employment Policy Handbook (the
"Handbook"). I understand that the contents of the Handbook are not, and
should not be construed to be, a contract between the Company and me. I
further understand that to the extent the Handbook describes employee benefit
plans, such as insurance, pension or retirement benefits, the terms of any
insurance policy, plan or summary plan description are controlling regardless
of any statement contained in the Handbook.
I agree to read the Handbook and to abide by the policies and procedures
contained in the Handbook and in future amendments. I understand that my
employment, compensation and benefits can be terminated with or without cause
and with or without notice at any time at the option of the Company or me. I
further understand that no manager, supervisor or other representative of the
Company, other than the President of O/E Automation, Inc., has the authority to
enter into any agreement for employment for any specified period of time or to
make any agreement contrary to the foregoing. Any such agreement will only be
binding and enforceable against the Company if it is in writing and signed by
the President of O/E Automation, Inc. I also understand that the Company
reserves the right to alter, amend, modify, change or terminate any of the
policies or benefits described in the Handbook or elsewhere at anytime it
chooses, with or without notice.
- ------------------------------
SIGNATURE
- ------------------------------
DATE
EMPLOYEE'S COPY TO REMAIN IN HANDBOOK.
25
<PAGE> 229
EXHIBIT 18
INSURANCE POLICIES
------------------
All of the following insurance coverages are provided by Chubb Group of
Insurance Companies:
1. Commercial Package
2. Boiler & Machinery
3. Commercial General Liability
4. Transit & Contingent Interest
5. Business Automobile
6. Workers' Compensation
7. Umbrella Liability
<PAGE> 230
EXHIBIT 19
ACTIONS PENDING
None
<PAGE> 231
EXHIBIT 20
LIST OF BANK ACCOUNTS
The following accounts are all maintained at Farmers & Merchants Bank and
Trust, Hagerstown, Maryland:
General Money Market
Checking Account
The following accounts contain financial aid funds:
Federal Perkins (Money Market)
Federal Direct Loan
Title IV Federal Funds
Federal Pell
Federal SEOG
Federal College Work Study
Federal Perkins
The following individuals are authorized to sign on all of the above accounts:
Jim Gifford, School Director
Bill Zierau, Controller
Anthony Iaquinto, Treasurer
Richard R. Vlasic, Director
Thomas A. Doonan, Chairman
Timothy M. McCarthy, President
<PAGE> 232
EXHIBIT 21
EMI'S FINANCIAL STATEMENTS
See attached
<PAGE> 233
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 1,332,364 $ 3,033,383
Restricted cash................................................... 624,964 610,000
Trade accounts receivable, net.................................... 4,964,694 3,051,266
Prepaid expenses.................................................. 1,326,364 941,327
----------- -----------
Total current assets...................................... 8,248,386 7,635,976
Property and equipment, net......................................... 4,469,777 4,384,081
Deferred debt issuance costs, net................................... 94,602 96,109
Covenants not to compete, net....................................... 943,868 918,445
Goodwill and other intangible assets, net........................... 8,065,171 5,096,410
Other assets........................................................ 229,210 229,210
----------- -----------
Total assets.............................................. $ 22,051,014 $18,360,231
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 364,559 $ 213,018
Accrued payroll compensation...................................... 376,648 1,152,547
Accrued income taxes.............................................. 194,210 232,252
Accrued expenses.................................................. 674,128 881,486
Deferred tuition income........................................... 4,546,588 2,277,919
Current portion of long-term debt................................. 1,078,542 1,080,085
----------- -----------
Total current liabilities................................. 7,234,675 5,837,307
Long-term debt, less current portion................................ 7,790,549 6,059,858
Other liabilities................................................... 1,117,487 933,505
----------- -----------
Total liabilities......................................... 16,142,711 12,830,670
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares, none issued and
outstanding.................................................... -- --
Convertible preferred stock, $.01 par value -- authorized
1,100,000 shares; 1,023,049 shares issued and outstanding
(liquidation preference of $6.66 per share).................... 10,230 10,230
Additional paid-in capital on convertible preferred stock......... 6,732,160 6,732,160
Common stock, $.01 par value -- authorized 5,833,333 shares;
1,676,827 shares issued and outstanding........................ 16,768 16,768
Additional paid-in capital on common stock........................ 35 35
Common stock purchase warrants.................................... 2,838,148 2,838,148
Accumulated deficit............................................... (3,654,038) (4,032,780)
Less treasury stock, at cost (29,165 common shares)............... (35,000) (35,000)
----------- -----------
Total stockholders' equity................................ 5,908,303 5,529,561
----------- -----------
Total liabilities and stockholders' equity................ $ 22,051,014 $18,360,231
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 234
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net revenues................................ $ 10,476,601 $ 9,166,846 $ 19,679,880 $ 17,928,670
Cost of education and facilities............ 5,119,314 4,209,927 9,762,907 8,446,217
Selling and promotional..................... 1,480,813 1,442,338 2,899,535 2,794,729
Administrative expenses..................... 2,958,640 2,663,965 5,618,501 5,382,062
Amortization of goodwill and intangibles.... 206,968 154,479 382,894 423,632
----------- ----------- ----------- -----------
Income from operations...................... 710,866 696,137 1,016,043 882,030
Interest expense, net....................... 188,694 299,059 384,686 535,476
----------- ----------- ----------- -----------
Income before income taxes.................. 522,172 397,078 631,357 346,554
Provision for income taxes.................. 208,941 170,000 252,615 181,595
----------- ----------- ----------- -----------
Net income........................ $ 313,231 $ 227,078 $ 378,742 $ 164,959
=========== =========== =========== ===========
Pro forma net income per share.............. $ .07 $ .05 $ .08 $ .04
=========== =========== =========== ===========
Pro forma weighted average shares
outstanding............................... 4,707,124 4,707,124 4,707,124 4,707,124
=========== =========== =========== ===========
Historical net income per share............. $ .07 $ .06 $ .08 $ .04
=========== =========== =========== ===========
Historical weighted average shares
outstanding............................... 4,786,557 3,748,815 4,786,557 3,748,815
=========== =========== =========== ===========
OTHER OPERATING DATA:
Number of schools at end of period.......... 17 14 17 14
Number of students at end of period......... 5,170 4,285 5,170 4,285
Number of new starts at end of period....... 1,989 1,900 3,118 3,071
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 235
EDUCATIONAL MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
---------------- ----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net income..................................................... $ 378,742 $ 164,959
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation................................................. 562,065 435,142
Amortization of other assets................................. 363,025 358,951
Provision for losses on accounts receivable.................. 769,434 607,564
Amortization of discount on long-term debt................... 24,936 108,258
Changes in operating assets and liabilities, net of assets
acquired and liabilities assumed.......................... (2,512,134) (800,789)
----------- -----------
Net cash provided by (used in) operating
activities......................................... (413,932) 874,085
INVESTING ACTIVITIES
Purchase of businesses, net of cash acquired................... (50,000) --
Purchases of property and equipment, net....................... (491,299) (460,548)
----------- -----------
Net cash used in investing activities................ (541,299) (460,548)
FINANCING ACTIVITIES
Principal payments on long term debt........................... (745,788) (1,377,032)
----------- -----------
Net cash used in financing activities................ (745,788) (1,377,032)
----------- -----------
Decrease in cash and cash equivalents.......................... (1,701,019) (963,495)
Cash and cash equivalents at beginning of period............... 3,033,383 2,854,676
----------- -----------
Cash and cash equivalents at end of period..................... $ 1,332,364 $ 1,891,181
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 236
EDUCATIONAL MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30 ,1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulations S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and six-month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended March 31, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Registration Statement on Form S-1 No. 333-09777 and related
prospectus filed with the Securities and Exchange Commission on October 28, 1996
(the "Registration Statement").
The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
2. INITIAL PUBLIC OFFERING
On October 28, 1996, the Company completed its initial public offering
("IPO") of common stock. A total of 2,400,000 shares were sold at $10 per share
which included 2,200,000 shares sold by the Company and 200,000 shares sold by
certain selling stockholders. The net proceeds to the Company were approximately
$19.7 million and were partially used to repay $4.8 million in debt. The balance
of the offering proceeds will be used for general corporate purposes, including
the expansion of its operations through the acquisition of additional schools.
As a result of the early extinguishment of the $4.8 million in debt in the
third quarter of fiscal year 1997, the Company will incur an extraordinary loss
of approximately $557,000 because of the write-off of associated unamortized
deferred debt issuance costs and unamortized debt discount.
3. EARNINGS PER SHARE
Pro forma net income per share for periods prior to the IPO were computed
by dividing net income by weighted average number of shares of common stock
outstanding after giving effect to (i) the automatic conversion of all of the
outstanding shares of convertible preferred stock into 1,705,082 shares of
common stock, (ii) the issuance of 141,667 shares of common stock upon exercise
of certain outstanding warrants and (iii) the issuance of 933,333 shares of
common stock upon the cashless exercise of outstanding warrants to purchase
1,333,333 shares of common stock, plus (iv) cheap stock as defined below.
Historical net income per share was computed using the requirements of
Accounting Principles Board Opinion No. 15 and SEC Staff Accounting Bulletin No.
83.
Pursuant to SEC Staff Accounting Bulletin No. 83, common stock and common
stock equivalents issued at prices equal to or below the IPO price per share
("cheap stock") during the twelve month period immediately preceding the initial
filing date of the Company's registration statement for the IPO (August 8, 1996)
have been included in both pro forma and historical earnings per share as if
outstanding for all periods presented (using the treasury stock method at the
offering price).
Supplemental net income per common share was computed using the weighted
average number of common and common equivalent shares outstanding as described
above, and also considering the reduction in interest expense from the repayment
of long term debt of $4.8 million with proceeds of the IPO, as if such shares
had been issued and repayment had occurred at the beginning of the fiscal
period. The computations of
6
<PAGE> 237
EDUCATIONAL MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
supplemental historical net income per share for the three and six months ended
September 30, 1996 are $.08 and $.12, respectively.
Retroactive restatement has been made to all share, weighted average shares
and all net income per share calculations for the stock split effected on June
20, 1996.
4. TEXAS ACQUISITION
On September 6, 1996, the Company entered into an acquisition agreement
providing for the purchase of three schools located in Texas for $2.5 million
subject to approval by the Texas Workforce Commission. As of September 30, 1996,
approximately 646 students attended the schools, which offer healthcare diploma
programs and are located in San Antonio, McAllen and El Paso, Texas. The schools
had combined net revenues of approximately $4.7 million and combined income from
operations of approximately $630,000 for the year ended December 31, 1995. The
Company has accounted for the acquisition as a purchase, effective September 6,
1996. Results of operations of the Texas schools after this date are included in
the consolidated results of the Company.
The Company financed the purchase of the Texas schools as follows: $50,000
was paid on September 6, 1996, $50,000 was paid upon approval by the Texas
Workforce Commission (which was received on November 1, 1996), $1,150,000 will
be paid upon approval by the Department of Education and the remaining
$1,250,000 is payable in the form of a five-year promissory note bearing
interest at 8% per annum and due in five equal annual principal payments.
Pro forma financial information as if the Texas acquisition was consummated
on April 1, 1996, assuming the same pro forma adjustments set forth in the
Company's Registration Statement, is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
Net revenues............................................................ $ 21,829,000
Net income.............................................................. $ 592,000
Historical net income per share......................................... $ .12
</TABLE>
Financial information related to the Texas acquisition is not available on
an interim basis for 1995.
7
<PAGE> 1
EXHIBIT 10.40
NON-NEGOTIABLE
SECOND PAYMENT PROMISSORY NOTE
U.S. $1,350,000.00 December 31, 1996
FOR VALUE RECEIVED, each of the undersigned, jointly and severally
(each individually called a "Maker" and collectively called the "Makers"),
hereby unconditionally promises to pay to the order of O/E LEARNING, INC., a
Michigan corporation ("Seller"), or assigns ("Holder"), at 3290 West Big Beaver,
Suite 128, Troy, Michigan 48084, or at such other place or to such other party
as Holder may from time to time designate in writing, the principal sum of One
Million Three Hundred Fifty Thousand and 00/100 Dollars (U.S. $1,350,000.00) in
lawful currency of the United States.
This Note evidences a payment to be made to the Holder pursuant to the
Asset Purchase Agreement among Seller, Educational Medical, Inc. and HBC
Acquisition Corp., dated December 12, 1996, and providing for the purchase by
HBC Acquisition Corp. of certain assets of Seller (the "Agreement"). The terms
of the Agreement are incorporated into this Note, and this Note is the Second
Payment Promissory Note referred to in the Agreement, representing a portion of
the purchase price of the School Related Assets as defined in the Agreement.
The principal amount of this Note will be due (1) as provided in
Section 1(e) of the Agreement, or (2) September 30, 1997 (the earlier of the
dates referred to in the preceding two clauses is called the "Maturity Date").
All amounts owing pursuant to this Note and not paid upon the Maturity Date
shall bear interest at the highest rate of interest permitted by law until paid.
Maker for itself, its legal representatives, successors and assigns,
waives presentment for payment, demand, notice of dishonor or non-payment,
notice of default, notice of protest, and protest of this Note, and waives any
right to be released by reason of any extension of time or change in terms of
payment. Maker hereby consents to any number of extensions of time, and any and
all renewals, waivers, and modifications of this Note or any combination of the
foregoing that may be made or granted by Holder.
Maker agrees to pay immediately upon demand all reasonable costs and
expenses of Holder, including attorneys' fees, (i) if after default this Note be
placed in the hands of an attorney or attorneys for collection, or (ii) if
Holder finds it necessary or desirable upon default to secure the services of
one or more attorneys with regard to collection of this Note against Maker, or
for the protection of its rights under this Note. The term "attorneys' fees"
shall include attorneys' fees at trial and
<PAGE> 2
on appeal, and shall include attorneys' fees incurred in connection with
bankruptcy, conservatorship, receivership or any other proceeding.
EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER IT OR ITS SUCCESSORS OR ASSIGNS MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THE LOAN EVIDENCED BY THIS NOTE AND ANY AGREEMENTS
CONTEMPLATED THEREBY TO BE EXECUTED IN CONJUNCTION THEREWITH, OR IN CONJUNCTION
WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE PARTIES.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note on the date first above written.
EDUCATIONAL MEDICAL, INC.,
a Delaware corporation
By: /s/ Morris C. Brown
-----------------------------------
Authorized Signatory
HBC ACQUISITION CORP.,
a Delaware corporation
By: /s/ Morris C. Brown
-----------------------------------
Authorized Signatory
2
<PAGE> 1
EXHIBIT 10.41
PLEDGE AGREEMENT
AGREEMENT, dated as of December 31, 1996 between EDUCATIONAL MEDICAL,
INC., a Delaware corporation (the "Pledgor"), O/E LEARNING, INC., a Michigan
corporation (the "Pledgee") and HBC ACQUISITION CORP., a Delaware corporation
(the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common
stock, par value $.01 per share (the "Pledged Securities"), of the Issuer.
The Issuer and the Pledgor have jointly and severally executed and
delivered to Pledgee their promissory Note in the principal amount of $1,350,000
(the "Second Payment Note"), a copy of which is attached as Exhibit 1 to this
Pledge Agreement. The Pledgor's obligations with respect to the payment of the
second Payment Note (the "Secured Obligations") are to be secured by the Pledged
Collateral, as defined in Section 1.
In consideration of the premises and of the mutual covenants herein
contained, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Pledge. As security for the due and punctual payment and performance
of the payment of the Secured Obligations, and this Agreement, the Pledgor
hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto
the Pledgee, and hereby grants to the Pledgee a security interest in, the
following:
(a) the Pledged Securities and the certificates representing
the Pledged Securities, and all cash, proceeds, securities, dividends and other
property at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Securities; and
(b) all securities hereafter delivered or issued in
substitution for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such securities, together with the
interest coupons (if any) attached thereto, and all cash, proceeds, securities,
interest, dividends and other property at any time and from time to time
received or otherwise distributed in respect of or in exchange for any or all
thereof (all such Pledged Securities, certificates, interest coupons, cash,
proceeds, securities, interest, dividends and other property being herein
collectively called the "Pledged Collateral");
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Pledgee, its successors and assigns, forever, subject, however
to the terms, covenants and conditions hereinafter set forth.
2. Transfer to Escrow Agent. The original certificates representing all
Pledged Collateral shall be held on behalf of Pledgee by Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., 777 South Flagler Drive, Suite 310 East,
West Palm Beach, Florida 33416 (the "Escrow Agent"). The Pledgor shall deliver
to the Escrow Agent all original certificates (the "Original Certificates")
representing the
<PAGE> 2
Pledged Collateral issued in the name of the Pledgor, endorsed or assigned in
blank in favor of the Pledgee, and subject only to customary restrictions on
transferability provided for in the Securities Act of 1933 and applicable
related state laws and regulations. All of the Pledged Securities represented
by such certificate(s) are validly issued, duly paid and non-assessable. The
Pledgee may, upon request to the Escrow Agent and delivery by the Escrow Agent
of the appropriate Pledged Collateral to the Issuer, exchange the certificates
representing the Pledged Collateral for certificates of smaller or larger
denominations for any purpose consistent with the terms of this Pledge
Agreement.
3. Voting Rights; Dividends. So long as there is no failure to make
due and punctual payment to the Pledgee in accordance with the terms of the
Secured Obligations nor any other continuing event which would constitute an
event of default under this Agreement (an "Event of Default"):
(a) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to the Pledged
Collateral or any part thereof.
(b) The Pledgor shall be entitled to receive and retain any
and all ordinary cash dividends and interest payable on the Pledged Collateral,
but any and all stock and/or liquidating dividends, distributions in property,
returns of capital or other distributions made on or in respect of the Pledged
Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of an Issuer or received in
exchange for Pledged Collateral or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which the
Issuer may be a party or otherwise, and any and all cash and other property
received in payment of the principal of or in redemption of or in exchange for
any Pledged Collateral (either at maturity, upon call for redemption or
otherwise), shall be and become part of the collateral pledged by the Pledgor
hereunder and, if received by the Pledgor, shall be received in trust for the
benefit of the Pledgee or its assigns or the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement and shall forthwith be
delivered to the Escrow Agent (accompanied by proper instruments of assignment
and/or stock and/or bond powers executed by the Pledgor in accordance with the
Pledgee's instructions) to be held as Pledged Collateral subject to the terms of
this Pledge Agreement.
(c) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of attorney,
dividend orders, interest coupons and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
subparagraph (a) above and/or to receive the dividends and/or interest payments
which it is authorized to receive and retain pursuant to subparagraph (b) above.
(d) Upon the occurrence and during the continuance of an Event
of Default, all rights of the Pledgor to exercise the voting and/or consensual
rights and powers which it is entitled to exercise pursuant to Section 3(a)
hereof and/or to receive the dividends and interest payments which it is
authorized to receive and retain pursuant to Section 3(b) hereof shall cease,
and all such rights shall thereupon become vested in the Pledgee who shall have
the sole and exclusive right and authority to exercise such voting and/or
consensual rights and powers and/or to receive and retain the dividends and/or
interest payments which the Pledgor would otherwise be authorized to retain
pursuant to Section 3(b) hereof. Any and all money and other property paid over
to or received by the Pledgee pursuant to the provisions of this paragraph (d)
or pursuant to the exercise by Pledgee of the voting and/or consensual rights
and powers shall be retained by the Pledgee as additional collateral hereunder
and be applied in accordance with the provisions of this Pledge Agreement.
4. Events of Default. The occurrence of any one or more of the
following shall constitute an
-2-
<PAGE> 3
Event of Default:
(a) if the Makers shall default in making any payment with
respect to the Secured Obligations; or
(b) if Pledgor shall become bankrupt or insolvent, or file any
petition for reorganization or relief from creditors under any applicable law of
any jurisdiction, or make any general assignment for the benefit of creditors,
and in either event
(c) such default or event shall continue for 10 days after
the giving of written notice to the Pledgee.
5. Remedies upon Default. If any Event of Default shall have occurred
and be continuing, then, in addition to exercising any rights and remedies as a
secured party under the Uniform Commercial Code in effect in Maryland, the
Pledgee may, at its option, do any one or more of the following without being
required to give any notice to the Pledgor:
(a) apply the cash (if any) then held by it as collateral
hereunder, first, to the payment of all costs of collection (including
attorneys' fees) incurred in enforcing Pledgee's rights under the Second Payment
Note and this Agreement; second to the payment of interest accrued and unpaid on
the Second Payment Note to and including the date of such application, third to
the payment or prepayment of principal of the Second Payment Note, and fourth,
to the payment of all other amounts then owing to the Pledgee under the terms of
the Second Payment Note and then otherwise pursuant to this Pledge Agreement,
and
(b) sell the Pledged Collateral, or any part thereof, at any
public or private sale or at any broker's board or in any securities exchange,
for cash, upon credit or for future delivery, as the Pledgee shall deem
appropriate. The Pledgee shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to persons
who will represent and agree that they are purchasing the Pledged Collateral for
their own account for investment and not with a view to the distribution or sale
thereof, and upon consummation of any such sale the Pledgee shall have the right
to assign, transfer and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold, free and clear from any claims or rights of Pledgor.
Further, it shall be deemed commercially reasonable for the Pledgee to impose
sufficient conditions on any such sale so as to preclude the necessity of
registration of the Pledged Collateral under the Securities Act of 1933, as
amended. Each such purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of the Pledgor, and the
Pledgor hereby waives (to the extent permitted by law) all rights of redemption,
stay and/or appraisal which he now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. The Pledgee
shall give the Pledgor at least 30 days' written notice in the manner specified
for notices under this Agreement of the Pledgee's intention to make any such
public or private sale or sales at any broker's board or on any such securities
exchange, and the Pledgor agrees that such notice of sale will be commercially
reasonable notice to it. Such notice, in case of public sale, shall state the
time and place fixed for such sale, and, in the case of sale at a broker's board
or exchange at which such sale is to be made, the day on which the Pledged
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places, as the Pledgee may fix in
the notice of such sale. At any such sale, the Pledged Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Pledgee may (in its sole and absolute discretion) determine and
the Pledgee or other holder of the Secured Obligations may bid (which bid may be
in whole or in part, in the form of cancellation of indebtedness)
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<PAGE> 4
for and purchase for the account of the Pledgee or other holder of the any
Secured Obligation the whole or any part of the Pledged Collateral. If the
proceeds of the Pledged Collateral are insufficient to satisfy Pledgor's
obligations under the Second Payment Note and this Agreement, Pledgor shall
remain liable for any deficiency. The Pledgee shall not be obligated to make any
sale of Pledged Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of Pledged Collateral may have been given. The Pledgee
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case sale of all or any part of
the Pledged Collateral is made on credit or for future delivery, the Pledged
Collateral so sold may be retained by the Pledgee until the sale price is paid
by the purchaser or purchasers thereof, but neither the Pledgee nor any other
holder of the Secured Obligations or the assignee of any of the Pledgee's
rights, shall incur any liability in case any such purchaser or purchasers shall
fail to take up and pay for the Pledged Collateral so sold and, in the case of
such failure, such Pledged Collateral may be sold again upon like notice. As an
alternative to exercising the power of sale herein conferred upon it, the
Pledgee may proceed by a suit or suits at law or in equity to foreclose this
Pledge Agreement and to sell the Pledged Collateral, or any portion thereof,
pursuant to a judgment or decree of a court or courts of competent jurisdiction;
and
(c) purchase the Pledged Collateral or any part thereof at
any public or private sale.
6. Application of Proceeds of Sale. The proceeds of sale of Pledged
Collateral sold pursuant to Section 5 (c) hereof shall be applied by the
Pledgee as follows:
First: in the manner provided in paragraph (a) of Section
hereof; and
Second: the balance (if any) of such proceeds shall be paid
to the Pledgor, its successors or assigns in proportion to their ownership of
the Pledged Collateral, or as a court of competent jurisdiction may direct.
7. Extension or Modification of the Second Payment Note. The Pledged
Collateral pledged hereunder secures the payment and performance of all of the
indebtedness of the Pledgor with respect to the Secured Obligations and the
Pledgor agrees that the Second Payment Note may be extended or otherwise
modified in accordance with its terms without affecting this Pledge Agreement or
the obligations of Pledgor hereunder, which shall continue in full force and
effect until the Secured Obligations shall have been fully paid and performed.
8. Authority of Pledgee. The Pledgee shall have and be entitled to
exercise all such powers hereunder as are specifically delegated to the Pledgee
by the terms hereof, together with such powers as are reasonably incidental
thereto. The Pledgee may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of such counsel (whether written or oral) concerning
all matters pertaining to its duties hereunder. Neither the Pledgee, nor any
director, officer or employee of the Pledgee, shall be liable for any action
taken or omitted to be taken by it or them hereunder in connection herewith,
except for its or their own gross negligence or willful misconduct. The Pledgor
hereby agrees to reimburse the Pledgee, on demand, for all expenses incurred by
the Pledgee in connection with the administration and enforcement of this Pledge
Agreement (including expenses incurred by the Escrow Agent or any subagent
employed by the Pledgee) and agrees to indemnify and hold harmless the Pledgee
and/or any such subagent against any and all liability incurred by the Pledgee
(or such subagent hereunder or in connection herewith), unless such liability
shall be due to willful misconduct or gross negligence on the part of the
Pledgee or such subagent.
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<PAGE> 5
9. Pledgee Appointed Attorney in Fact. The Pledgor hereby appoints the
Pledgee the Pledgor's attorney-in-fact (any proxy with full power of
substitution to vote and otherwise act following an Event of Default) for the
purpose of carrying out the provisions of this Pledge Agreement and, upon the
occurrence of any Event of Default, taking any action and executing any
instrument which the Pledgee may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, upon an Event of Default, the
Pledgee shall have the right and power to receive, endorse and collect all
checks and other orders for the payment of money made payable to the Pledgor
representing any dividend, interest payment or other distribution payable or
distributable in respect of the Pledged Collateral or any part thereof and to
settle or compromise any claims relating thereto and to give full discharge for
the same.
10. Representations, Warranties and Agreements of Pledgor. To induce
Pledgee to accept the Second Payment Note, Pledgor represents and warrants to,
and agrees with, Pledgee, that:
(a) it owns the Pledged Securities and by the execution and
delivery of this Agreement and delivery of the Pledged Collateral it has created
is a first priority lien granted in favor of the Pledgee with respect to such
Pledged Collateral; and
(b) this Agreement is the valid and binding obligation of
Pledgor, enforceable in accordance with its terms; and
(c) so long as this Agreement is in effect, not to sell
substantially of its assets without the prior written consent of Pledgee.
11. No Waiver; Cumulative Remedies. No failure on the part of the
Pledgee to exercise, and no delay in exercising any right, power, privilege or
remedy hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power, privilege or remedy of the Pledgee
preclude any other or further exercise thereof or the exercise of any other
right, power, privilege or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided herein or by law.
12. Termination. This Pledge Agreement shall terminate when all
indebtedness secured hereby has been fully paid and performed, at which time
the Pledgee shall reassign and redeliver (or cause to be reassigned and
redelivered) to the Pledgor, or to such person or persons as the Pledgor shall
designate, such of the Pledged Collateral (if any) as shall not have been sold
or otherwise applied by the Pledgee pursuant to the terms hereof and shall
still be held hereunder, together with appropriate instruments of reassignment
and release. Any such reassignment shall be without recourse against or express
or implied representation or warranty by the Pledgee and at the expense of the
Pledgor.
13. Assignability. The Pledgee may assign, in whole or in part, any
or all of its rights, title and interests provided for in this Pledge
Agreement, to any holder of the Secured Obligations or portion thereof.
14. Terms Relating to Escrow Agent.
(a) Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.
shall initially act as Escrow Agent under this Agreement. The Escrow Agent shall
acknowledge its receipt of the original certificate(s) representing the Pledged
Securities by executing this Agreement. Pledgor shall also deliver to the Escrow
Agent any and all original certificates, funds or documents as may hereafter
become part of the Pledged Collateral. The possession of the original
certificates and other documents relating to
-5-
<PAGE> 6
the Pledged Collateral shall be deemed to constitute the Pledgee's possession
thereof in order to perfect Pledgee's security interest in the Pledged
Collateral.
(b) The Escrow Agent shall hold all certificates, funds and
documents representing the Pledged Collateral (collectively, the "Instruments")
subject to the following terms and conditions:
(i) If the Pledgee at any time instructs the Escrow
Agent to exchange any certificates representing any securities included
in the Pledged Collateral to change the denominations of such
certificates, the Escrow Agent shall comply with such request promptly
by so exchanging certificates directly with the Issuer. The Escrow
Agent shall give Pledgor and the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement notice of any
such action within 10 days after it is completed.
(ii)Either Pledgor or Pledgee may give the
Escrow Agent a notice requesting the Escrow Agent to make any delivery
or take any action with respect to any Instruments that is proposed to be taken
pursuant to this Agreement. If the notice describing any such request is
executed by both the Pledgor and the Pledgee, the Escrow Agent shall promptly
comply with the request.
If the notice is given by Pledgor or Pledgee, and is not signed by
both, the Escrow Agent shall promptly forward by hand or overnight delivery a
copy of such notice to the party that did not sign it. Thereafter, the Escrow
Agent shall refrain from taking any action with respect to such request for at
least 5 business days, or until the other party authorizes the Escrow Agent in
writing to comply with such request. If the other party fails to deliver written
notice of objection to the Escrow Agent within such 5-day period, the Escrow
Agent shall be fully protected in complying with such request.
(c) In order to induce the Escrow Agent to act under this
Agreement, the Pledgor and the Pledgee jointly and severally agree as follows:
(i) The Escrow Agent shall not in any way be bound or
affected by any notice or modification or cancellation of this
Agreement unless in writing, signed by all parties hereto, nor shall
the Escrow Agent be bound by any modification hereof unless the same
shall be satisfactory to the Escrow Agent. The Escrow Agent shall be
entitled to rely upon any judgment, certification, demand or other
writing (including but not limited to any instructions given to it
under (b), above) without being required to determine the authenticity
or the correctness of any fact stated therein, the propriety of
validity of the service thereof, or the jurisdiction of the court
issuing such judgment or order.
(ii) The Escrow Agent may act in reliance upon any
document, instrument or signature believed by it to be genuine, and the
Escrow Agent may assume that any person purporting to give any notice
or instructions in accordance with the provisions hereof has been duly
authorized to do so.
(iii) The Escrow Agent may act relative hereto in
reliance upon advice of counsel in reference to any matter(s)
connection herewith, and shall not be liable for any mistake of fact or
error of judgment, or for any acts or omissions of any kind, unless
caused by the Escrow Agent's willful misconduct or gross negligence.
The Escrow Agent shall be entitled to consult with its counsel, which
shall include any attorney employed by it, and the Escrow Agent shall
not be liable for any action taken, suffered or omitted by it in
accordance with the advice (whether written or oral) of such counsel.
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<PAGE> 7
(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) Pledgor and Pledgee shall be jointly and
severally obligated to reimburse the Escrow Agent for all its fees,
costs and expenses in connection herewith, including reasonable counsel
fees, and to indemnify it and hold it harmless against any claim
asserted against it or any liability, loss or damage incurred by it in
connection herewith.
(vii) Nothing herein contained shall be deemed to
obligate the Escrow Agent to deliver any securities, cash, instruments,
documents or any other property referred to herein, unless the same
shall have first been received by the Escrow Agent pursuant to this
Agreement.
(viii) Pledgee acknowledges that the Escrow Agent is
general counsel for the Pledgor, and for its parent corporation,
Educational Medical, Inc. ("EMI"), and agrees that no action taken by
the Escrow Agent under this Agreement shall affect or impair the right
of the Escrow Agent to represent the Pledgor and/or EMI in any matter,
including an interpleader action pursuant to this Agreement.
15. Miscellaneous. This Agreement shall be binding on and inure to the
benefit of the respective parties hereto and their successors and assigns. This
Agreement may be executed simultaneously in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument. This Agreement represents the entire understanding of the parties
hereto, and supersedes any and all other prior agreements between the parties.
The terms and provisions of this Agreement cannot be terminated or modified or
amended except in writing and signed by the party against whom enforcement is
sought. 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 costs and reasonable
attorneys' fees, including costs fees on one or more appeals and in bankruptcy
proceedings.
All notices required or allowed hereunder shall be in writing and shall
be deemed given as provided for in the Asset Purchase Agreement dated December
12, 1996 (the "Asset Purchase
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<PAGE> 8
Agreement") pursuant to which the Second Payment Note has been issued, at the
address written in the first paragraph hereof if not otherwise provided for in
the Asset Purchase Agreement, or such other address as is most recently noticed
for such party as aforesaid.
IN WITNESS WHEREOF, the Pledgee has caused this Pledge Agreement to be
duly executed and delivered by its officer thereunto duly authorized, and the
Pledgor has duly executed and delivered this Agreement, as of the date first
above written.
In the Presence of: EDUCATIONAL MEDICAL, INC., Delaware
corporation
/s/ Wendy Riggs
- -----------------------
/s/ Claudia P. Hock By: /s/ Morris C. Brown
- ----------------------- ------------------------------------
Authorized Signatory
HBC ACQUISITION CORP., a Delaware
corporation
/s/ Wendy Riggs
- -----------------------
/s/ Claudia P. Hock
- -----------------------
By: /s/ Morris C. Brown
------------------------------------
Authorized Signatory
O/E LEARNING, INC., a Michigan corporation
/s/ Frank J. Vandeputte
- -----------------------
/s/ William C. Zierau By: /s/ Thomas A. Doonan
- ----------------------- ------------------------------------
Authorized Signatory
ACCEPTANCE OF ESCROW AGENT
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.
acknowledges receipt of the foregoing Agreement and the Original Certificates,
and agrees to act as Escrow Agent under its terms.
By: /s/ Bridget Ann Berry
------------------------------------
Authorized Signatory
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<PAGE> 1
EXHIBIT 10.42
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT made as of December 31, 1996 between O/E LEARNING,
INC., a Michigan corporation ("Seller"), with a registered office at 3290 West
Big Beaver, Suite 128, Troy, Michigan 48084 and HBC ACQUISITION CORP., a
Delaware corporation ("Buyer"), with a registered office at 1327 Northmeadow
Parkway, Suite 132, Roswell, Maryland 30076.
Preliminary Statement
Seller, Buyer, and Educational Medical, Inc., which is the parent
corporation of the Buyer, have entered into an Asset Purchase Agreement dated as
of December 12, 1996 (the "Asset Purchase Agreement") pursuant to which, among
other things, Buyer has agreed to assume certain stated liabilities and
obligations of Seller relating to the operation of the School. All of the
capitalized terms in this Assumption Agreement shall have the meaning given to
them in the Asset Purchase Agreement unless the context clearly demands
otherwise.
NOW THEREFORE, in consideration of the agreements set forth herein and
in the Asset Purchase Agreement, and other good and valuable consideration, the
receipt and adequacy of which are hereby conclusively acknowledged by Buyer, and
to induce Seller to consummate the transactions contemplated by the Asset
Purchase Agreement, and intending to be legally bound hereby Buyer agrees as
follows:
1. Assumption Obligation. Buyer hereby assumes and undertakes to
perform, pay, satisfy, and discharge each of the Stated Liabilities.
The Buyer shall perform, pay, satisfy, and discharge, as the
case may be, each of the Stated Liabilities at or before such time as payment or
performance thereunder is due.
2. Right to Contest. Buyer may contest, in good faith, its
obligation to perform or pay Stated Liabilities in the event and to the extent
Buyer reasonably believes that such payment or performance is not due to the
creditor or other party claiming entitlement to payment or performance. In the
event that Buyer contests its obligation to pay or perform any of the Stated
Liabilities, (a) Buyer shall promptly notify Seller of the Stated Liability
being contested, and the reasons therefor, and (b) regardless of whether such
notice is given, Buyer shall, at its cost and expense, protect, defend,
indemnify and hold harmless Seller from, against and in respect of any cost,
expense (including reasonable attorneys' fees and costs), liability, obligation
or claim asserted against, incurred by or imposed upon Seller arising from, or
in connection with or related to Buyer's contest of any Stated Liabilities.
3. Costs of Enforcement. In connection with any action arising
from or in connection with the enforcement of this Agreement, the prevailing
party shall be
<PAGE> 2
entitled to an award of its expenses, including reasonable attorneys' fees and
disbursements, incurred or paid in any proceeding which may be instituted.
4. Jury Trial Waiver. BUYER KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, OR THE
TRANSACTIONS OR OBLIGATIONS CONTEMPLATED IN THIS AGREEMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
ANY PARTY RELATING TO THIS AGREEMENT. BUYER CERTIFIES THAT NO REPRESENTATIVE OR
AGENT OF SELLER, NOR SELLER'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT IT WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER
OF RIGHT TO JURY TRIAL PROVISION.
5. Modifications; Waivers Remedies Cumulative. No amendment,
modification, waiver or discharge of this Agreement, or any provision hereof,
shall be valid or effective unless in writing and signed by Seller and Buyer. No
delay or omission of Seller to exercise any right, power or remedy accruing
under or pursuant to this Agreement, at law, in equity, or otherwise, shall
exhaust or impair any right, power or remedy or shall be construed to waive any
such right, power or remedy. Every right, power and remedy of Seller created
under this Agreement may be exercised from time to time and as often as may be
deemed expedient by Seller in its sole discretion. No right, power or remedy
conferred upon or reserved to Seller is exclusive of any other right, power or
remedy, but each and every such right, power and remedy shall be cumulative and
concurrent and shall be in addition to any other right, power and remedy given
under this Agreement or under any other instrument executed in connection
herewith (including, without limitation, the Asset Purchase Agreement), or now
or hereafter existing at law, in equity, or otherwise. No obligation of Buyer
under this Agreement shall be deemed waived by any course or pattern of conduct
by any party.
6. Severability. The provisions of this Agreement shall be
severable. In the event that a court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, and is not
reformed by such court, such invalid or unenforceable provision shall not
affect or impair the validity or enforceability of any other provision of this
Agreement and this Agreement shall be construed as if the invalid or
unenforceable provision had not been included in this Agreement.
7. Captions. The captions used in this Agreement are for
convenience of reference only and shall not be construed to extend, limit or
modify the scope of meaning of the respective paragraphs to which they relate.
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<PAGE> 3
8. Enforceability; Successors and Assigns. This Agreement shall be
binding upon Buyer and Buyer's successors and assigns and shall inure to the
benefit of Seller and its successors and assigns.
IN WITNESS WHEREOF, Buyer has executed and delivered this Agreement on
the date first above written.
HBC ACQUISITION CORP., a Delaware
corporation
By: /s/ Morris C. Brown
-------------------------------------
Authorized Signatory
Educational Medical, Inc., a Delaware corporation, joins in this Agreement for
the purpose of confirming that it is jointly and severally obligated with HBC
Acquisition Corp. pursuant to the terms of this Assumption Agreement.
EDUCATIONAL MEDICAL, INC., a
Delaware corporation
By: /s/ Morris C. Brown
-----------------------------
Authorized Signatory
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<PAGE> 1
EXHIBIT 10.43
BILL OF SALE
O/E LEARNING, INC., a Michigan corporation ("Seller"), with a
registered office at 3290 West Big Beaver, Suite 128, Troy, Michigan 48084, in
consideration of good and valuable consideration, the receipt and sufficiency of
which are acknowledged, paid to it by HBC ACQUISITION CORP., a Delaware
corporation ("Buyer"), with a registered office at 1327 Northmeadow Parkway,
Suite 132, Roswell, Georgia, 33076, hereby sells and delivers to the Buyer all
of its School Related Assets, as defined in the Asset Purchase Agreement between
Seller, Educational Medical, Inc. and Buyer dated December 12, 1996 (the "Asset
Purchase Agreement"), to which a form of this Bill of Sale is attached as an
Exhibit, including without limitation all of their right, title and interest to
the personal property, tangible or intangible, listed or described on Exhibit 7
to the Asset Purchase Agreement, which is made a part of this Bill of Sale by
reference.
IN WITNESS WHEREOF, the Seller has caused this document to be executed
this 31st day of December, 1996.
WITNESSES: O/E LEARNING, INC., a Michigan
corporation
/s/ Frank M. Vandeputte
- -------------------------
/s/ William C. Zierau By: /s/ Thomas A. Doonan
- ------------------------- ------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 10.44
AGREEMENT AND PLAN
OF
REORGANIZATION
AMONG
EDUCATIONAL MEDICAL, INC.,
NEBRASKA ACQUISITION CORP.
AND
EDUCATIONAL MANAGEMENT, INC.
DATED AS OF MARCH 29, 1997
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of March 29, 1997,
among EDUCATIONAL MEDICAL, INC., a Delaware corporation ("EMI"), NEBRASKA
ACQUISITION CORP., a Delaware corporation ("Acquisition"), and EDUCATIONAL
MANAGEMENT, INC., a Nebraska corporation ("Management").
PRELIMINARY STATEMENTS
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.
Prior to the execution and delivery of this Agreement, each of the
partners of WIKERT AND RHUDE PARTNERSHIP, a Nebraska general partnership (the
"Partnership") contributed all of their partnership interests (the "Partnership
Interests") to Management in return for shares of its common stock (the
"Partnership Exchange"). Pursuant to the provisions and subject to the
conditions hereof and the Plan of Merger attached hereto as Exhibit "A" (the
"Plan of Merger"), Management will be merged with and into Acquisition (the
"Merger") whereby each outstanding share of Management common stock, par value
$.01 per share ("Management Common Stock"), will be converted into 1.02857 the
"Exchange Ratio") shares of EMI common stock, par value $.01 per share ("Common
Stock"). The parties to this Agreement desire to enter into it for the purpose
of setting forth certain representations, warranties, covenants, and further
agreements with respect to the Merger.
In consideration of the mutual benefits to be derived from this
Agreement and of the representations, warranties, covenants and agreements
contained in it, EMI, Management and Acquisition represent, warrant and agree
as follows:
ARTICLE I
THE MERGER
Subject to the termination provisions contained herein, as soon as
practicable after the fulfillment of all conditions contained herein (other
than such conditions as shall have been waived), articles of merger (the
"Articles of Merger") shall be filed with the Department of State of the State
of Delaware and the Merger shall become effective in accordance with the terms
of the Plan of Merger. The time and date of such filing is sometimes
hereinafter referred to as the "Effective Time of Merger."
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<PAGE> 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MANAGEMENT
Management hereby makes the following representations and warranties
to EMI and Acquisition, each to the best of its knowledge, and subject to the
disclosures set forth in the Disclosure Memorandum previously delivered to EMI
and Acquisition dated the date of this Agreement (the "Disclosure Memorandum").
Except as specifically noted each of the following representations and
warranties give effect to the Partnership Exchange and includes the operations,
assets and liabilities of the Partnership.
2.1 No Misstatements. The representations of Management and the
information supplied by Management contained in this Agreement, the Exhibits
and the documents incorporated into it by reference and the Disclosure
Memorandum do not contain any untrue statement of a material fact or omit to
state any fact necessary to make such representations or information not
materially misleading.
2.2 Validity of Actions. Management (i) is duly organized,
validly existing and in good standing under the laws of the state of its
organization, (ii) has all requisite corporate and other appropriate
authorization to own, operate and lease its properties and to carry on its
business in the manner in which it is currently operated, (iii) is qualified to
do business in all jurisdictions in which such qualification is necessary for
the operation of the Schools, other than those jurisdictions where the failure
to so qualify would not have a material adverse effect upon the Schools' assets
or operations, and (iv) has full power and authority to enter into this
Agreement, and the Plan of Merger, and to carry out all acts contemplated by
them. This Agreement has been duly executed and delivered on behalf of
Management, has received all necessary corporate authorization and is a legal,
valid and binding obligation of Management, enforceable against it in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement or creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity. Entering into this Agreement and the
consummation of the transactions contemplated by it will not (i) violate any
provision of the Articles of Incorporation or Bylaws of Management or (ii)
conflict with or result in any breach in any material respect of any of the
provisions of any material agreement to which Management is a party or by which
it or its assets are bound, or (iii) cause a breach of any applicable law,
governmental regulation, order, or other decree of any court or governmental
agency. The Articles of Incorporation, all amendments to it as of the date
hereof and the Bylaws of Management, as presently in effect, and the general
partnership agreement of the Partnership have previously been delivered to EMI
and Acquisition as part of the Disclosure Memorandum.
2.3. Capitalization. The authorized capital stock of Management
consists of 1,000,000 shares of Management Common Stock, par value $ .01 per
share, of which as of the date of this Agreement, there were 740,117 shares
issued and outstanding and no
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<PAGE> 4
shares were held in the treasury of Management. Since March 1, 1994, there have
been no changes in the authorized, issued, outstanding or treasury shares of
Management Common Stock other than for the issuance of 240,117 shares of
Management Common Stock in connection with the Partnership Exchange. All
outstanding shares of Management Common Stock have been validly issued by
Management and are fully paid, nonassessable and free of preemptive rights.
There are no subscriptions, options, warrants, calls, rights, contracts,
commitments, understandings or arrangements relating to the issuance, sale or
transfer by Management of any shares of its capital stock, including any right
of conversion or exchange under any outstanding security or other instrument.
Except for the Partnership Exchange there have been no changes in the
Partnership Interests since March 1, 1994.
2.4 Management's Financial Statements; Partnership Tax Returns and
Trial Balances.
(1) Management's audited balance sheets at
December 31, 1991, 1992, 1993, 1994 and 1995, and statements of income and
retained earnings, and cash flows for the years then ended, and Management's
unaudited balance sheet at December 31, 1996 and statements of income and
retained earnings and cash flows for the year then ended, in each case without
giving effect to the Partnership Exchange (the "Management's Annual Financial
Statements") are included in the Disclosure Memorandum. Management's unaudited
balance sheet at February 28, 1997, (the "Most Recent Balance Sheet") and
statements of income and retained earnings for the two month period then
ending, in each case without giving effect to the Partnership Exchange
(collectively the "Management's Most Recent Financial Statements") are included
in the Disclosure Memorandum. Management's Annual and Most Recent Financial
Statements are collectively called the "Management's Financial Statements."
Each of the Partnership's tax returns for the years ended December 31, 1992,
1993, 1994 and 1995, and the trial balances for the year ended December 31,
1996 and the three months ended March 31, 1997 (the "Partnership Returns and
Trial Balances") are included in the Disclosure Memorandum.
(2) Management's Financial Statements, without
giving effect to the Partnership Exchange: (i) accurately represent the
transactions appearing on the books and records of Management, and (ii) fairly
present in all material respects its financial condition and its results of
operations at the dates and for the periods presented. Management's Financial
Statements have been prepared on the accrual basis in accordance with generally
accepted accounting principles consistently applied ("GAAP"), The Partnership
Returns and Trial Balances (i) accurately represent the transactions appearing
on the books and records of the Partnership, and (ii) have been prepared on the
cash basis of accounting as used for U.S. Federal income tax purposes.
(3) There have been no material adverse changes
in the financial condition or in the operations, properties or assets of
Management since Management's Most Recent Balance Sheet.
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2.5 Liabilities of Management. Management has no material
liabilities, contingent or otherwise, including, without limitation,
liabilities for state or Federal income, withholding, sales, or other taxes,
except to the extent reflected, reserved against, or provided for, in
Management's Most Recent Balance Sheet except for taxes, trade payables and
other obligations incurred after the date of Management's Most Recent Balance
Sheet in amounts consistent in all material respects, with those incurred in
prior periods in the ordinary course of business, including without limitation
liabilities for unearned tuition.
2.6 Assets of Management. Management has good title to all of its
assets. Except as otherwise disclosed in Management's Financial Statements or
the related notes accompanying them all of its assets are owned free and clear
of any adverse claims, security interests, or other encumbrances or
restrictions, except for a loan secured by a first mortgage on the Real Estate,
as defined in Section 2.26 of this Agreement, (the "Mortgage"), and liens for
current taxes not yet due and payable, landlords' liens as provided for in the
relevant leases or by applicable law, or liens or similar security interests
granted as part of personal property financing agreements made in the ordinary
course of business and which in the aggregate are not material.
2.7 Facility and Facility Operations.
(1) Management's operations are conducted at
facilities rented from the Partnership which are located at 3550 North 90th
Street, Omaha Nebraska, 1821 K Street, Lincoln Nebraska and 1843 K Street,
Lincoln Nebraska (the later of which includes certain apartment facilities
(such facilities are collectively called the "School Facilities") and dormitory
facilities at 1800 J Street, Lincoln Nebraska, (the "Dormitory Facilities,"
collectively, the Dormitory Facilities and the School Facilities are called the
"Facilities") and vacant land and older homes being demolished (the "Other
Property") and a parking lot located opposite the Lincoln School Facility on K
Street which is leased from a third party (the "Leased Lot") . All of the
Facilities and the Other Property were owned by the Partnership prior to the
Partnership Exchange and are legally described in the title insurance
commitment issued by Investors Title Insurance Company, STS File Number
T-37651, with an effective date of March 17, 1997 at 8:00 a.m. The School
operations are conducted solely at the School Facilities. All of the tangible
assets used in connection with Management's operations are located at the
Facilities. All of the improvements located at the Facilities are in good
operating condition and repair, subject only to ordinary wear and tear. There
is no pending or threatened condemnation proceeding with respect to the
Facilities and the Other Property.
(2) The Disclosure Memorandum contains a
depreciation schedule of certain of the furnishings, fixtures and equipment
located on, or used in connection with, the operation of each Facility as
further described therein.
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(3) Except for (i) environmental law compliance
(which is addressed in Section 2.7(4) below) and (ii) accreditation,
recruitment, admissions, student loan and funding matters compliance (which are
addressed in Sections 2.9 below) as to which no representation or warranty is
made in this Section, all activities at, and the physical condition of, each
Facility is in compliance with all legal and regulatory requirements applicable
to Management, the conduct of its business, and the use of each Facility, and
Management has not received any actual notice to the contrary. Management has
paid for and obtained all licenses, permits, and other authorizations material
to the conduct its business at the Facilities (the "Permits"). A listing of
all Permits currently in effect and pertaining to the Facilities or
Management's activities at the Facilities are included in the Disclosure
Memorandum. The representations contained in this subsection shall not apply
to incidental instances of non-compliance occurring in the ordinary course of
business which are immaterial to the operation of the School and capable of
being cured without significantly disrupting the School's operations.
(4) There are no Hazardous Substances in, on or
under the Facilities except for those which are used by Management in
compliance, in all material respects, with applicable law, and Management is
not now engaged in any litigation, proceedings or investigations, nor knows of
any pending or threatened litigation, proceedings or investigations regarding
the presence of Hazardous Substances in, on or under the Facility.
2.8 Equipment Leases and Financing Agreements. A listing of all of
the leases and financing agreements to which Management is a party and which
relate to the
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(1)The term "Hazardous Substance" shall include without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any
Nebraska Statute and in the regulations promulgated pursuant to any
Nebraska Statute;
(iii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or
which are classified as hazardous or toxic under federal, state, or
local laws or regulations; and
(v) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C) polychlorinated biphenyl, (D) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act,
33 U.S.C. ##1251 et seq. or listed pursuant to Section 307 of the
Clean Water Act, (E) flammable explosive, or (F) radioactive
materials.
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<PAGE> 7
operations of the School are included in the Disclosure Memorandum (the
"Financing and Related Agreements"). Copies of the Financing and Related
Agreements are attached to such listing or have been provided to Acquisition
and EMI. Except as reflected in such listing, there have been no modifications
to any of the Financing and Related Agreements; Management is not in default in
any material respect with respect to them; and none of the interests of
Management in any of them is subject to any restriction except as stated in the
applicable document or as provided by applicable law.
2.9 Accreditation and Compliance with Title IV Requirements.
Attached to the Disclosure Memorandum is a list of all Federal, state or other
licenses and approvals, including without limitation all accreditations and
certifications, granted to Management with respect to the conduct of its
educational or training business (the "Accreditations and Certifications"), and
the governmental body or agency or other entity granting such Accreditation or
Certification. Included in such Disclosure Memorandum are copies of all such
Accreditations and Certifications.
(1) Except for the Permits and the Accreditations
and Certifications, no license or approval is material to the conduct of
Management's business as it is now being conducted, and Management has received
no notice that any other license or approval is necessary for the continued
operation of its business or that any such license or approval will not be
renewed.
(2) Each School is accredited by the Accrediting
Council for Independent Colleges and Schools. Management's operation of the
School is and has been conducted in all material respects in accordance with
all relevant standards imposed by applicable accrediting agencies, or agencies
administering state government student aid programs in which Management or any
students attending the School participate, or other applicable laws or
regulations.
(3) Each School is an institution certified by
the United States Department of Education (the "Department of Education").
Management is a party to, and is and at all times has been in compliance with,
a valid program participation agreement with the Department of Education with
respect to the operations being conducted by each School. Management has not
received any notice, not previously complied with, with respect to any alleged
violation of the rules or regulations of the Department of Education or any
applicable accrediting agency in respect of the Schools or the terms of any
program participation agreement to which either is or was a party. If any such
notices have been received and complied with, Management has disclosed its
receipt and disposition to EMI and Acquisition prior to the execution of this
Agreement. Management is and at all times has been, in compliance with all of
the provisions of the Higher Education Act of 1965 ("HEA") and the regulations
promulgated by the Department of Education thereunder (the "DOE Regulations")
necessary to establish and maintain its eligibility to participate in the Title
IV funding programs provided for therein ("Title IV Funding Programs"),
including without limitation, the demonstration of financial and administrative
responsibility as provided for in the DOE Regulations. Management has
submitted audited financial
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<PAGE> 8
statements to the Department of Education for its fiscal years ended December
31,1994 and 1995 relating to its financial responsibility to participate in
Title IV Funding Programs as provided for in the DOE Regulations (the "DOE
Financial Statements") and was in compliance with all DOE Regulations relating
to financial and administrative responsibility as of December 31, 1996.
Management has submitted audits of the Title IV Financial Aid Programs to the
DOE for purposes of demonstrating compliance with the DOE Regulations regarding
the administration of funds received pursuant to Title IV Funding Programs for
the applicable federal fiscal years June 30, 1994 and June 30, 1995 (the "Title
IV Financial Aid Audits"). Except as set forth on Schedule 2.09, the DOE
Financial Statements and Title IV Financial Aid Audits are true and correct in
all material respects.
(4) Management is not is aware of any
investigation or review of student financial aid programs (including without
limitation Title IV Programs) in which either School or its students
participate, or any review of any of the School's Accreditations or
Certifications whether by a party to any relevant agreement, the issuer of such
Accreditation or Certification or otherwise.
2.10 Recruitment; Admissions Procedures; Attendance; Reports.
Attached as Schedule 2.10 to the Disclosure Memorandum are all policy manuals
and other statements of procedures or instruction relating to recruitment of
each of the Schools' students, including procedures for assisting in the
application by prospective students for direct or indirect state or Federal
financial assistance; admissions procedures, including any descriptions of
procedures for insuring compliance with state or Federal or other appropriate
standards or tests of eligibility; procedures for encouraging and verifying
attendance, minimum required attendance policies, and other relevant criteria
relating to course completion and certification (collectively referred to as
the "Policy Guidelines"). Each School's operations have been conducted in all
material respects in accordance with the Policy Guidelines.
Management has submitted all reports, audits, and other information,
whether periodic in nature or pursuant to specific requests ("Compliance
Reports"), to all agencies or other entities with which such filings are
required relating to each School's compliance with (i) applicable
accreditation standards governing its activities or (ii) laws or regulations
governing programs pursuant to which the School or students attending the
School receive funding, including, without limitation, the Perkins Loan
Program, the Federal Family Education Loan Programs, the Pell Grant Program and
the Supplemental Educational Opportunity Grant Program, the Federal Direct
Student Loan Program, or the Federal Work Study Program, all of which are
provided for pursuant to Title IV of the HEA.
Complete and accurate records in all material respects for all present
and past students attending the Schools have been maintained consistent with
the operations of a school business. All forms and records have been prepared,
completed, maintained and filed in all material respects in accordance with all
federal and state laws and regulations applicable to the operations of
Management, and are true and correct in all material respects. All financial
aid grants and loans, disbursements and record keeping relating to
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<PAGE> 9
them have been completed in compliance in all material respects with all
federal and state requirements, and there are no material deficiencies in
respect thereto. No student at the Schools has been funded prior to the date
for which such student was eligible for funding and such student's records have
been processed in all material respects in accordance with all applicable
federal, state and relevant third party funding source requirements. All
appropriate reports and surveys have been accurately prepared, taken and filed
prior to delinquency.
2.11 Default. Attached as Schedule 2.11 to the Disclosure Memorandum
is a schedule indicating the cohort default rate, as calculated by the United
States Department of Education, of all students attending the Schools receiving
assistance pursuant to the Stafford Loan Subsidized and Stafford Loan
Unsubsidized programs (or their applicable predecessor programs) for the
federal fiscal years ended September 30, 1992, 1993, and 1994 and Management's
projections with respect to the cohort default rate for federal fiscal year
1995. Such schedule is materially accurate in all respects, except Management
makes no representation as to the federal fiscal year 1995 projections, other
than that they were made in good faith on the basis of available information.
2.12 Trademarks, etc. Attached as Schedule 2.12 to the Disclosure
Memorandum is a list of all tradenames, trademarks, service marks, copyrights
and the registrations for them owned or used by Management in connection with
the operation of the Schools. Management has not infringed and is not now
infringing, any trademark, tradename, service mark, or copyright belonging to
any other person in connection with the operation of the Schools. Except as
set forth on such exhibit, Management is not a party to any license, agreement
or arrangement, whether as licensor, licensee or otherwise, with respect to any
trademark, tradename, service mark, or copyright. Management's business may be
conducted without license by others for the use of any tradename, trademark,
service mark, or copyright.
2.13 Material Contracts. Attached as Schedule 2.13 to the
Disclosure Memorandum is (i) a schedule identifying all material contracts
relating to Management's operations not otherwise specifically identified
otherwise in this Agreement, including, without limitation, all agreements
relating to state or Federal funding of educational services provided by
Management through grants, loans or direct payments either to Management,
individual students or otherwise, and any agreements relating to the placement
of students following their completion of relevant educational programs
provided by Management other than agreements with students involving the
teaching of standard courses, for standard prices as set forth in related
catalog or in the enrollment agreement for such students (the "Contracts");
(ii) a summary of all material provisions of the Contracts that are oral and
not reduced to written documents; and (iii) a copy of all written Contracts.
As of the date of this Agreement (i) all of the Contracts remain unmodified and
in full force and effect, and (ii) Management is not in default of any material
nature (nor, does any state of facts exist which, with the giving of notice,
the passing of time, or otherwise, would constitute a default of any material
nature by Management) with respect to any of the Contracts.
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2.14 Maintenance and Employment Agreements. Attached as Schedule
2.14 to the Disclosure Memorandum is (i) a schedule of all written agreements
between Management and independent contractors, employees and agents who are
employed or engaged in the management or operation of Management or the
Facilities; (ii) the names of all parties entitled to payments from Management
under any such agreements or arrangements; (iii) the amounts payable by
Management under the terms of all such agreements and arrangements, including
without limitation, the terms of employment and compensation, including
vacation and other employee benefit provisions and the cost of all employee
benefits and payroll taxes; and (iv) a copy of all written contracts for such
services. There are no material oral agreements in effect for any such
services. As of the date of this Agreement: (x) there are no written
agreements between any of such contractors, employees or agents and Management;
(y) there is no party entitled to compensation or remuneration for any such
services after the Effective Date; and (z) Management's agreements and
arrangements providing for the services described on such schedule may be
terminated by Management at any time, with or without cause, and without any
obligation to pay any of said parties any amounts whatsoever except as may be
required by law (including, without limitation, severance pay or accrued
vacation pay or other benefits).
2.15 Employee Benefit Plans. Management maintains employee benefit
plans as listed on Schedule 2.15 to the Disclosure Memorandum (the "Employee
Benefit Plans") and copies of such plans are attached to such Disclosure
Memorandum. Management does not maintain any profit sharing, pension or other
employee benefit plan related to its operations. Management has no unfunded
obligations pursuant to any insurance, retirement, pension, profit sharing or
deferred compensation plan or program relating to its operations, other than
its 401(k) contribution for periods subsequent to December 31, 1996.
2.16 Labor. There are no existing labor disputes with Management.
None of Management's employees are covered by any union or collective
bargaining agreement.
2.17 Insurance. A schedule of all of the policies of insurance
maintained by Management attached as Schedule 2.17 to the Disclosure
Memorandum. The insurance coverage provided by such policies complies in all
material respects, with all agreements to which Management is a party, and
applicable legal requirements to which it is subject. All such policies are
currently in effect.
2.18 Taxes. Each of Management and the Partnership has filed
timely all Federal, state and local tax returns which it is required to file,
including without limitation those relating to income, payroll, sales and use
and ad valorem taxes, and has no outstanding liability for any Federal, state
or local taxes or interest or penalties thereon, whether disputed or not,
except taxes not yet payable which have been provided for in accordance with
GAAP and are disclosed in Management's Most Recent Balance Sheet or the
Partnership's Returns and Trial Balances, or have subsequently accrued in the
normal
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course of business. Management at all times has been duly qualified as a
sub-chapter "S" corporation as provided for in the Internal Revenue Code.
Except for the years ended December 31, 1993, 1994 and 1995, which are
currently under audit by the Internal Revenue Service (the "Current Tax
Audits") none of Management's or the Partnership's, Federal income tax returns
are being audited by the Internal Revenue Service; there is not now in force
any extension of time with respect to the date on which any tax return was or
is due to be filed by or with respect to Management or the Partnership, or any
waiver or agreement by it for the extension of time for the assessment of any
tax. Each of Management's shareholders have acknowledged their direct
individual pro-rata liability for all taxes, interest, penalties and related
professional expenses relating to the resolution of matters which are the
subject of the Current Tax Audits.
2.19 Actions Pending. As of the date of this Agreement: (i) there
are no actions, suits, proceedings, investigations or claims pending or
threatened against Management which, if determined adversely to Management,
would (A) have a material adverse effect on is operations, or (B) prevent or
delay the consummation of any of the transactions contemplated by this
Agreement; (ii) Management, is not the subject of any pending or threatened
investigation relating to any aspect of Management's operations, by any
Federal, state or local governmental agency or authority; (iii) Management, is
not and has not been the subject of any formal or informal complaint,
investigation or inspection under the Equal Employment Opportunity Act or the
Occupational Safety and Health Act (or their state or local counterparts) or by
any other Federal, state or local authority.
2.20 Accounts Receivable. Each of the accounts receivable of
Management constitutes a valid claim in its full amount against the debtor
charged on Management's books and has arisen in the ordinary course of the
School's operations. Each such account receivable is fully collectible to the
extent of the face value thereof, except to the extent of the normal allowance
for doubtful accounts with respect to accounts receivable computed as a
percentage of sales consistent with Management's prior practices as reflected
on the Most Recent Balance Sheet. No account debtor has asserted any right to
any setoff, deduction or defense with respect thereto.
2.21 No Guaranties. Except with respect to the first mortgage loan
secured by the Real Estate, none of Management's obligations or liabilities is
guaranteed by any other person, firm or corporation, nor has Management
guaranteed the obligations or liabilities of any other person, firm or
corporation.
2.22 Bank Accounts and Deposit Boxes. Attached to the Disclosure
Memorandum as Schedule 2.22 are the names and addresses of all banks or
financial institutions in which Management has an account, deposit or safety
deposit box with the names of all persons authorized to draw on these accounts
or deposits or to have access to the boxes, and an indication of which accounts
or deposits or boxes contain financial aid funds, in each case to the extent
such accounts are used in connection with the Schools operations.
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2.23 Records. The books of account of Management and of the
Partnership are complete and correct in all material respects, and there have
been no transactions which properly should have been set forth therein which
have not been accurately so set forth.
2.24 Transactions With Certain Persons. None of the shareholders of
Management, on the one hand, and Management, on the other, owe any amount to
the other or have any contract with or commitment to the other except as
reflected on Management's Financial Statements. Management has made no
distributions to its shareholders subsequent to the date of Management's Most
Recent Balance Sheet except as permitted pursuant to Section 4.1 of this
Agreement.
2.25 The Partnership Exchange. The Partnership Exchange has
been completed and all of the Partnership Interests have been validly and
finally exchanged for Management Common Stock.
2.26. Real Property. For purposes of the following representations
and warranties, "Real Property" shall mean those parcels of real property owned
by the Partnership prior to the Partnership Exchange, and "Improvements" shall
mean any building, structure or other improvements situated on the Real
Property.
(1) All information provided by the Partnership to the
Appraisers with respect to the appraisals on the Real Property included in the
Disclosure Memorandum (the "Appraisals") was true and correct as of the date
given.
(2) The Partnership has neither received notice nor has
knowledge of any plan or study of any governmental authority which would
materially adversely affect the use of the Real Property or the Improvements
for their intended uses, or result in any public improvements which will result
in any material charge being levied against, or any material lien assessed
upon, all or any portion of such Real Property or Improvements.
(3) There are no material physical or mechanical defects
or deficiencies in the condition of the Improvements, including, but not
limited to, the roofs, exterior walls and other structural components, and the
heating, air conditioning, plumbing, ventilating, elevator, utility, sprinkler
and other mechanical and electrical systems located in such Improvements.
(4) Management has good and marketable title to the Real
Property free and clear of all liens, encumbrances, claims, covenants,
conditions and restrictions, easements, rights of way, charges and any other
exceptions to and defects of title ("Encumbrances"), except for (A) the
Mortgage, and (B) those matters disclosed in the Title Insurance Policy issued
to Acquisition with respect to each parcel of Real Property (collectively, the
"Title Policies").
(5) There are no delinquent taxes, assessments, charges,
debts, liabilities, claims or obligations arising from the construction,
design, development, ownership,
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maintenance, or operation of, or otherwise relating to, the Real Property or
the Improvements.
(6) Neither Management or the Partnership has entered
into any contracts for the sale of all or any portion of the Real Property or
Improvements or any rights relating thereto, nor do there exist any rights of
first refusal or options to purchase all or any portion of the Real Property or
Improvements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EMI AND ACQUISITION
Each of EMI and Acquisition represents to Management that, to the best
of each of their knowledge:
3.1 No Misstatements. The representations and the information
supplied by it contained in this Agreement and the documents incorporated by
reference into it do not contain any untrue statement of a material fact or
omit to state any fact necessary to make such representations or information
not materially misleading.
3.2 Validity of Actions. It is duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
authority to carry on its business as currently conducted, and is qualified to
do business in all jurisdictions in which such qualification is necessary. It
has full power and authority to enter into this Agreement and to carry out all
acts contemplated by it. This Agreement and each of the documents provided for
in it to be delivered as part of this transaction, have been duly executed and
have or will be delivered pursuant to all appropriate corporate authorization
on its behalf and is, or will be, its legal, valid and binding obligation and
is enforceable against it in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement or
creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
The execution and delivery of this Agreement, and each of the documents to be
executed and delivered by EMI and Acquisition pursuant to its terms, and the
consummation of the transactions contemplated by them will not violate any
provision of their respective Certificates of Incorporation, and all amendments
thereto, or Bylaws or, violate, conflict with or result in any breach of any of
the terms, provisions of or conditions of, or constitute a default or cause
acceleration of any indebtedness under, any indenture, agreement or instrument
to which it is a party or by which it or its assets may be bound, or, upon
filing the Plan of Merger with the appropriate governmental instrumentality,
cause a breach of any applicable law or governmental regulation, or any
applicable order, judgment, writ, award, injunction or decree of any court or
governmental instrumentality.
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3.3. Capitalization.
(a) EMI. The authorized capital stock of EMI consists of:
(i) 15,000,000 shares of EMI Common Stock, par value $0.01 per share, of which
as of the date of this Agreement, there were 6,622,092 shares issued and
outstanding and 29,165 shares were held in the treasury of EMI; and (ii)
5,000,000 shares of preferred stock, of par value $ .01 per share ("EMI
Preferred Stock") of which as of the date of this Agreement there were no
shares issued and outstanding. Since October 29, 1996 there have been no
changes in the authorized, issued, outstanding or treasury shares of EMI Common
Stock or Preferred Stock. All outstanding shares of EMI Common Stock have been
validly issued by EMI and are fully paid, nonassessable and free of preemptive
rights. Except for the receipt of 5,652 shares of Common Stock received into
treasury and then retired there have been no changes in EMI's outstanding
Common Stock since December 31, 1996. There are no subscriptions, options,
warrants, calls, rights, contracts, commitments, understandings or arrangements
relating to the issuance, sale or transfer by EMI of any shares of its capital
stock, including any right of conversion or exchange under any outstanding
security or other instrument, except as disclosed in EMI's Registration
Statement on Form S-1 (No 333-09777), or in its Quarterly Reports on form 10-Q
for the periods ending September 30, 1996 and December 31, 1996, or its current
report on Form 8-K filed in January 1997, (all as may have been amended from
time to time) filed pursuant to the provisions of the Securities Act of 1933
(the "Act") and or the Securities Exchange Act of 1934 (the "Exchange Act')
with the Securities and Exchange Commission ("SEC"), all of such filing being
called EMI's SEC Filings.
(b) Acquisition. As of the date of this Agreement, the
authorized capital stock of Acquisition consists of 1,000 shares of Acquisition
Common Stock of which 100 are issued and outstanding. All outstanding shares
of Acquisition have been validly issued and are fully paid, nonassessable and
free of preemptive rights, and all of such shares are owned, beneficially and
of record, by EMI.
3.4 Actions Pending. There are no actions, suits, proceedings,
investigations or claims pending or threatened against either of them which, if
determined adversely to either of them would (A) have a material adverse effect
on their operations, or (B) prevent or delay the consummation of any of the
transactions contemplated by this Agreement. Neither EMI nor Acquisition is
the subject of any pending or threatened investigation relating to any aspect
of its operations.
3.5 EMI's Financial Statements
(1) EMI has previously delivered to Management
(A) EMI's audited consolidated balance sheets at March 31, 1994, 1995 and 1996,
and consolidated statements of operations, shareholders' equity and cash flows
for the years then ended (EMI's Audited Financial Statements") and (B) EMI's
unaudited consolidated balance sheets at December 31, 1995 and 1996, and
statements of operations and cash flows for the
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periods then ended ("EMI's Interim Financial Statements" collectively with
EMI's Audited Financial Statements, "EMI's Financial Statements").
(2) EMI's Financial Statements: (i) have been
prepared on the accrual basis in accordance with generally accepted accounting
principles consistently applied ("GAAP"), and (ii) fairly present in all
material respects EMI's financial condition and its results of operations at
the dates and for the periods presented.
(3) There have been no material adverse changes
in the financial condition or in the operations, business, prospects,
properties of assets of EMI since the date of EMI's most recent 10-Q contained
in the SEC Filings.
3.6 Acquisition's Financial Condition. Acquisition is a newly formed
corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
ARTICLE IV
COVENANTS OF THE PARTIES
4.1 Conduct of Management Prior to the Closing. Pending
consummation of the Plan of Merger or prior to termination of this Agreement,
Management agrees, without prior written consent of Acquisition, given in a
letter which specifically refers to this Section of the Agreement:
(1) not to (i) perform any act or omit to take
any act that would make any of the representations made in Article II above,
inaccurate in any material respect or materially misleading as of the Effective
Date, or (ii) make any payment or distribution except for the payment in the
ordinary course of business of (x) liabilities provided for in Management's
Financial Statements or incurred in the ordinary course of business, or (y)
distributions to shareholders of up to $450,000 in 1996 earnings, or taxable
income computed on a basis consistent with that applied in prior years,
whichever is less.
(2) to conduct its business in the ordinary and
regular course, maintain the Facilities, protect the Accreditation
Certifications and Permits, and keep its books of account, records and files in
substantially the same manner as at present.
(3) to make all tuition refunds with respect to
the School's operations within the time frames provided for in the Regulations
and any applicable state or accrediting agency regulations, and to pay all
accounts payable as they become due.
4.2 Notice. Pending the consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, each
party agrees that it will
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<PAGE> 16
promptly advise the others of the occurrence of any condition or event which
would make any of its representations contained in this Agreement inaccurate,
incorrect, or materially misleading.
4.3 Access. Prior to the Closing, Management shall afford to EMI
and Acquisition (and its officers, attorneys, accountants and other authorized
representatives), upon reasonable notice, free and full access during usual
business hours to its relevant offices, personnel, books and records and other
data, financial or otherwise, so that Acquisition may have full opportunity to
make such investigation as it shall desire of the assets and the business and
operations of Management, provided that such investigation shall not
unreasonably interfere with Management's operations. The scope of the
investigation will include, but not be limited to, verification of the
accounts, books and records of Management's upon which its Financial Statements
are based, access to its auditors' work papers and a review of Management's
control procedures, regulatory compliance, the Facilities and material
contracts and litigation. Duly authorized representatives of EMI and
Acquisition shall also be entitled to discuss with officers of Management, its
counsel, employees and independent public accountants, all of its books,
records and other corporate documents, contracts, pricing and service policies,
commitments and future prospects. Representatives of Management will furnish to
Acquisition and such other persons, copies of all materials relating to the
business affairs, operations, Facilities, assets and liabilities of Management
which may be reasonably requested from time to time and will cause
representatives and employees of Management to assist Acquisition in its
investigation. All information obtained by Acquisition, EMI or any of their
officers, directors, employees, lender, investors, agents and other
representatives (the "Acquisition's Representatives") in connection with the
transactions contemplated by this Agreement or in the course of their
investigations, whether obtained before or after the date of this Agreement
(the "Evaluation Material") shall be used only in connection with this
Agreement and the subsequent operation of the combined entity and EMI and
Acquisition shall assure that all Evaluation Material will be otherwise kept
strictly confidential by each of them and the Acquisition's Representatives.
4.4 Additional Documents. At the request of any party, each party
will execute and deliver any additional documents and perform in good faith
such acts as reasonably may be required in order to consummate the transactions
contemplated by this Agreement and to perfect the conveyance and transfer of
any property or rights to be conveyed or transferred or perfect the assumption
of any liabilities assumed under the terms of this Agreement.
4.5 Filing of Returns; Additional Information. Management will
file on a timely basis all tax returns, notices of sale and other documentation
required by law in connection with the transactions provided for in this
Agreement or otherwise required by law, regulation or pursuant to the terms of
any agreement to which it is a party. Management will supplement any previous
filing made by it in accordance with legitimate requests made by applicable
agencies or parties to the extent required by the relevant law, regulation or
agreement.
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4.6 Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the Closing Date, each of
the parties to this Agreement will execute such documents and take such other
actions as reasonably may be appropriate to fulfill the conditions to the
Closing Date provided for in Article V of this Agreement.
4.7 Furnishing Information; Announcements. Management will,
promptly after the execution and delivery hereof, furnish to EMI all the
information concerning Management required for inclusion in or relating to the
preparation of applicable reports to the SEC ("Related SEC Reports"), and any
other statement or application made by EMI to any governmental body in
connection with the transactions contemplated by this Agreement. EMI shall
submit for review all Related SEC Reports to counsel for Management prior to
the filing thereof, and consult with Management with respect thereto to the
extent reasonably practicable. EMI and Management will consult with each other
prior to issuing any press releases or otherwise making public announcements
with respect to the Merger.
4.8 Further Assurances. Consistent with the terms and conditions
hereof, each party hereto will execute and delivery such instruments and take
such other action as the other parties hereto may reasonably require in order
to carry out this Agreement and the Plan of Merger and the transactions
contemplated hereby and thereby.
4.9 Filings. EMI shall file in a timely manner all reports and
documents required to be so filed by or under the Act and the Exchange Act.
4.10 Filing of Merger Documents. Subject to the terms and
conditions of this Agreement, as soon as practicable following the approval of
the Plan of Merger by the shareholders of Management and the approval of the
issuance of the shares of EMI Common Stock pursuant to this Agreement and the
Plan of Merger by the Board of Directors of EMI, Acquisition will cause the
Articles of Merger to be filed with the Department of State of the State of
Delaware.
4.11 Pooling of Interests. Neither EMI nor Management will
knowingly take any action that would prevent the Merger from being accounted
for as a pooling of interests. Prior to or concurrently with the filing with
the Commission of EMI's first Quarterly Report on Form 10-Q (or Annual Report
on Form 10-K) covering a period ending at least 30 days after the Effective
Time of the Merger, EMI shall publish in form sufficient to comply with the
Accounting Series Release No. 130 promulgated under the Securities Act,
financial results of EMI covering at least 30 days of combined operations of
EMI and Management.
4.12 No Solicitation. Management shall not, directly or
indirectly, through any of its respective officers, directors, employees,
agents or otherwise, (i) solicit, initiate or encourage submission of proposals
or offers from any person relating to any acquisition, purchase or sale of all
or a material amount of its assets of, or any combination,
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liquidation, reorganization or similar transaction with Management, or
otherwise cooperate in any way with, or assist or participate in, or facilitate
or encourage such proposal or offer, or (ii) participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, any effort or attempt by any other person to do or seek any of the
foregoing.
4.13 Registration Statement. As soon as practicable, but in no
event later than August 1, 1997, in accordance with the terms of a Registration
Rights Agreement to be entered into prior to the Effective Date between EMI and
the holders of the Common Stock of Management, EMI will file a Registration
Statement (on Form S-1, or such other form as shall be appropriate) with the
Securities and Exchange Commission ("SEC") for the purpose of registering the
sale by the holders thereof of the shares of EMI Common Stock to be exchanged
for the shares of Management Common Stock pursuant to the provisions of the
Plan of Merger, and EMI will use reasonable efforts to cause the Registration
Statement to become effective as soon as practicable.
4.14 Affiliates. Management shall deliver to EMI a letter from
each of its shareholders, in the form previously agreed upon by the parties,
that such shareholder will not sell or in any other way reduce his risk
relative to any shares of EMI Common Stock received in the Merger (within the
meaning of the SEC's rules relating to polling-of- interest accounting), until
such time as financial results (including combined revenue and net income)
covering at least 30 days of post-merger operations have been published.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES
The obligation of EMI and Acquisition, on the one hand, and Management
on the other hand, to consummate the transactions contemplated by this
Agreement shall be subject to compliance with or satisfaction of the following
conditions by the other, to the extent applicable:
5.1 Bring Down. The representations and warranties set forth in
this Agreement shall be true and correct in all material respects on and at the
Closing as if then made by the relevant party (except for those representations
and warranties made as of a given date, which shall continue to be true and
correct as of such given date).
5.2 Compliance. Each party shall have complied with all of the
covenants and agreements in this Agreement on its or their part, respectively,
to be complied with as of or prior to the Closing Date.
5.3 No Material Adverse Changes. Since the date of this
Agreement, there shall not have occurred any material adverse change in the
condition or operations (financial or otherwise) of Management, on the one
hand, or EMI, on the other.
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5.4 Acquisition Certificates. There shall be delivered to
Management:
(1) a certificate executed by the President and
Secretary or any Vice President of each of Acquisition and EMI, dated the
Effective Date, certifying that the conditions to be fulfilled by each of them
set forth in this Article V have been fulfilled;
(2) a certificate of incumbency for each of the
Acquisition and EMI executed by its President or any Vice President and by the
Secretary or any Assistant Secretary of such entity, listing the officers of
such entity authorized to execute (to the extent applicable) the Agreement and
the other documents, certificates, schedules and instruments to be delivered on
behalf of such entity, and their respective offices, and containing the genuine
signature of each such person set forth opposite his name; and
(3) good standing certificates and certified
charter documents of each of them of recent date, from the Secretary of the
State of the jurisdiction of incorporation of such entity.
(4) a certificate executed by the President , the
Secretary or any Vice President of Acquisition and EMI to the effect that they
have reviewed the provisions of Accounting Principles Board Opinion No. 16
("APB 16") with Ernst & Young LLP and to their knowledge neither EMI nor
Acquisition, nor any of their respective shareholders have entered into any
transaction which would disqualify the transactions provided for in this
Agreement for pooling-of-interest accounting treatment pursuant to the
provisions of APB 16.
The certificates described in subsections (1), (2), (3) and (4) above are
hereafter referred to collectively as "EMI's Certificates."
5.5 Management Certificates. There shall be delivered to the
Acquisition and EMI:
(1) a certificate executed by the President and
Secretary of Management, dated the Closing Date, certifying that the conditions
to be fulfilled by it as set forth in this Article V have been fulfilled;
(2) a certificate of incumbency for Management
executed by its President or any Vice President and by the Secretary or any
Assistant Secretary of Management, listing the officers of such entity
authorized to execute (to the extent applicable) the Agreement and the other
documents, certificates, schedules and instruments to be delivered on behalf of
such entity, and their respective offices, and containing the genuine signature
of each such person set forth opposite his name; and
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(3) good standing certificates and certified
charter documents of Management of recent date, from the Secretary of the State
of the jurisdiction of incorporation of such entity.
(4) a certificate executed by the President , the
Secretary or any Vice President of Management to the effect that they have
reviewed the provisions of APB 16 with Winther, Stave & Co., LLP and to their
knowledge neither Management, or any of its shareholders have entered into any
transaction which would disqualify the transactions provided of in this
Agreement for pooling-of-interest accounting treatment pursuant to the
provisions of APB 16.
The certificates described in subsections (1), (2) (3) and (4) above, are
hereafter referred to collectively as "Management's Certificates."
5.6 Pooling-of-Interests. EMI shall received from Ernst &
Young LLP a letter dated as of the Effective Date confirming the
appropriateness of pooling-of-interests accounting for the merger pursuant to
APB 16 assuming the closing and consummation of the transactions in accordance
with the terms of this Agreement.
5.7 No Suits. No action or proceeding shall have been instituted
in any court or before any Federal, state or local governmental agency against
any party seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or which could have a material adverse effect
on any of the parties, which shall not have been dismissed or withdrawn prior
to the Effective Time of the Merger.
5.8 Documents. All documents required to be delivered to EMI,
Acquisition or Management pursuant to this Agreement, including but not limited
to, the respective Disclosure Memoranda, at or prior to Closing shall have been
so delivered.
5.9 Authority. There shall be in full force and effect on the
resolutions of the Boards of Directors of the Acquisition, EMI and Management
approving this Agreement the other documents executed and delivered by each of
them in connection with this Agreement and the transactions contemplated in it.
At or prior to the Closing, each party will deliver to the other a copy of the
resolutions of its Board of Directors approving the execution and delivery of
this Agreement and the other documents to be delivered pursuant to this
Agreement and the consummation of all of the transactions contemplated hereby,
duly certified by an appropriate officer.
5.10 Opinions of Counsel. Each party shall receive the opinion of
counsel to the other party reasonably satisfactory in form and content to the
party receiving such opinion.
5.11 Bankruptcy, Dissolution, etc. No petition or other
commencement of proceedings in bankruptcy or proceedings for dissolution,
termination, liquidation or an arrangement, reorganization or readjustment of
any party's debts under any state or
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Federal law enacted for the relief of debtors or otherwise, whether instituted
by or against a party, has been effected or commenced by or against any party.
5.12 State Approvals. The transactions provided for in this
Agreement shall have been approved by all applicable state regulatory agencies
or authorities and such approvals shall have been delivered to Acquisition.
5.13 Investment Representations. Each of the Shareholders of
Management shall have executed investment letters with EMI indicating their
status as "accredited investor" as defined in Regulation 501 promulgated by the
SEC pursuant to the Act and containing representations as to their investment
intent and the availability of information to them concerning EMI so as to
qualify the transactions provided for in this Agreement as exempt from
registration pursuant to the Act.
5.14 The Mortgage. Prior to the Effective Time of the Merger, EMI
shall have paid the Mortgage in full, or paid into escrow with counsel for
Management and amount sufficient to satisfy such Mortgage as of the Effective
Time of the Merger.
ARTICLE VI
CLOSING
6.1 Time and Place; Effective Date. The closing of the
transactions provided for in this Agreement shall take place as soon as
practicable after the date on which the shareholders of Management and
Acquisition have adopted this Agreement and the Plan of Merger and the board of
directors of EMI shall have approved the issuance of the shares of EMI Common
Stock pursuant to this Agreement, or such other date as the parties may agree
upon.
6.2 Deliveries at Closing. At the Closing, Acquisition and EMI
shall deliver to Management and Management shall deliver to EMI and Acquisition
the opinions, certificates and other documents and instruments provided to be
delivered under Articles IV and V hereof, and Acquisition and Management shall
caused the Articles of Merger to be filed in accordance with the provisions of
the Delaware Corporation Act (or such other jurisdiction as may be applicable)
and shall take any other lawful actions and do any other lawful things
necessary to effect the Merger and to enable the Merger to become effective.
ARTICLE VII
REVISION AND INDEMNIFICATION
7.1 Revision of Exchange Ratio. 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 the date hereof
in its current program review (PRCN: 199540712076, the "DOE Review"), as
further described in Schedule 2.9 of the Disclosure Memorandum, including
without limitation Management's practices
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regarding the calculation of student refunds, the maintenance of supporting
documentation 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 DOE Review,
or the same compliance deficiencies occurred at the Omaha, 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), as more fully described in Schedule
2.9 of the Disclosure Memorandum 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". An
Exchange Ratio Adjustment shall take place upon final payment to the DOE with
respect to the relevant Program Compliance Deficiencies or Administration Error
Refunds (a "Final DOE Payment").
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, (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 immediately prior to the Merger in accordance with their
respective ownership interests therein. In addition, beginning September 30,
1997 there shall be released from the DOE Adjustment Escrow each calendar
quarter, on a pro rata basis as described in the previous sentence, 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
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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.
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.
7.2 Additional Exchange Ratio Adjustments. Each of the
shareholders of Management, severally and not jointly, in accordance with their
pro-rata ownership of the Common Stock of Management as of the Effective Date,
agrees to indemnify Acquisition and EMI from and against any loss, liability,
damage, settlement or expense (including without limitation, attorneys' fees
and disbursements) incurred by Acquisition or EMI arising from or related to
the inaccuracy or breach of any of the representations, warranties, covenants
or agreements of Management contained in this Agreement or in any document
incorporated by reference into this Agreement (a "Supplemental Claim") upon the
final establishment of the amount of damages attributable to it (a "Claim
Determination Date"), provided, however, that (i) claims made pursuant to this
Section 7.2 in the aggregate exceed $30,000, (ii) the claims arising from such
inaccuracy or breach are asserted against EMI or Management by third parties,
and (iii) EMI or Acquisition notifies each such shareholder entitled to receive
shares of EMI Common Stock pursuant to the terms of this Agreement, in writing,
of the nature of the claim so asserted (or which it reasonably has determined
in good faith may be asserted by a third party at a future date as described in
clause (ii) of this sentence) prior to the date of EMI's independent auditors
report with respect to EMI's financial statements for fiscal year ended March
31, 1997 (the "Provisional Termination Date"), and provided further that the
aggregate recovery provided for pursuant to this subsection 7.2 shall not
exceed $500,000. The adjustments provided for in this Section 7.2 are called
the "Supplemental Exchange Ratio Adjustments.
To facilitate the adjustment provided for in this Section 7.2, each of the
shareholders of Management agree to retain no less than 6.24% of the shares of
Conversion Stock
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acquired by such shareholder pursuant to the terms of this Agreement, or such
lesser amount as is provided for herein, until the Provisional Termination
Date, provided that each shareholder shall continue to retain the pro-rata
portion (based on the each of the shareholder's proportionate ownership of
Management immediately prior to the Merger) that number of shares of EMI common
stock which have a value (computed on the basis of the value of the EMI stock
used in computing the Exchange Ratio) which exceeds 150% of the amount of any
Supplemental Claim asserted prior to the Provisional Termination Date
If and when any Supplemental Claim is paid, EMI shall promptly give
each shareholder notice thereof, and of the change in the Exchange Ratio
provided for in this Section, and such Shareholder shall immediately surrender
to EMI an appropriate number of the Conversion Shares and any dividends paid or
accrued with respect thereto.
ARTICLE VIII
TERMINATION AND RIGHTS AND REMEDIES ON DEFAULT
8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned prior to the Closing: (i) by the
mutual consent of Acquisition, EMI, and Management; (ii) by Acquisition and
EMI, if any condition to their obligations to close set forth in Article V
hereof becomes impossible of performance or has not been satisfied in full (in
each case other than as a result of a breach of such party's obligations under
this Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; (iii) by Management if any
condition to their obligations to close set forth in Article V hereof becomes
impossible of performance or has not been satisfied in full (in each case other
than as a result of a breach of such party's obligations under this Agreement)
or previously waived by the other parties to this Agreement in writing at or
prior to the Termination Date; or(iv) by any party (other than a party that is
in breach of its obligations under this Agreement) if the Closing shall not
have occurred on or before the Termination Date. The Termination Date shall be
April 30, 1997. If this Agreement is terminated pursuant to clause (i) of this
Article VIII all obligations of the parties hereunder shall terminate without
any further liability or obligation of either party to the other Except as
limited by the preceding sentence, the exercise by any party of the right to
terminate this Agreement shall not terminate or limit any remedy that such
party may have pursuant to applicable law, including any rights with respect to
damages or specific performance.
8.2 Nature of Remedies Cumulative. Except as otherwise provided
in this Agreement, all rights and remedies granted in this Agreement or
available under applicable law shall be deemed concurrent and cumulative and
not alternative or exclusive remedies, to the full extent permitted by law and
this Agreement, and any party may proceed with any number of remedies at the
same time or in any order. The exercise of any one right or remedy shall not
be deemed a waiver or release of any other right or remedy, and any party, upon
the occurrence of an event of default by another party under
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this Agreement, may proceed at any time, under any agreement, in any order and
with any available remedy.
ARTICLE IX
FINDERS FEES
Each of the parties represents and warrants to the other that such
party has not employed any finder or broker in connection with transactions
contemplated by this Agreement. Each party agrees to indemnify and hold
harmless the others from and against any claim, damages, liabilities, and
expenses (including without limitation, attorneys' fees and disbursements)
arising from any claim or demand asserted by any person or entity on the basis
of its employment as a finder or broker by the respective party.
ARTICLE X
NOTICES
All notices or other communications required or permitted under the
terms of this Agreement shall be made in writing and shall be deemed given upon
(i) hand delivery or (ii) three days after deposit of same in the Certified
Mail, Return Receipt Requested, first class postage and registration fees
prepaid and correctly addressed to the parties at the following addresses:
If to Acquisition: Nebraska Acquisition Corp.
1327 Northmeadow Parkway
Suite 132
Roswell, GA, 30076
Attn: President
With a copy to: Greenberg Traurig
777 South Flagler Drive
Suite 310 - East
West Palm Beach, FL 33401
Attn: Morris C. Brown, Esq.
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA, 33076
Attn: President
With a copy to: Greenberg Traurig
777 South Flagler Drive
Suite 310 - East
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West Palm Beach, FL 33401
Attn: Morris C. Brown, Esq.
If to Management: Educational Management, Inc.
c/o Chaparral College
4585 East Speedway
Tucson, AZ 85712
Attn: Scott Rhude
With a copy to: Sacks Tierney P.A.
2929 North Central Avenue
Fourteenth Floor
Phoenix, AZ 85012
Attn: Michael R. Rooney, Esq.
With a copy to: R & M Companies
340 East Military
Freemont, NE68025
Attn: Richard O. Wikert, President
With a copy to: Rembolt Ludtke & Berger
1201 Lincoln Mall, Suite 102
Lincoln, NE 68508
Attn: David A. Ludtke, Esq.
or to such other address as any of the parties hereto may designate by notice
to the others.
ARTICLE XI
MISCELLANEOUS
(a) Successors. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their respective successors
and permitted assigns. This Agreement may not be assigned prior to Closing
without the prior written consent of the other parties hereto.
(b) Expenses. Except as otherwise provided in this
Agreement, Acquisition and Management shall be responsible for any and all of
the respective fees, costs and expenses incurred by each, in connection with
the negotiation, preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by
this reference the Plan of Merger, all Exhibits hereto and all documents
executed and/or delivered at Closing. This Agreement and the documents so
incorporated into it contain the parties'
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entire understanding and agreement with respect to the subject matter hereof;
and any and all conflicting or inconsistent discussions, agreements, promises,
representations and statements, if any, between the parties or their
representatives that are not incorporated in this Agreement shall be null and
void and are merged into this Agreement.
(d) Amendments Only in Writing. No amendment,
modification, waiver or discharge of this Agreement or any provision of this
Agreement shall be effective against any party, unless such party shall have
consented thereto in writing.
(e) Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original, but all of
which together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement,
when requested by another party, shall give all reasonable and necessary
cooperation with respect to any reasonable matters relating to the transactions
contemplated by this Agreement.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, exclusive
of its choice of law provisions.
(h) Headings. The various section headings are inserted
for purposes of reference only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.
(i) Gender; Number. All references to gender or number
in this Agreement shall be deemed interchangeably to have a masculine,
feminine, neuter, singular or plural meaning, as the sense of the context
requires.
(j) Severability. The provisions of this Agreement shall
be severable, and any invalidity, unenforceability or illegality of any
provision or provisions of this Agreement shall not affect any other provision
or provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
(k) Survival. Except as otherwise expressly provided in
this Agreement, the liabilities and obligations of each party with respect to
any and all of its representations, warranties, covenants and agreements set
forth in this Agreement and/or in any document incorporated into it shall not
be merged into, affected or impaired by the Closing under this Agreement. All
of the representations, warranties, covenants and agreements set forth in this
Agreement shall survive the Closing for the period thereafter until the end of
the day immediately prior to the date of EMI's independent auditors report with
respect to EMI's financial statements for fiscal year ended March 31, 1997, so
that any claim under this Agreement must be asserted by notice given to the
party claimed to be liable on or before such date.
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(l) No Third Party Beneficiaries. This Agreement has been
entered into solely for the benefit of the parties that have executed it, and
not to confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
NEBRASKA ACQUISITION CORP. EDUCATIONAL MANAGEMENT, INC.
BY: /S/ GARY D. KERBER By: /S/ SCOTT L. RHUDE
------------------------------ ----------------------------------
Authorized Signatory Authorized Signatory
EDUCATIONAL MEDICAL, INC.
By: /S/ GARY D. KERBER
----------------------------------
Authorized Signatory
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EXHIBITS
Exhibit A -- Plan of Merger
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EXHIBIT A
PLAN OF MERGER
Plan of Merger, dated as of March 29, 1997, between Educational
Management, Inc., a Nebraska corporation ("Management"), Nebraska Acquisition
Corp., a Delaware corporation ("Acquisition") (Management and Acquisition are
sometimes referred to herein as the "Constituent Corporations").
Management is a corporation duly organized and validly existing under
the laws of the State of Nebraska with authorized capital stock consisting of:
1,000,000 shares of common stock, par value $0.1 per share ("Management Common
Stock"), of which as of the date of this Plan of Merger there were 500,000
shares issued and outstanding and no shares were held in the treasury of
Management.
Acquisition is a corporation duly organized and validly existing under
the laws of the State of Delaware with authorized capital stock consisting of
1,000 shares of common stock, par value $.01 per share ("Acquisition Common
Stock"), 1,000 of which shares are issued and outstanding and owned by
Educational Medical, Inc., a Delaware corporation ("EMI").
The respective Boards of Directors of Management and Acquisition, and
Acquisition's sole shareholder, EMI, deem it advisable that Management be
merged with and into Acquisition (the "Merger") as provided herein and in the
Agreement and Plan of Reorganization dated as of March 29, 1997 (the "Agreement
and Plan"), which sets forth certain representations, warranties and agreements
in connection with the Merger and related transactions.
Management and Acquisition, in order to effectuate the foregoing, have
adopted a plan of reorganization in accordance with the provisions of Section
368(a) of the Internal Revenue Code, as amended.
In consideration of the mutual benefits to be derived from this Plan,
the Agreement and Plan and the mutual agreements hereinafter contained,
Management and Acquisition on the basis, terms and conditions contained herein,
and in connection herewith, agree as follows:
ARTICLE I
SURVIVING CORPORATION
In accordance with the applicable provisions of the business
corporation laws of the State of Delaware ("Corporation Laws"), Management
shall be merged with and into Acquisition. Acquisition shall be and is herein
sometimes referred to as the "Surviving Corporation."
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<PAGE> 31
ARTICLE II
EFFECTIVENESS OF THE MERGER
Section 2.1. Effective Time of the Merger. Subject to the
provisions of this Plan and the Agreement and Plan, as soon as practicable on
or after the Closing Date (as defined in Article VI of the Agreement and Plan),
articles of merger (the "Articles of Merger"), together with this Plan, shall
be executed by Management and Acquisition and delivered to the Department of
State of the States of Nebraska and Delaware for filing as provided in the
Corporation Laws. The Merger shall become effective upon completion of the
filing of Articles of Merger with the Department of State of the States of
Nebraska and Delaware (the "Effective Time of the Merger").
Section 2.2. Effects of the Merger. At the Effective Time of the
Merger: (i) the separate existence of Acquisition shall cease and Management
shall be merged with and into Acquisition; (ii) the Articles of Incorporation
of the Surviving Corporation shall be as set forth in Article IV hereof; and
(iii) the Merger shall, from and after the Effective Time of the Merger, have
all the effects provided by applicable Delaware law.
Section 2.3. Additional Actions. If, at any time after the
Effective Time of the Merger, the Surviving Corporation shall consider or be
advised that any further assignments or assurances or any other acts are
necessary or desirable: (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, title to and possession of any
property or right of Acquisition acquired or to be acquired by reason of, or as
a result of, the Merger; or (b) otherwise to carryout the purposes of this
Plan, Acquisition and its proper officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such proper deeds, assignments and assurances and to do
all acts necessary or proper to vest, prefect or confirm title to and
possession of such property or rights in the Surviving Corporation and
otherwise to carryout the purposes of this Plan; and the proper officers and
directors of the Surviving Corporation are fully authorized in the name of
Acquisition or otherwise to take any and all such action.
ARTICLE III
EFFECT OF MERGER ON CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
Section 3.1. Conversion of Stock of Management and Acquisition.
At the Effective Time of the Merger. Each share of Management Common Stock
then issued and outstanding shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into 1.02857 shares of
EMI common stock,
2
<PAGE> 32
par value $.01 per share ("EMI Common Stock"), subject to the provisions of
Article 7 of the Agreement and Plan of Reorganization; and
Section 3.2. Exchange of Certificates. After the Effective Time of
the Merger, each holder of a certificate or certificates theretofore evidencing
outstanding shares of Management Common Stock, upon surrender of the same to
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. ("Greenberg") as
agent for EMI or such other agent or agents as shall be appointed by EMI shall
be entitled to receive in exchange therefor a certificate or certificates
representing the number of full shares of EMI Common Stock for which the share
of Management Common Stock theretofore represented by the certificate or
certificates so surrendered shall have been converted as provided in this
Article III. As soon as practicable after the Effective Time of the Merger,
Greenberg shall mail to each holder of record of an outstanding certificate
which immediately prior to the Effective Time of the Merger evidences shares of
Management Common Stock (a "Certificate"), and which is to be exchanged for
EMI Common Stock as provided in Section 3.1 hereof, a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to Greenberg), advising such shareholder of the terms of the
exchange effected by the Merger and the procedure for surrendering to Greenberg
such Certificate in exchange for certificates evidencing EMI Common Stock.
Until so surrendered each outstanding Certificate will be deemed for all
corporate purposes of EMI to evidence ownership of the number of full shares of
EMI Common Stock and the right to receive the cash value of any fraction of a
share into which the shares of Management Common Stock represented thereby were
converted; provided, however, until such outstanding Certificates are
surrendered, no dividend payable to holders of record of EMI Common Stock as of
any record date subsequent to the Effective Time of the Merger or cash payable
in lieu of fractional shares pursuant to Section 3.3 hereof shall be paid to
the holder of such outstanding Certificates in respect thereof. After the
Effective Time of the Merger, there shall be no further registration of
transfers on the records or stock transfer books of Management of shares of
Management Common Stock and, if a Certificate representing such shares is
presented, it shall be canceled and exchanged for certificates representing
shares of EMI Common Stock as herein provided. Subject to the provisions of
this Section 3.2 and to applicable law, upon surrender of Certificates there
shall be paid to the record holder of the certificates of EMI Common Stock
issued in exchange therefor: (i) at the time of such surrender, the amount of
any dividends or distributions theretofore paid with respect to such full
shares of EMI Common Stock as of any record date subsequent to the Effective
Time of the Merger and the amount of any cash payable to such holder in lieu of
fractional shares pursuant to Section 3.3 hereof to the extent the same has not
yet been paid to a public official pursuant to abandoned property laws; and
(ii) at the appropriate payment date or as soon as practicable thereafter, the
amount of dividends or distributions with a record date after the Effective
Time of the Merger but prior to surrender and a payment date subsequent to
surrender
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<PAGE> 33
payable with respect to such full shares of EMI Common Stock. All such
dividends or distributions, and all cash to be paid pursuant to Section 3.3
hereof in lieu of fractional shares, if held by Greenberg for payment or
delivery to the holders of unsurrendered Certificates and unclaimed at the end
of one year from the Effective Time of the Merger, shall at such time be paid
or redelivered by Greenberg to EMI acting solely in its corporate capacity, and
after such time any holder of a Certificate who has not surrendered such
Certificate to Greenberg shall, subject to applicable law, look as a general
creditor only to EMI for payment or delivery of such dividends or distributions
or cash, as the case may be. No interest shall be payable with respect to the
payment of such dividends, distributions or cash in lieu of fractional shares
on surrender of outstanding Certificates. All shares of EMI Common Stock and
rights to receive cash, if any, into and for which shares of Management Common
Stock shall have been converted and exchanged pursuant to this Section 3.2
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such converted and exchanged shares of Management Common Stock.
Section 3.3. No Fractional Shares. No certificates or scrip for
fractional shares of EMI Common Stock will be issued, no EMI stock split or
dividend shall relate to any fractional share interest, and no such fractional
share interest shall entitle the owner thereof to vote or to any rights of or
as a shareholder of EMI. In lieu of such fractional shares, any holders of
Management Common Stock who would otherwise be entitled to a fraction of a
share of EMI Common Stock (or any other person who is the record holder of
certificates for shares of EMI Common Stock into which such shares of
Management Common Stock have been converted) will, upon surrender of his
Certificate or Certificates, be paid the cash value of such fraction, which
shall be equal to the fraction multiplied by the market value of a full share
of EMI Common Stock, determined as the average of the closing prices of EMI
Common Stock as reported on the NASDAQ National market System on each of the
ten trading days immediately preceding the date of the Effective Time of the
Merger.
Section 3.4. Certificates in Other Names. If any certificate
evidencing shares of EMI Common Stock is to be issued in a name other than that
in which the Certificate surrendered in exchange therefor is registered, it
shall be a condition of the issuance thereof that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange pay to Greenberg, or EMI
acting solely in its corporate capacity, as the case may be, any transfer or
other taxes required by reason of the issuance of a certificate for shares of
EMI Common Stock in any name other than that of the registered holder of the
Certificate surrendered or otherwise required or establish to the satisfaction
of Greenberg or EMI acting solely in its corporate capacity, as the case may
be, that such tax has been paid or is not payable.
4
<PAGE> 34
ARTICLE IV
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
The Articles of Incorporation of the Surviving Corporation shall
continue to be its Articles of Incorporation from and after the Effective Time
of the Merger until changed in accordance with applicable law.
ARTICLE V
MISCELLANEOUS
Section 5.1. Termination. This Plan shall terminate in the event
of and upon the termination of the Agreement and Plan.
Section 5.2. Headings. The descriptive headings of the several
Articles and Sections of this Plan are inserted for convenience only and do not
constitute a part of this Plan.
Section 5.3. Notices. Any notices or other communications
required or permitted hereunder shall be sufficiently given if sent by
certified or registered mail, postage prepaid, addressed as follows:
(a) If to Management: Educational Management, Inc.
c/o Chaparral College
4585 East Speedway
Tucson, AZ 85712
Attn: Scott Rhude
With a copy to: Sacks Tierney P.A.
2929 North Central Avenue
Fourteenth Floor
Phoenix, AZ 85012
Attn: Michael R. Rooney, Esq.
(b) If to Acquisition: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA 30076
Attn: Gary D. Kerber, President
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<PAGE> 35
With a copy to:
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
777 S. Flagler Drive, Suite 310-East
West Palm Beach, Florida 33401
Attn: Morris C. Brown, Esq.
or such other addresses as shall be furnished in writing by either party, and
any such notice of communication shall be deemed to have been given as of the
date so mailed.
Section. 5.4. Assignment. This Plan and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Plan nor
any of the rights, interest, or obligations hereunder shall be assigned by any
of the parties hereto without the prior written consent of the other parties,
except that Acquisition may assign all of its rights, interests and obligations
hereunder to another wholly-owned subsidiary of EMI, provided that such
subsidiary agrees in writing to be bound by all of the terms, conditions and
provisions contained herein.
Section 5.5. Complete Agreement. This Plan, and the Agreement and
Plan, including the schedules, exhibits or other writings referred to therein
or delivered pursuant thereto, contain the entire understanding of the parties
hereto with respect to the Merger and the related transactions and supersede
all prior arrangements or understandings with respect thereto and all letters
and other agreements relating to the protection of Confidential Information (as
defined in the Agreement and Plan) of Management and EMI. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties hereto other than those expressly set forth herein or in
the Agreement and Plan.
Section 5.6. Modifications, Amendments and Waivers. At any time
prior to the Effective Time of the Merger (notwithstanding any shareholder
approval), if authorized by their respective Boards of Directors and to the
extent permitted by law: (i) the parties hereto may, by written agreement,
modify, amend or supplement any term or provision of this Plan and (ii) any
term or provision of this Plan may be waived by the party which is, or whose
shareholders are, entitled to the benefits thereof. Any written instrument or
agreement referred to in this section shall be validly and sufficiently
authorized for the purposes of this Plan if signed on behalf of Management and
Acquisition by a person authorized to sign this Plan.
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<PAGE> 36
Section 5.7. Counterparts. This Plan may be executed in two or
more counterparts all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
Section 5.8. Governing Law. This Plan shall be governed by the
laws of the State of Delaware (regardless of the laws that might be applicable
under principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect and performance.
IN WITNESS WHEREOF, Management and Acquisition have caused this Plan
of Merger to be executed by their duly authorized officers, respectively, and
their respective seals to be affixed hereto as of the day and year first above
written.
[Corporate Seal] EDUCATIONAL MANAGEMENT, INC.
Attest:
/s/ A. LAUREN RHUDE By: /S/ SCOTT L. RHUDE
--------------------------------- ----------------------------
A. Lauren Rhude Scott L. Rhude
Secretary President
[Corporate Seal] NEBRASKA ACQUISITION CORP.
Attest:
/s/ MORRIS C. BROWN By: /s/ GARY D. KERBER
--------------------------------- ----------------------------
Morris C. Brown Gary D. Kerber
Secretary President
7
<PAGE> 1
EXHIBIT 10.45
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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<PAGE> 2
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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<PAGE> 3
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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<PAGE> 4
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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<PAGE> 5
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
5
<PAGE> 6
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
---------------------------------------
Authorized Signatory
NEBRASKA ACQUISITION CORP.
By: /S/ GARY D. KERBER
---------------------------------------
Authorized Signatory
/S/ RICHARD O. WIKERT
-------------------------------------------
RICHARD O. WIKERT
THE LILA RHUDE TRUST
By: /S/ LILA J. RHUDE
--------------------------------------
Authorized Signatory
THE SCOTT L. RHUDE TRUST
By: /S/ SCOTT L. RHUDE
--------------------------------------
Authorized Signatory
THE A. LAUREN RHUDE TRUST
By: /S/ A. LAUREN RHUDE
-----------------------------
Authorized Signatory
/S/ ROBER B. BOJENS
-------------------------------------------
ROGER B. BOJENS
6
<PAGE> 7
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.
---------------------------
Authorized Signatory
7
<PAGE> 1
EXHIBIT 10.46
BUSINESS LOAN AGREEMENT
BETWEEN
BANK OF AMERICA, FSB (THE "BANK")
AND
EDUCATIONAL MEDICAL, INC. ("EMI")
AND ALL SUBSIDIARIES OF EMI ("BORROWERS")
DATED: FEBRUARY 25, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S><C> <C>
1. DEFINITIONS .......................................................... 1
1.1 "Borrowing Base" ............................................ 1
1.2 "Acceptable Receivable" ..................................... 1
1.3 "Termination Date" .......................................... 3
2. FACILITY NO. 1: REVOLVING LINE OF CREDIT AMOUNT AND TERMS............. 3
2.1 Revolving Line of Credit Amount ............................. 3
2.2 Availability Period ......................................... 4
2.3 Conditions to Each Extension of Credit ...................... 4
2.4 Repayment Terms ............................................. 4
2.5 Letters of Credit ........................................... 6
3. FACILITY NO. 2: ACQUISITION Line OF CREDIT AMOUNT AND TERMS........... 7
3.1 Acquisition Line of Credit Amount ........................... 7
3.2 Availability Period ......................................... 7
3.3 Conditions to Each Extension of Credit ...................... 7
3.4 Repayment Terms ............................................. 8
4. INTEREST ............................................................. 10
4.1 Interest Rate ............................................... 10
4.2 Optional Interest Rate ...................................... 10
5. COLLATERAL ........................................................... 12
5.1 Personal Property ........................................... 12
6. DISBURSEMENTS, PAYMENTS AND COSTS .................................... 13
6.1 Requests for Credit ......................................... 13
6.2 Disbursements and Payments .................................. 13
6.3 Direct Debit ................................................ 13
6.4 Banking Days ................................................ 13
6.5 Taxes ....................................................... 14
6.6 Additional Costs ............................................ 14
6.7 Interest Calculation ........................................ 14
6.8 Default Rate ................................................ 14
6.9 Overdrafts .................................................. 15
</TABLE>
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<PAGE> 3
<TABLE>
<S><C> <C>
6.10 Payments in Kind ............................................ 15
7. CONDITIONS ........................................................... 15
7.1 Authorizations .............................................. 15
7.2 Governing Documents ......................................... 15
7.3 Security Agreements ......................................... 16
7.4 Evidence of Priority ........................................ 16
7.5 Insurance ................................................... 16
7.6 Legal Opinion ............................................... 16
7.7 Good Standing ............................................... 16
7.8 Payment of Closing Fee ...................................... 16
7.9 Payment of Expenses and Fees ................................ 16
7.10 Representations of Corporate Officers ....................... 16
7.11 Other Items ................................................. 16
8. REPRESENTATIONS AND WARRANTIES ....................................... 16
8.1 Organization of Borrower .................................... 16
8.2 Authorization ............................................... 17
8.3 Enforceable Agreement ....................................... 17
8.4 Good Standing ............................................... 17
8.5 No Conflicts ................................................ 17
8.6 Financial Information ....................................... 17
8.7 Lawsuits .................................................... 17
8.8 Collateral .................................................. 17
8.9 Permits, Franchises ......................................... 18
8.10 Other Obligations ........................................... 18
8.11 Income Tax Returns .......................................... 18
8.12 No Tax Avoidance Plan ....................................... 18
8.13 No Event of Default ......................................... 18
8.14 ERISA Plans ................................................. 18
8.15 Locations of Borrowers ...................................... 19
8.16 Subsidiaries ................................................ 19
9. COVENANTS ............................................................ 19
9.1 Use of Proceeds ............................................. 19
9.2 Financial Information ....................................... 19
9.3 Net Worth ................................................... 21
9.4 Tangible Net Worth .......................................... 22
9.5 Fixed Charge Coverage Ratio ................................. 22
9.6 Total Funded Debt/Adjusted Cash Flow Coverage Ratio ......... 22
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.7 Senior Funded Debt/Adjusted Cash Flow Ratio ................. 23
9.8 Other Debts ................................................. 23
9.9 Other Liens ................................................. 23
9.10 Capital Expenditures ........................................ 24
9.11 Dividends ................................................... 24
9.12 Loans and Investments ....................................... 24
9.13 Change of Ownership ......................................... 25
9.14 Notices to Bank ............................................. 25
9.15 Books and Records ........................................... 26
9.16 Audits ...................................................... 26
9.17 Compliance with Laws ........................................ 26
9.18 Preservation of Rights ...................................... 26
9.19 Maintenance of Properties ................................... 26
9.20 Perfection of Liens ......................................... 26
9.21 Cooperation ................................................. 26
9.22 Insurance ................................................... 26
9.23 Additional Negative Covenants ............................... 27
9.24 ERISA Plans ................................................. 29
9.25 Title IV Program Requirements ............................... 29
9.26 Subsidiaries ................................................ 30
10. HAZARDOUS WASTE INDEMNIFICATION ..................................... 30
11. DEFAULT ............................................................. 30
11.1 Failure to Pay .............................................. 30
11.2 Lien Priority ............................................... 31
11.3 False Information ........................................... 31
11.4 Bankruptcy .................................................. 31
11.5 Receivers ................................................... 31
11.6 Lawsuits .................................................... 31
11.7 Judgments ................................................... 31
11.8 Government Action ........................................... 31
11.9 Material Adverse Change ..................................... 31
11.10 Cross-default ............................................... 31
11.11 Default under Related Documents ............................. 32
11.12 Other Bank Agreements ....................................... 32
11.13 ERISA Plans ................................................. 32
11.14 Other Breach Under Agreement ................................ 32
12. ENFORCING THIS AGREEMENT; MISCELLANEOUS ............................. 33
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
12.1 GAAP ........................................................ 33
12.2 Georgia Law ................................................. 33
12.3 Successors and Assigns ...................................... 33
12.4 Arbitration ................................................. 33
12.5 Severability; Waivers ....................................... 34
12.6 Reimbursement Costs ......................................... 34
12.7 Administration Costs ........................................ 34
12.8 Attorneys' Fees ............................................. 34
12.9 Joint and Several Liability ................................. 35
12.10 One Agreement ............................................... 36
12.11 Disposition of Schedules .................................... 36
12.12 Credit Adjustments .......................................... 36
12.13 Verification of Receivables ................................. 37
12.14 Indemnification ............................................. 37
12.15 Notices ..................................................... 37
12.16 Headings .................................................... 37
12.17 Counterparts ................................................ 37
</TABLE>
iv
<PAGE> 6
List of Certain Defined Terms
-----------------------------
<TABLE>
<CAPTION>
Defined Term Location in Text
------------ ----------------
<S> <C>
Acceptable Receivable Para. 1.2
BofA Para. 4.1(b)
banking day Para. 7.5
Borrower, Borrowers Page 1, First Paragraph
Borrowing Base Para. 1.1
Closing Date Page 1, First Paragraph
Default Para. 12
EBITDA Para. 3.3
EMI Page 1, First Paragraph
ERISA Para. 8.14(e)
event of default Para. 12
Facilities or Facility Para. 4.1
Facility No. 1 Para. 2.1
Facility No. 1 Commitment Para. 2.1
Facility No. 2 Para. 3.1
Facility No. 2 Commitment Para. 3.1
GAAP Para. 12.1
issuer Para. 2.5
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
LIBOR Banking Day Para. 4.2(a)
LIBOR Rate Para. 4.2(c)
LIBOR Rate Portion Para. 4.2
PBGC Para. 8.14(e)
Plan Para. 8.14(e)
Reference Rate Para. 4.1
schools Para. 9.25(e)
Termination Date Para. 1.3
Test Ratio Para. 2.4(a)
Title IV Program Requirements Para. 9.27
</TABLE>
vi
<PAGE> 8
BUSINESS LOAN AGREEMENT
This Agreement, dated as of February 25, 1997, is made among BANK OF
AMERICA, FSB (the "Bank"), EDUCATIONAL MEDICAL, INC. ("EMI") and all those
subsidiaries of EMI listed on the signature page(s) to this Agreement (EMI and
such subsidiaries hereinafter sometimes collectively called the "Borrowers" and
individually called a "Borrower").
PREAMBLE. EMI and its subsidiaries are engaged in a common business
enterprise and, in connection therewith, have determined it to be in their
mutual economic interests to apply to the Bank on a collective basis for
extensions of credit for working capital and to finance continued expansion,
with EMI acting as agent for all Borrowers in connection with any requests for,
the receipt, disbursement, allocation and administration of, and the repayment
of, the extensions of credit to be made hereunder. Accordingly, the Borrowers
hereby covenant to and agree with the Bank as follows:
1. DEFINITIONS
In addition to the terms which are defined elsewhere in this Agreement, the
following terms have the meanings indicated for the purposes of this Agreement:
1.1 "Borrowing Base" means 80% of the balance due on Acceptable
Receivables of the Borrowers.
1.2 "Acceptable Receivable" means an account receivable of a
Borrower which satisfies the following requirements:
(a) The account has resulted from the sale of goods or
the performance of services by the Borrower in the ordinary course of the
Borrower's business.
(b) There are no conditions which must be satisfied
before the Borrower is entitled to receive payment of the account. Accounts
arising from COD sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any
defense to payment of the account.
(d) The account balance does not include the amount of
any counterclaims or offsets which have been or may be asserted against the
Borrower by the account debtor (including offsets for any "contra accounts" owed
by the Borrower to the account debtor for goods purchased by the Borrower or for
services performed for the
<PAGE> 9
Borrower). To the extent any counterclaims, offsets, contra accounts, or credit
balances exist in favor of the debtor, such amounts shall be deducted from the
account balance.
(e) The account represents a genuine obligation of the
debtor for goods sold and accepted by the debtor, or for services performed for
and accepted by the debtor.
(f) The Borrower has sent an invoice to the debtor in the
amount of the account.
(g) The Borrower is not prohibited by the laws of the
state where the account debtor is located from bringing an action in the courts
of that state to enforce the debtor's obligation to pay the account. The
Borrower has taken all appropriate actions to ensure access to the courts of the
state where the account debtor is located, including, where necessary, the
filing of a notice of business activities report or other similar filing with
the applicable state agency or the qualification by the Borrower as a foreign
corporation authorized to transact business in such state.
(h) The account is owned by the Borrower free of any
title defects or any liens or interests of others except the security interest
in favor of the Bank, and except as permitted under Paragraph 9.9.
(i) The debtor upon the account is not any of the
following:
(1) an employee, affiliate, parent or subsidiary of the
Borrower, or an entity which has common officers or directors with the
Borrower;
(2) any state, county, city, town or municipality;
(3) any person or entity located in a foreign country.
(j) The account is not in default. An account will be
considered in default if any of the following occur:
(1) The account is not paid within the 180 day period
starting on its billing date; or
(2) Any petition is filed by or against the debtor
obligated upon the account under any bankruptcy law or any other law or
laws for the relief of debtors.
-2-
<PAGE> 10
(k) The account is not the obligation of a debtor who is
in default (as defined above) on 50% or more of the accounts (if more than one)
with the Borrower upon which such debtor is obligated.
(l) The account is not evidenced by a promissory note or
chattel paper.
(m) The account is otherwise acceptable to the Bank.
1.3 "Termination Date" shall mean the third (3rd) anniversary of
the date of this Agreement; provided, however, that the Bank, in its sole
discretion, upon the Borrowers' request, may elect, by giving written notice to
the Borrowers to such effect, beginning in the second year of this Agreement,
but not later than 120 days before any then effective Termination Date, to
extend such "Termination Date" for up to two (2) additional periods of up to one
(1) year each on such terms and conditions (which may differ from those set
forth herein) as the Bank may offer, and the Borrowers may accept.
2. FACILITY NO. 1: REVOLVING LINE OF CREDIT AMOUNT AND TERMS
2.1 Revolving Line of Credit Amount.
(a) During the availability period described below, the
Bank will provide a revolving line of credit ("Facility No. 1") to the
Borrowers. The amount of this revolving line of credit (the "Facility No. 1
Commitment") is equal to the lesser of (i) $5,000,000 or (ii) the Borrowing
Base.
(b) Facility No. 1 is a revolving line of credit for
advances with a within line facility for letters of credit. During the
availability period, the Borrowers may repay principal amounts and reborrow
them.
(c) Each advance under Facility No. 1 must be for at
least $250,000 or for the amount of the remaining available line of credit, if
less.
(d) The Borrowers agree not to permit the sum of
outstanding principal amount of advances obtained under Facility No. 1 plus the
outstanding amounts of any letters of credit under Paragraph 2.5, including
amounts drawn on letters of credit and not yet reimbursed, to exceed the
Facility No. 1 Commitment. If the Borrowers exceed this limit, the Borrowers
will immediately pay the excess to the Bank upon the Bank's demand. Unless and
until an Event of Default has occurred and is continuing, the Borrowers shall
have the right to direct the manner or order in which payments received from the
Borrowers
-3-
<PAGE> 11
under this Paragraph shall be applied to this Facility. From and after the
occurrence of an Event of Default and during its continuance, the Bank may apply
payments received from the Borrowers under this Paragraph to the obligations of
the Borrowers to the Bank in the order and the manner as the Bank, in its
discretion, may determine, including to this Facility or the other Facility.
2.2 Availability Period. Facility No. 1 is available between the
date of this Agreement and the Termination Date, unless the Borrowers are in
default.
2.3 Conditions to Each Extension of Credit. Before each extension
of credit under Facility No. 1, including the first, the Borrowers will deliver
to the Bank (i) a notice of borrowing, in form and detail satisfactory to the
Bank, issued by EMI as agent for and on behalf of the Borrowers, specifying the
amount of the requested advance, the intended use of the proceeds thereof, the
requested disbursement date and the desired interest rate to be applicable,
initially, thereto; and (ii) a borrowing base certificate, in form and detail
satisfactory to the Bank, issued by EMI as agent for and on behalf of the
Borrowers, setting forth the Acceptable Receivables on which the requested
extension of credit is to be based.
2.4 Repayment Terms
(a) The Borrowers will pay interest, in arrears, at the
then applicable interest rate described below on outstanding advances under
Facility No. 1 on the first day of the calendar month following the disbursement
of any advance under Facility No. 1 and then on a monthly basis thereafter until
payment in full of such advance. The interest rate payable on outstanding
advances under Facility No. 1 shall be determined as follows:
<TABLE>
<CAPTION>
Interest Interest
Rate shall Rate shall be
If the Test be Reference -or- LIBOR Rate
Ratio is: Rate plus plus
--------- --------- ----
<S> <C> <C>
1.5:1 or greater .50% 1.75%
1.0:1 or greater, but less than 1.5:1 .25% 1.50%
less than 1.0:1 0% 1.25%
</TABLE>
As used herein, (i) "Reference Rate" is defined in Paragraph 4.1, (ii) "LIBOR
Rate" is defined in Paragraph 4.2, and (iii) the "Test Ratio" shall be the
Senior Funded Debt/Adjusted Cash Flow Ratio, as defined in Paragraph 9.7. The
Test Ratio shall be calculated on a quarterly basis by the Bank from the
Borrowers' quarterly or, as the case may be, annual financial statements then
most recently delivered to it pursuant to Paragraphs 9.2(a) and
-4-
<PAGE> 12
9.2(b), and the interest rate(s) described above shall be adjusted by the Bank,
as appropriate, effective as of the first day of the month following the month
in which such financial statements are delivered to the Bank, (i) as to all
advances then outstanding and any made on or after such date, for all advances
which bear interest determined by reference to the Reference Rate and (ii) as to
all advances made on or after such date (including any "rollover" of existing
LIBOR Rate portions during such period), for LIBOR Rate portions; in each case,
until the next such determination by the Bank becomes effective. If, however,
the Borrowers fail to timely deliver their quarterly or, as the case may be,
annual financial statements to the Bank pursuant to Paragraphs 9.2(a) or 9.2(b)
for any fiscal quarter, the Bank shall use an assumed Test Ratio of 1.5:1 to
make its calculations.
(b) The Borrowers agree to pay the Bank an annual,
nonrefundable facility fee for Facility No. 1, equal to .375% of the full amount
of the Facility No. 1 Commitment, or $18,750, payable annually in advance,
commencing on the date of this Agreement and continuing on each anniversary of
such date (less $15,000 in respect of the first such payment, representing a
partial prepayment).
(c) The Borrowers further agree to pay the Bank a
commitment fee, determined by multiplying (i) the difference between (A) the
full amount of the Bank's Facility No. 1 Commitment and (B) the amount of credit
which the Borrowers actually use of Facility No. 1, based on the weighted
average credit outstanding under Facility No. 1 during the specified period, by
(ii) the per annum commitment fee described below, computed as follows:
<TABLE>
<CAPTION>
The Per Annum
If the Test Commitment
Ratio is Fee shall be
-------- ------------
<S> <C>
1.5:1 or greater .375%
less than 1.5:1 .250%
</TABLE>
with the Test Ratio being computed by the Bank in the same manner, and to take
effect at the same time, as is provided in subparagraph (a) above. The
calculation of credit outstanding under Facility No. 1 shall include the undrawn
amount of letters of credit. This commitment fee shall be due and payable
monthly in arrears on the first day of each calendar month until the expiration
of the availability period for Facility No. 1, commencing on the first day of
the first calendar month following the date of this Agreement.
-5-
<PAGE> 13
(d) The Borrowers will repay in full all principal and
any unpaid interest or other charges outstanding under Facility No. 1 no later
than the Termination Date.
2.5 Letters of Credit. Facility No. l may also be used for
financing standby letters of credit with a maximum maturity not to extend for
more than one (1) year or, in any event, beyond the Termination Date. The
standby letters of credit will be issued by Bank of America National Trust and
Savings Association or its designated affiliate bank (herein, an "issuer")
subject to a reimbursement obligation on the part of the Bank (which, in turn,
will be reimbursed by the Borrowers). The amount of such letters of credit
outstanding at any one time (including amounts drawn on letters of credit and
not yet reimbursed) may not exceed $1,000,000. In further regard to these
standby letters of credit, the Borrowers agree:
(a) any sum drawn under a letter of credit and reimbursed
by the Bank may, at the option of the Bank, be added to the principal amount
outstanding under this Agreement. This amount will bear interest and be due as
described elsewhere in this Agreement.
(b) if there is a default under this Agreement, to
immediately prepay and make the Bank whole for its liability to the issuer for
any outstanding letters of credit.
(c) the issuance of any letter of credit and any
amendment to a letter of credit is subject to the Bank's and the issuer's
written approval and must be in form and content satisfactory to the Bank and
the issuer and in favor of a beneficiary acceptable to the Bank and the issuer.
(d) at the Bank's or the issuer's request, to sign the
issuer's form application and agreement for standby letters of credit.
(e) to pay any issuance and/or other fees that the Bank
or the issuer notifies the Borrower will be charged for issuing and processing
letters of credit for the Borrower.
(f) to pay the Bank a non-refundable fee equal to 1-1/2%
per annum of the average daily balance of the outstanding undrawn amount of each
standby letter of credit, payable monthly in arrears. If there is a default
under this Agreement, at the Bank's option, the amount of the fee shall be
increased by 2% per annum, effective starting on the day the Bank provides
notice of the increase to the Borrowers.
-6-
<PAGE> 14
3. FACILITY NO. 2: ACQUISITION LINE OF CREDIT AMOUNT AND TERMS
3.1 Acquisition Line of Credit Amount
(a) During the availability period described below, the
Bank will provide a line of credit to the Borrowers for the purpose of
financing, in whole or in part, permitted acquisitions under Paragraph 9.23(e)
("Facility No. 2"). The amount of this acquisition line of credit (the "Facility
No. 2 Commitment") is equal to: (i) $5,000,000, for the first year in which
Facility No. 2 shall be available; (ii) $7,500,000, for the second year in which
Facility No. 2 shall be available; and (iii) $12,500,000, thereafter, subject,
however, to reduction in each year as provided in subparagraph (b).
(b) Facility No. 2 is not a revolving line of credit.
That is, each advance obtained under Facility No. 2 shall reduce,
dollar-for-dollar, the Facility No. 2 Commitment, regardless if and when such
advance is made or repaid; that is, an advance made in the first year shall
reduce the Facility No. 2 commitment dollar-for-dollar in such year and in all
subsequent years.
(c) Each advance under Facility No. 2 must be for at
least $500,000, or for the amount of the remaining available Facility No. 2
Commitment, if less.
(d) The Borrowers agree not to permit the outstanding
principal amount of advances obtained under Facility No. 2 to exceed the
Facility No. 2 Commitment. If the Borrowers exceed this limit, the Borrowers
will immediately pay the excess to the Bank upon the Bank's demand. Unless and
until an Event of Default has occurred and is continuing, the Borrowers shall
have the right to direct the manner or order in which payments received from the
Borrowers under this Paragraph shall be applied to this Facility. From and after
the occurrence of an Event of Default and during its continuance, the Bank may
apply any payments received from the Borrowers under this Paragraph to the
obligations of the Borrowers to the Bank in the order and manner as the Bank, in
its discretion, may determine, including to this Facility or another Facility.
3.2 Availability Period. Facility No. 2 is available between the
date of this Agreement and the Termination Date, unless the Borrowers are in
default.
3.3 Conditions to Each Extension of Credit. Before each extension
of credit under Facility No. 2, including the first, the Bank shall receive a
notice of borrowing, in form and detail satisfactory to the Bank, issued by EMI
as agent for and on behalf of the Borrowers, specifying the amount of the
requested advance, the intended use of the proceeds
-7-
<PAGE> 15
thereof, the requested disbursement date and the desired interest rate to be
applicable, initially, thereto, together with evidence satisfactory to the Bank
from the Borrowers that:
(i) the acquisition proposed to be financed is then
permitted under Paragraph 9.23(e).
(ii) all proceeds of EMI's initial public offering (net of
not more than $5,000,000 in existing debt repaid with such proceeds), equalling
at least $14,500,000, have been used to finance other acquisitions or will be
used, in part, to fund the proposed acquisition.
(iii) the "EBITDA" of EMI, computed as described below, on
a consolidated basis, for the trailing 12 months' period ending with the last
day of the calendar month immediately preceding the date of any requested
advance, computed on a pro forma basis inclusive of the school(s) proposed to be
acquired with the proceeds of such advance (as adjusted by the Bank, in its sole
discretion for any non-recurring charges or expenses), shall be not less than
the sum of (A) $5,500,000, plus (B) 20% of the sum of (i) the cost of all
acquisitions made by EMI since June 30, 1996, plus (ii) the cost of the
acquisition proposed to be made. For purposes hereof, "EBITDA" shall mean the
net income after taxes of EMI and its consolidated subsidiaries for the fiscal
period in question on a pro forma basis inclusive of the school(s) proposed to
be acquired, after adjustment by the Bank to reflect, in the case of such
school(s), the following, as applicable: plus any non-recurring charges or
expenses; less any items of extraordinary income or gain; plus interest
expense; plus tax expense; plus depreciation and amortization expense, each for
the same said entities and period.
3.4 Repayment Terms
(a) The Borrowers will pay interest, in arrears, at the
then applicable interest rate described below, on outstanding advances under
Facility No. 2 on the first day of the calendar month following the disbursement
of any advance under Facility No. 2 and then on a monthly basis thereafter until
such advance is paid in full. The interest rate payable on outstanding advances
under Facility No. 2 shall be determined as follows:
-8-
<PAGE> 16
<TABLE>
<CAPTION>
Interest Interest
Rate shall Rate shall
If the Test be Reference -or- be LIBOR
Ratio is : Rate plus Rate plus
---------- --------- ---------
<S> <C> <C>
1.5:1 or greater .50% 2.00%
1.0:1 or greater but less than 1.5:1 .25% 1.75%
less than 1.0:1 0% 1.50%
</TABLE>
with the Test Ratio, and resulting interest rate, being computed by the Bank in
the same manner as is provided in Paragraph 2.4(a).
(b) The Borrowers agree to pay the Bank an annual,
nonrefundable facility fee for Facility No. 2, determined as follows: (A) in the
first year, .375% of the initial Facility No. 2 Commitment, or $18,750, payable
at the time that the first advance is made under Facility No. 2 (and if no such
advance is made in the first year of this Agreement, this payment shall be
waived for the first year); (B) in the second year, .375% of the then full
amount of the Facility No. 2 Commitment, or $28,125, if no fee was paid in the
first year, but otherwise on the incremental increase of $2,500,000 in the
Facility No. 2 Commitment, or $9,375, payable on the first anniversary of the
date of this Agreement, and (C) in the third year, .375% of the incremental
increase of $5,000,000 in the Facility No. 2 Commitment, or $18,750, payable on
the second anniversary of the date of this Agreement.
(c) The Borrowers further agree to pay the Bank a
commitment fee determined by multiplying (i) the difference between (A) the then
full amount of the Bank's Facility No. 2 Commitment and (B) the amount of credit
which the Borrowers actually use of the Facility, based on the weighted average
credit outstanding under Facility No. 2 during the specified period, by (ii) the
per annum commitment fee described below, computed as follows:
<TABLE>
<CAPTION>
Per Annum
If the Test Commitment
Ratio is Fee shall be
-------- ------------
<S> <C>
1.5:1 or greater .500%
1.0:1 or greater, but less than 1.5:1 .375%
less than 1.0:1 .250%
</TABLE>
The fee shall be due and payable monthly in arrears on the first day of each
calendar month until the expiration of the availability period for Facility No.
2, commencing on the first day
-9-
<PAGE> 17
of the first calendar month following the date of this Agreement; provided,
however, for Facility No. 2 only, that the payment of this fee in the first year
of the Agreement shall be deferred until the first advance is obtained under
Facility No. 2 (but the fee will be due for the entire one year period to date
at such time based on the average unused amount) and shall be waived for the
first year if no advance under Facility No. 2 is obtained within such period.
(d) The Borrowers will repay in full all principal or
other charges outstanding under this Facility No. 2 no later than the
Termination Date; provided, however, that, pending the Termination Date, any
advances obtained under this Facility shall be repaid, in installments, based on
a four year straight-line monthly principal amortization schedule, commencing on
the first day of the calendar month following the date on which each such
advance is disbursed.
4. INTEREST
4.1 Interest Rate
(a) Unless the Borrowers elect the optional interest rate
described below, the interest rate payable on advances outstanding under
Facility No. 1 and Facility No. 2 (the "Facilities" or a "Facility") shall be
based on the Bank's Reference Rate (described below), plus the addition of a
spread, as described more particularly in Paragraphs 2.4(a) and 3.4(a).
(b) The "Reference Rate" is the rate of interest publicly
announced from time to time by Bank of America, National Trust and Saving
Association ("BofA") in San Francisco, California, as its Reference Rate. The
Reference Rate is set by BofA based on various factors, including its costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans. BofA may price loans to its customers
at, above, or below the Reference Rate. Any change in the Reference Rate shall
take effect at the opening of business on the day specified in the public
announcement of a change in BofA's Reference Rate.
4.2 Optional Interest Rate. Instead of an interest rate based on
the Reference Rate, the Borrowers may elect to have all or portions of their
outstanding advances (herein called a "LIBOR Rate Portion") bear interest based
on the "LIBOR Rate" (described below), plus the addition of a spread, as
described more particularly in Paragraphs 2.4(a) and 3.4(a). Designation of a
LIBOR Rate portion is subject to the following requirements:
-10-
<PAGE> 18
(a) The interest period during which the LIBOR Rate will
be in effect will be one, two, three or six months. The first day of the
interest period must be a day other than a Saturday or a Sunday on which BofA is
open for business in California, New York and London and dealing in offshore
dollars (a "LIBOR Banking Day"). The last day of the interest period and the
actual number of days during the interest period will be determined by the Bank
using the practices of the London interbank market. No interest period may
extend beyond the Termination Date, however.
(b) Each LIBOR Rate portion will be for an amount not
less than $500,000, and no more than four (4) LIBOR Rate portions, in total, per
each Facility, may be outstanding at any one time.
(c) The "LIBOR Rate" means the interest rate determined
by the following formula, rounded upward to the nearest 1/100th of one percent.
(All amounts in the calculation will be determined by the Bank as of the first
day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the interest
rate at which BofA's London Branch, London, Great Britain, would offer U.S.
dollar deposits in amounts comparable to the LIBOR Rate Portion for the
applicable interest period to other major banks in the London inter-bank market
at approximately 11:00 a.m. London time two (2) London Banking Days before the
commencement of the interest period. A "London Banking Day" is a day on which
BofA's London Branch is open for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in
Federal Reserve Board Regulation D, rounded upward to the nearest 1/100th of one
percent. The percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special, and other reserve
percentages.
(d) The Borrowers shall irrevocably request a LIBOR Rate
portion no later than 9:00 a.m. Atlanta time on the LIBOR Banking Day preceding
the day on which the London Inter-Bank Offered Rate will be set, as specified
above; that is, three (3) LIBOR Banking Days before the date on which the
requested advance is to be made.
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<PAGE> 19
(e) The Borrowers may not elect a LIBOR Rate with respect
to any principal amount which is scheduled to be repaid before the last day of
the applicable interest period.
(f) Any portion of an advance already bearing interest at
the LIBOR Rate will not be converted to a different rate during its interest
period.
(g) Each prepayment of a LIBOR Rate portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid and by a prepayment fee, which
shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable
at the LIBOR Rate, without the addition of any spread; i.e., add-on, during the
Reinvestment Period (as defined below) on the amount prepaid had it not been
prepaid, exceeds
(ii) the interest which would have been recoverable by the
Bank by relending the amount prepaid at the Reinvestment Rate, for a period
starting on the date on which it was prepaid and ending on the last day of the
interest period for such portion (or the scheduled payment date for the amount
prepaid, if earlier) (the "Reinvestment Period"). The "Reinvestment Rate" shall
be the LIBOR Rate, without the addition of any spread, determined as of the date
of the prepayment, for the entire Reinvestment Period.
(h) The Bank will have no obligation to accept an
election for a LIBOR Rate portion if any of the following described events has
occurred and is continuing:
(a) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a LIBOR Rate portion are not available
in the London inter-bank market;
(b) the LIBOR Rate does not accurately reflect the cost
of a LIBOR Rate portion; or
(c) the Borrowers are in default.
5. COLLATERAL
5.1 Personal Property. The Borrowers' obligations to the Bank
under this Agreement will be secured by all personal property which the
Borrowers now own or will
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<PAGE> 20
own in the future and, at the Bank's option, all or portions of any real
property (or interests in real property) owned or acquired by the Borrowers from
time to time. Collateral shall specifically include, but not be limited to, all
accounts receivables and general intangibles of each Borrower, all equipment of
each Borrower and the capital stock of each Borrower (other than the capital
stock of EMI, and except for any capital stock which, now or hereafter, is
encumbered in accordance with Section 9.9(e)). The collateral is further defined
in security agreement(s) executed by the Borrowers. In addition, all collateral
securing this Agreement shall also secure all other present and future
obligations of the Borrowers to the Bank. All collateral securing any other
present or future obligations of the Borrowers to the Bank shall also secure
this Agreement.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 Requests for Credit. Each request for an extension of credit
will be made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank, to be issued by EMI, as agent for and on behalf of all
the Borrowers.
6.2 Disbursements and Payments. Each disbursement by the Bank and
each payment by the Borrowers will be: (a) made at the Bank's branch (or other
location) selected by the Bank from time to time; (b) made for the account of
the Bank's branch selected by the Bank from time to time; (c) made in
immediately available funds, or such other type of funds selected by the Bank;
and (d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrowers to sign one or more promissory notes to
evidence the debt arising from such disbursements.
6.3 Direct Debit. The Borrowers agree that after their default in
the payment of any such obligation, the Bank may create advances under Facility
No. 1 to pay interest, principal payments, and any fees that are due under this
Agreement. The Bank will create such advances on the dates the payments become
due. If a due date does not fall on a banking day, the Bank will create the
advance on the first banking day following the due date. If the creation of an
advance under Facility No. 1 causes the total amount of credit outstanding under
Facility No. 1 to exceed the limitations set forth in this Agreement, the
Borrowers will immediately pay the excess to the Bank upon the Bank's demand.
The foregoing shall not constitute a waiver by the Bank of any such default.
6.4 Banking Days. Unless otherwise provided in this Agreement, a
"banking day" is a day other than a Saturday or a Sunday on which the Bank is
open for business in Georgia. All payments and disbursements which would be due
on a day which is not a banking day will be due on the next banking day. All
payments received on a day which is not a banking day will be applied to the
credit on the next banking day.
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<PAGE> 21
6.5 Taxes.
(a) If any payments to the Bank under this Agreement are
made from outside the United States, the Borrowers will not deduct any foreign
taxes from any payments it makes to the Bank. If any such taxes are imposed on
any payments made by the Borrower (including payments under this paragraph), the
Borrowers will pay the taxes and will also pay to the Bank, at the time interest
is paid, any additional amount which the Bank specifies as necessary to preserve
the after-tax yield the Bank would have received if such taxes had not been
imposed. The Borrowers will confirm that they have paid any such taxes by giving
the Bank of official tax receipts (or notarized copies) within 30 days after the
due date.
(b) Payments made by the Borrowers to the Bank will be
made without deduction of United States withholding or similar taxes. If the
Borrowers are required to pay U.S. withholding taxes, the Borrowers will pay
such taxes in addition to the amounts due to the Bank under this Agreement. If
the Borrowers fail to make such tax payments when due, each of the Borrowers
indemnifies the Bank against any liability for such taxes, as well as for any
related interest, expenses, additions to tax, or penalties asserted against or
suffered by the Bank with respect to such taxes.
6.6 Additional Costs. The Borrowers will pay the Bank, on demand,
for the Bank's costs or losses arising from any statute or regulation, or any
request or requirement of a regulatory agency which is applicable to all
national banks or a class of all national banks. The costs and losses will be
allocated to the advances in a manner determined by the Bank, using any
reasonable method. The costs include the following: (a) any reserve or deposit
requirements; and (b) any capital requirements relating to the Bank's assets and
commitments for credit.
6.7 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis of a
360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used.
6.8 Default Rate. Upon the occurrence and during the continuation
of any default under this Agreement, principal amounts outstanding under this
Agreement will at the option of the Bank bear interest at a rate which is two
percent (2%) per annum higher than the rate of interest otherwise provided under
this Agreement. This will not constitute a waiver of any default. Installments
of principal which are not paid when due under this Agreement shall continue to
bear interest until paid. Any interest, fees or costs which are
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<PAGE> 22
not paid when due shall bear interest at the Reference Rate plus two percent
(2%) per annum. This may result in compounding of interest.
6.9 Overdrafts. At the Bank's sole option in each instance, the
Bank may do one of the following:
(a) The Bank may make advances under this Agreement to
prevent or cover an overdraft on any account of the Borrowers with the Bank or
BofA. Each such advance will accrue interest from the date of the advance or the
date on which the account is overdrawn, whichever occurs first, at the Reference
Rate plus two percent (2%) per annum.
(b) The Bank may reduce the amount of credit otherwise
available under this Agreement by the amount of any overdraft on any account of
the Borrowers with the Bank or BofA.
This paragraph shall not be deemed to authorize he Borrowers to create
overdrafts on any of the Borrower's accounts with the Bank or BofA.
6.10 Payments in Kind. If the Bank requires delivery in kind of the
proceeds of collection of any Borrower's accounts receivable, such proceeds
shall be credited to interest, principal, and other sums owed to the Bank under
this Agreement in the order and proportion determined by the Bank in its sole
discretion. All such credits will be conditioned upon collection and any
returned items may, at the Bank's option, be charged to the Borrowers.
7. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrowers under this Agreement:
7.1 Authorizations. Evidence that the execution, delivery and
performance by the Borrowers of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
7.2 Governing Documents. A copy of each Borrower's articles of
incorporation and bylaws.
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<PAGE> 23
7.3 Security Agreements. Signed original security agreements,
assignments, financing statements and fixture filings (together with collateral
in which the Bank requires a possessory security interest), which the Bank may
require from any Borrower.
7.4 Evidence of Priority. Evidence that security interests and
liens in favor of the Bank are valid, enforceable, and prior to all others'
rights and interests, except as provided in Paragraph 9.9.
7.5 Insurance. Evidence of insurance coverage, as required in
Paragraph 9.22.
7.6 Legal Opinion. A written opinion from the Borrowers' legal
counsel, covering such matters as the Bank may require. The legal counsel and
the terms of the opinion must be acceptable to the Bank.
7.7 Good Standing. Certificates of good standing for each Borrower
from its state of formation and from any other state in which each Borrower is
required to qualify to conduct its business.
7.8 Payment of Closing Fee. Payment upon execution of this
Agreement of a non-refundable closing fee of Thirty-Five Thousand Dollars
($35,000).
7.9 Payment of Expenses and Fees. Payment of all accrued and
unpaid expenses incurred by the Bank as required by Paragraph 12.6.
7.10 Representations of Corporate Officers. A completed original of
the Bank's form of Representations and Warranties of Corporate Officers executed
by the principal of officers of each Borrower.
7.11 Other Items. Any other items that the Bank reasonably
requires.
8. REPRESENTATIONS AND WARRANTIES
When the Borrowers sign this Agreement, and until the Bank is repaid in
full, the Borrowers make the following representations and warranties. Each
request for an extension of credit (including any letter of credit) constitutes
a renewed representation:
8.1 Organization of Borrower. Each Borrower is a corporation duly
formed and existing under the laws of the state where organized.
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<PAGE> 24
8.2 Authorization. This Agreement, and any instrument or agreement
required hereunder, are within the Borrowers' powers, have been duly authorized,
and do not conflict with any of their organizational papers.
8.3 Enforceable Agreement. This Agreement is a legal, valid and
binding agreement of the Borrowers, enforceable against the Borrowers in
accordance with its terms, and any instrument or agreement required hereunder,
when executed and delivered, will be similarly legal, valid, binding and
enforceable.
8.4 Good Standing. In each state in which a Borrower does
business, it is properly licensed, in good standing, and, where required, in
compliance with fictitious name statutes.
8.5 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which any Borrower is bound.
8.6 Financial Information. All financial and other information
that has been or will be supplied to the Bank, including the Borrowers'
financial statements as of and for the most recently completed fiscal quarter of
the Borrowers for which financial statements are available, is:
(a) sufficiently complete to give the Bank accurate
knowledge of the Borrowers' financial condition.
(b) in compliance with all government regulations that
apply.
Since the date of the financial statements specified above, there has been no
material adverse change in the business condition (financial or otherwise),
operations, properties or prospects of the Borrowers.
8.7 Lawsuits. There is no lawsuit, tax claim or other
dispute pending or threatened against any Borrower which, if lost, would impair
such Borrower's financial condition or ability to repay the loan, except as have
been disclosed in writing to the Bank.
8.8 Collateral. All collateral required in this Agreement
is owned by the grantor of the security interest free of any title defects or
any liens or interests of others, except for those title defects, liens or
interests of others, as applicable thereto, specified in Paragraph 9.9.
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<PAGE> 25
8.9 Permits Franchises. The Borrowers possess all
permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name rights
necessary to enable it to conduct the business in which it is now engaged.
8.10 Other Obligations. The Borrowers are not in default
on any obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
8.11 Income Tax Returns. The Borrowers have no knowledge
of any pending assessments or adjustments of their income tax liabilities for
any year.
8.12 No Tax Avoidance Plan. The Borrowers' obtaining of
credit from the Bank under this Agreement does not have as a principal purpose
the avoidance of U.S. withholding taxes.
8.13 No Event of Default. There is no event which is, or
with notice or lapse of time or both would be, a default under this Agreement.
8.14 ERISA Plans.
(a) The Borrowers have fulfilled their
obligations, if any, under the minimum funding standards of ERISA and the Code
with respect to each Plan and are in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and have not incurred
any liability with respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under
Section 4043(b) of ERISA for which the PBGC requires 30 day notice.
(c) No action by the Borrowers to terminate or
withdraw from any Plan has been taken and no notice of intent to terminate a
Plan has been filed under Section 4041 of ERISA.
(d) No proceeding has been commenced with
respect to a Plan under Section 4042 of ERISA, and no event has occurred or
condition exists which might constitute grounds for the commencement of such a
proceeding.
(e) The following terms have the meanings
indicated for purposes of this Agreement:
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<PAGE> 26
(i) "Code" means the Internal Revenue Code of
1986, as amended from time to time.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit
plan maintained or contributed to by the Borrowers and insured by the Pension
Benefit Guaranty Corporation under Title IV of ERISA.
8.15 Locations of Borrowers. Each Borrower's place of business (or,
if such Borrower has more than one place of business, its chief executive
office) is located at the address listed under such Borrower's signature on this
Agreement.
8.16 Subsidiaries. No Borrower, except EMI, has any subsidiaries,
except as disclosed on Schedule 8.16 attached hereto. All subsidiaries of EMI
are Borrowers under this Agreement.
9. COVENANTS
The Borrowers agree, so long as credit is available under this
Agreement and until the Bank is repaid in full:
9.1 Use of Proceeds. To use the proceeds of the credit only for
working capital and general operating needs under Facility No. l and permitted
acquisitions under Facility No. 2.
9.2 Financial Information. To provide the following financial
information and statements in form and content acceptable to the Bank, and such
additional information as requested by the Bank from time to time:
(a) Within 120 days following the end of EMI's fiscal
year (1) consolidated financial statements meeting the requirements of
regulation S-X ("Regulation S-X") promulgated by the Securities Exchange
Commission ("SEC") for financial statements to be included in EMI's Annual
Report on Form 10-K to be filed with the SEC pursuant to the provisions of the
Securities Exchange Act of 1934 (the "34 Act") audited
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<PAGE> 27
(with an unqualified opinion) by a firm of certified public accountants
acceptable to the Bank; (2) unaudited annual consolidating statements of
operations; and (3) audited balance sheets and statements of operations for the
individual schools operated by EMI, likewise accompanied by the unqualified
opinion of such certified public accountants.
(b) Within 45 days of EMI's first, second and third
fiscal quarter (i) unaudited consolidated financial statements meeting the
requirements of regulation S-X for financial statements to be included in EMI's
Quarterly Report on Form 10-Q to be filed with the SEC pursuant to the
provisions of the "34 Act," (ii) unaudited quarterly consolidating statements of
operations for the applicable quarter, and (iii) unaudited statements of
operations for the individual schools operated by EMI.
(c) Within 30 days of the period's end, EMI's monthly (i)
unaudited consolidated statements of operations for the applicable period, (ii)
unaudited monthly consolidating statements of operations for the applicable
period, and (iii) unaudited statements of operations for the individual schools
operated by EMI for the applicable period.
(d) Copies of EMI's Form 10-K Annual Report and Form 10-Q
Quarterly Report within 5 days after the date of filing with the Securities and
Exchange Commission, copies of EMI's Form 8-K Current Report within 1 business
day after the date of its filing with the Securities and Exchange Commission and
copies of any news releases within 1 business day after their publication.
(e) Within the period(s) provided in (a), (b) and (c)
above, a compliance certificate of the Borrowers signed by an authorized
financial of officer of EMI, as agent for the Borrowers, setting forth (i) the
information and computations (in sufficient detail) to establish that the
Borrowers are in compliance with all financial covenants contained herein at the
end of the period covered by the financial statements then being furnished and
(ii) whether there existed as of the date of such financial statements and
whether there exists as of the date of the certificate, any default under this
Agreement and, if any such default exists, specifying the nature thereof and the
action the Borrowers are taking and propose to take with respect thereto.
(f) A borrowing certificate, signed by EMI as agent for
the Borrowers, setting forth the amount of Acceptable Receivables as of the last
day of each fiscal quarter within 45 days after each quarter end, and on a pro
forma basis in connection with each proposed advance under Facility No. 2.
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<PAGE> 28
(g) Statements showing an aging and reconciliation of the
Borrowers' receivables upon Bank's request.
(h) A statement showing an aging of accounts payable of
the Borrowers upon Bank's request.
(i) A listing of the names and addresses of all debtors
obligated upon the Borrowers' accounts receivable upon the Bank's request.
(j) Promptly upon the Bank's request, such other
statements, lists of property and accounts, budgets, forecasts, reports or
information as to the Borrowers, any school, or group of schools, and as to each
guarantor of the Borrowers' obligations to the Bank as the Bank may request from
time to time.
(k) a report of continuing compliance and eligibility in
respect of all Title IV Program Requirements within 120 days after each fiscal
year end of EMI, such report to demonstrate, among other things, each school's
continuing maintenance of prescribed financial responsibility standards which
are part of the Title IV Program Requirements, to include calculations
demonstrating maintenance of at least the following: (i) a 1:1 "acid test;" (ii)
a positive tangible net worth; and (iii) net operating results (two years) which
do not show an aggregate net loss of 10% of tangible net worth.
9.3 Net Worth. To have a book net worth of at least the amounts
described below as of each fiscal quarter end in each fiscal period described
below:
<TABLE>
<CAPTION>
Fiscal Period Amount
------------- ------
<S> <C>
March 31, 1997 through March 30, 1998 $25,500,000
March 31, 1998 through March 30, 1999 $28,000,000
March 31, 1999 through March 30, 2000 $31,000,000
From and after March 31, 2000 $31,000,000 plus 80%
of each Fiscal Years
net income on a
cumulative basis
(without deduction
for loss), starting
with FYE March 31,
2000
</TABLE>
"Book net worth" shall have the meaning given to such term under GAAP.
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<PAGE> 29
9.4 Tangible Net Worth. To maintain a tangible net worth of at
least One Dollar ($1.00) at all times.
"Tangible net worth" means book net worth, as defined above, less the following:
goodwill, patents, trademarks, trade names, organization expense, treasury
stock, unamortized debt discount and expense, deferred research and development
costs, deferred marketing expenses, deferred income taxes, and any reserves
against assets, and other like intangibles, and monies due from any affiliates,
officers, directors, or shareholders; plus any purchase money debt owing to
sellers of schools subordinated to the Bank in a form, manner and substance
acceptable to the Bank to all of the Borrowers' obligations to the Bank.
9.5 Fixed Charge Coverage Ratio. To maintain on a consolidated
basis a Fixed Charge Coverage Ratio of at least 1.75:1.
"Fixed Charge Coverage Ratio" means the ratio of (1) Adjusted EBIRTDA to (2) the
sum of interest expense, lease expense and rent expense plus scheduled debt
repayments, to the extent made, in the preceding four fiscal quarters. "Adjusted
EBIRTDA" means the sum of net income after taxes, plus interest expense, lease
expense and rent expense, plus tax expense, plus depreciation and amortization
expense, but less capital expenditures of EMI and its subsidiaries (excluding
therefrom any payment made in respect of permitted school acquisitions), on a
consolidated basis. This ratio will be calculated at the end of each fiscal
quarter of EMI, using the results of that quarter and each of the three
immediately preceding quarters.
9.6 Total Funded Debt/Adjusted Cash Flow Coverage Ratio. To
maintain on a consolidated basis a Total Funded Debt/Adjusted Cash Flow Coverage
Ratio of not more than 3.0:1.
"Total Funded Debt/Adjusted Cash Flow Ratio" means the ratio of Total Funded
Debt to Adjusted Cash Flow. "Total Funded Debt" means purchase money debt
(including, without limitation, any such debts to sellers of schools, but
excluding trade payables) and indebtedness for money borrowed and guarantees of
such debts, including, without limitation, any debts represented by notes
payable, bonds, debentures, capitalized lease obligations and letters of credit
and any subordinated debt, of EMI and its subsidiaries, on a consolidated basis.
"Adjusted Cash Flow" means "EBITDA," as computed in Paragraph 3.3, less capital
expenditures (but excluding therefrom any capital expenditures made in respect
of permitted acquisitions of schools) less dividends, withdrawals, loans,
advances, and other distributions to any stockholders, of EMI and its
subsidiaries, on a consolidated basis. This ratio will be calculated at the end
of each fiscal quarter of EMI, using the results of that quarter and each of the
three immediately preceding quarters.
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<PAGE> 30
9.7 Senior Funded Debt/Adjusted Cash Flow Ratio. To maintain a
Senior Funded Debt/Adjusted Cash Flow Ratio of not more than 2.0:1.
"Senior Funded Debt/Adjusted Cash Flow Ratio" means the ratio of "Senior Funded
Debt" to "Adjusted Cash Flow." Senior Funded Debt is equal to Total Funded Debt
(as defined above) less any such debt which has been subordinated, in a form,
manner and substance acceptable to the Bank, to all of the Borrowers'
obligations to the Bank. "Adjusted Cash Flow" has the meaning described above.
This ratio will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the three immediately preceding quarters.
9.8 Other Debts. Not to have outstanding or incur any direct or
contingent liabilities or lease obligations (other than those to the Bank), or
become liable for the liabilities of others without the Bank's written consent.
This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal
trade credit.
(b) Endorsing negotiable instruments received in the
usual course of business.
(c) Obtaining surety bonds in the usual course of
business.
(d) Liabilities in existence on the date of this
Agreement disclosed in the Borrowers' financial statements described in
Paragraph 8.6.
(e) Additional debts and lease obligations for the
acquisition of fixed or capital assets, to the extent permitted elsewhere in
this Agreement.
(f) unsecured (except for permitted stock pledges, as
described below) debt to sellers of schools.
(g) Additional debts and lease obligations incurred for
business purposes not otherwise described in, and permitted by, subparagraphs
(a) through (f) above, which, in aggregate amount, do not exceed a total
principal amount of $2,000,000 outstanding at any one time.
9.9 Other Liens. Not to create, assume, or allow any security
interest or lien (including judicial liens) on property the Borrowers now or
later own, except:
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<PAGE> 31
(a) Deeds of trust and security agreements in favor of
the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement and
disclosed in writing to the Bank on Schedule 9.9 attached hereto.
(d) Additional purchase money security interests in
personal or real property acquired after the date of this Agreement, if the
total principal amount of all debts secured by such liens does not exceed
$2,500,000 at any one time.
(e) Pledges of a school's capital stock given to support
the payment of permitted purchase money debt to the seller of a school pursuant
to an acquisition permitted in Paragraph 9.23(e).
(f) Liens which the DOE may claim in respect of certain
deposit accounts which the schools may be required to maintain for the receipt
of funds under Title IV Programs as part of the Title IV Program Requirements.
9.10 Capital Expenditures. Not to spend more than the following
amounts in any specified fiscal year to acquire fixed or capital assets (except
any made for permitted school acquisitions under Paragraph 9.23(e)):
<TABLE>
<CAPTION>
Fiscal Year
Ending Amount
------ ------
<S> <C>
March 31, 1997 $2,000,000
March 31, 1998 $3,000,000
March 31, 1999 $4,000,000
</TABLE>
9.11 Dividends. Not to declare or pay any dividends on any of its
shares except dividends payable to EMI by its subsidiaries and dividends payable
in capital stock of a Borrower; and not to purchase, redeem or otherwise acquire
for value any of its shares, or create any sinking fund in relation thereto.
9.12 Loans and Investments. Not to make any loans or other
extensions of credit to, or make any investments in, or make any capital
contributions or other transfers of assets to, any individual or entity, except
for:
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<PAGE> 32
(a) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business.
(b) investments in any of the following: (i) marketable,
direct obligations of the United States of America and its agencies maturing
within three hundred sixty-five (365) days of the date of purchase, (ii)
commercial paper issued by corporations maturing 180 days from the date of
original issue is rated "P-1" or better by Moody's or "A-1" or better by S&P,
(iii) certificates of deposit maturing within 1 year of the date of purchase
issued by a United States national or state bank having deposits totaling more
than $250,000,000, and whose short-term debt is rated "P-1" or better by Moody's
or "A-1" or better by S&P, and (iv) investments made with, or through, the Bank
or BofA.
(c) extensions of credit to and investments in other
Borrowers.
(d) acquisitions of schools permitted under Paragraph
9.23(e).
9.13 Change of Ownership. Not to cause, permit, or suffer any
change, direct or indirect, in (i) the capital ownership by EMI of its
subsidiaries; or (ii) the capital ownership of EMI, to the extent that a report
on Form 8-K is required to be filed with the Securities and Exchange Commission
disclosing a change in control.
9.14 Notices to Bank. To promptly notify the Bank in writing of:
(a) any lawsuit claiming damages over $100,000 against a
Borrower.
(b) any dispute between a Borrower and any government
authority which the Bank determines, if resolved adversely to such Borrower,
would materially interfere with the conduct of such Borrower's business as then
being conducted by it.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any
guarantor's) business condition (financial or otherwise), operations, properties
or prospects, or ability to repay the credit.
(e) any change in a Borrower's name, legal structure,
place of business, or chief executive office if such Borrower has more than one
place of business.
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<PAGE> 33
(f) any default or event of default under Paragraph 11.
9.15 Books and Records. To maintain adequate books and records.
9.16 Audits. To allow the Bank and its agents to inspect Borrowers'
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrowers' properties, books or records are in
the possession of a third party, the Borrowers authorize that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
9.17 Compliance with Laws. To comply with the laws (including any
fictitious name statute), regulations, and orders of any government body with
authority over each Borrower's business (excepting therefrom, however, instances
of incidental noncompliance occurring from time to time in the ordinary course
of a Borrower's business without actual knowledge of a Borrower, which the Bank
determines are immaterial to the operation of its business and are capable of
being cured without any significant disruption to such business). The foregoing
shall include, specifically, but without limitation, compliance with all Title
IV Program Requirements, as prescribed with more particularity in Section 9.25.
9.18 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrowers now have.
9.19 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrowers' properties in good working condition.
9.20 Perfection of Liens. To help the Bank perfect and protect its
security interests and liens, and reimburse it for related costs it incurs to
protect its security interests and liens.
9.21 Cooperation. To take any action reasonably requested by the
Bank to carry out the intent of this Agreement.
9.22 Insurance.
(a) Insurance Covering Collateral. To maintain all risk
property damage insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the Bank.
The insurance must be
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<PAGE> 34
issued by an insurance company acceptable to the Bank and must include a
lender's loss payable endorsement in favor of the Bank in a form acceptable to
the Bank.
(b) General Business Insurance. To maintain insurance
satisfactory to the Bank as to amount, nature and carrier covering property
damage (including loss of use and occupancy) to any Borrower's properties,
public liability insurance including coverage for contractual liability, product
liability and workers' compensation, and any other insurance which is usual for
the Borrowers' businesses.
(c) Evidence of Insurance. Upon the request of the Bank,
to deliver to the Bank a copy of each insurance policy, or, if permitted by the
Bank, a certificate of insurance listing all insurance in force.
9.23 Additional Negative Covenants. Not to, without the Bank's
written consent:
(a) engage in any business activities substantially
different from the Borrowers' present businesses.
(b) liquidate or dissolve any of the Borrowers'
businesses.
(c) enter into any consolidation, merger, or other
combination, or become a partner in a partnership, a member of a joint venture,
or a member of a limited liability company, except (i) in connection with any
acquisition permitted under subparagraph (e) and (ii) that Subsidiaries of EMI
may merge, combine or consolidate with each other or with EMI (so long as, in
the case of any merger, combination or consolidation with EMI, EMI is the
survivor.
(d) sell, lease, transfer or dispose of all or a
substantial part of a Borrower's business or a Borrower's assets, except, in the
case of any Borrower, to any other Borrower.
(e) acquire or purchase a business or its assets;
provided, however, that, acquisitions of all, or substantially all, of the
assets of, or of all or a controlling interest in the shares of capital stock
of, any business engaged in the provision of career-oriented, postsecondary
education within the United States (herein, a "school"), shall be permitted, if,
but only if: (i) no default then exists under this Agreement, or would be caused
by, or would result from, such proposed acquisition (after giving pro forma
effect to such acquisition, in respect of the financial covenants set forth at
Paragraphs 9.3 through 9.7); (ii) the cost of such acquisition, inclusive of any
assumed liabilities, does not exceed (A)
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<PAGE> 35
$10,000,000, if no advance under Facility No. 2 is requested for its financing
or (B) $5,000,000 if any advance under Facility No. 2 is requested for its
financing; (iii) the incremental amount which the Borrower then may borrow under
Facility No. 1 (after giving pro forma effect to the proposed acquisition),
determined under subparagraphs (a) and (d) of Paragraph 2.1, is at least
$3,000,000; (iv) the school being acquired has a positive EBITDA (computed in
the same manner as is defined in Paragraph 3.3 in respect of EMI, after
adjustments by the Bank as necessary for excessive compensation amount and like
items) for its most recently concluded period of twelve (12) fiscal months; and
(v) the acquisition is not opposed by the board of directors of the school
proposed to be acquired; i.e, it is not a "hostile" acquisition. EMI, as agent
on behalf of the Borrowers, shall certify the foregoing to the Bank at the time
of such acquisition. Such certification shall include calculations of pro forma
compliance with Paragraphs 9.3 through 9.7 on both a consolidated basis
(including the school being acquired) and on a stand alone basis for such
school. The Bank has reserved to itself the right, in its sole discretion, to
consent in writing to any such acquisition notwithstanding the Borrower's
non-compliance with one or more of the foregoing conditions, but any such
consent may be made subject to such other terms and conditions as the Bank, in
its sole discretion, then may elect.
(f) sell, assign, lease, transfer or otherwise dispose of
any assets, or enter into any agreement to do so, except:
(i) dispositions of inventory, or used, worn-out or
surplus equipment, all in the ordinary course of business;
(ii) the sale of equipment to the extent that such
equipment is exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are reasonably promptly
applied to the purchase price of such replacement equipment; and
(iii) dispositions not otherwise permitted hereunder which
are made for fair market value; provided, that (i) at the time of any
disposition, no event of default shall exist or shall result from such
disposition, (ii) the aggregate sales price from such disposition shall be paid
in cash, and (iii) the aggregate value of all assets so sold by the Borrowers
shall not exceed in any fiscal year $250,000.
(g) enter into any sale and leaseback agreement covering
any of its fixed or capital assets.
(h) close, or voluntarily suspend the business of any
school for more than 30 days, if that school's contribution (computed as defined
in Paragraph 9.25) then
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represents 5% or more of the total school contributions for the most recently
concluded period of four fiscal quarters.
9.24 ERISA Plans. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section
4043(b) of ERISA for which the PBGC requires 30 day notice.
(b) Any action by a Borrower to terminate or withdraw
from a Plan or the filing of any notice of intent to terminate under Section
4041 of ERISA.
(c) Any notice of noncompliance made with respect to a
Plan under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a
Plan under Section 4042 of ERISA.
9.25 Title IV Program Requirements. To maintain at all times all
Title IV Program Requirements for schools representing, in the aggregate, not
less than 80% of the total school contributions of all schools operated by the
Borrowers. For purposes hereof, "school contributions" for each school shall be
computed on a quarterly basis, for the most recently completed period of four
fiscal quarters, and shall be equal to each school's total revenue minus all
school operating costs (to include training expense, facility expense,
advertising expense, sales expense, administrative expense and bad debt
expense). "Total school contributions" of all schools shall be the aggregate of
each school's contribution.
"Title IV Program Requirements" shall mean and include all eligibility,
program and general requirements imposed upon schools under Title IV programs
administered by the U.S. Department of Education ("DOE") under the Higher
Education Act of 1965, as amended, and the regulations thereunder ("Title IV
Programs"), including, without limitation, for each of the schools operated by
Borrowers (i) its continuing certification by the DOE as an "eligible
institution;" (ii) its continuing authorization to offer its programs by the
relevant state agency where it is located; (iii) its continuing accreditation by
a nationally recognized accrediting agency; (iv) its continuing compliance with
respect to maximum rates of default by its students with respect to federally
guaranteed or funded student loans; i.e., cohort default rates; (v) its
continuing satisfaction of certain financial responsibility standards; (vi) its
continuing compliance with standards for maximum acceptable proportions of
school revenues derived from Title IV programs, i.e., "85/15" rule; and (vii)
its continuing compliance in respect of changes in curriculum, location and
control. Without limitation of the foregoing, to the extent that any school is
at any time
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required by the DOE to post a letter of credit, bond or other, similar evidence
of financial assurance as a condition to its remaining an "eligible
institution," the Bank, in its sole discretion, shall have the right to declare
that such school shall not be considered as maintaining all Title IV Program
Requirements for purposes of this Paragraph.
9.26 Subsidiaries. Promptly upon its creation or acquisition, to
cause all subsidiaries of Borrowers hereafter created or acquired (including any
acquired as schools) to execute a joinder to this Agreement in form and
substance acceptable to the Bank whereby such subsidiary shall become a Borrower
hereunder.
10. HAZARDOUS WASTE INDEMNIFICATION
The Borrowers, jointly and severally, will indemnify and hold harmless
the Bank from any loss or liability directly or indirectly arising out of the
use, generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a hazardous substance. This indemnity will
apply whether the hazardous substance is on, under or about any Borrower's
property or operations or property leased to any Borrower. The indemnity
includes but is not limited to attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). The indemnity
extends to the Bank, its parent, its and its parents subsidiaries (including
BofA) and all of their directors, officers, employees, agents, successors,
attorneys and assigns. For these purposes, the term "hazardous substances" means
any substance which is or becomes designated as "hazardous" or "toxic" under any
federal, state or local law. This indemnity will survive repayment of the
Borrowers' obligations to the Bank and this Agreement's termination.
11. DEFAULT
If any of the following events occurs (called in this Agreement a
"default" or "event of default"), the Bank may do one or more of the following:
declare the Borrowers in default, stop making any additional credit available to
the Borrowers, and require the Borrowers to repay the entire debt immediately
and without prior notice. If an event of default occurs under the paragraph
entitled "Bankruptcy," below, with respect to the Borrowers, then, the entire
debt outstanding under this Agreement will automatically be due immediately.
11.1 Failure to Pay. A Borrower fails to make a payment under this
Agreement when due.
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11.2 Lien Priority. The Bank fails to have an enforceable first
lien (except for any prior liens to which the Bank has consented in writing)
on or security interest in any property given as security for the advances.
11.3 False Information. A Borrower (or any guarantor) has given the
Bank false or misleading information or representations in respect of any
matter, event or occurrence which the Bank determines to be material.
11.4 Bankruptcy. A Borrower (or any guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against a Borrower (or any guarantor)
or a Borrower (or any guarantor) makes a general assignment for the benefit of
creditors. The default will be deemed cured if any bankruptcy petition filed
against a Borrower (or any guarantor) is dismissed within a period of 60 days
after the filing; provided, however, that the Bank will not be obligated to
extend any additional credit to the Borrowers during that period.
11.5 Receivers. A receiver or similar official is appointed for any
Borrower's business, or the business is terminated.
11.6 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one
or more creditors against a Borrower in an aggregate amount of $100,000 or more
in excess of any insurance coverage.
11.7 Judgments. Any judgments or arbitration awards are entered
against any Borrower (or any guarantor), or any Borrower (or any guarantor)
enters into any settlement agreements with respect to any litigation or
arbitration, in an aggregate amount of $100,000 or more in excess of any
insurance coverage.
11.8 Government Action. Any government authority takes action that
the Bank believes materially adversely affects any Borrower's (or any
guarantor's) financial condition or ability to repay the advances.
11.9 Material Adverse Change. A material adverse change occurs in
any Borrower's (or any guarantor's) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the advances.
11.10 Cross-default. Any default occurs under any agreement in
connection with any credit which any Borrower (or any guarantor) or any
Borrower's related entities or affiliates has obtained from another lender else
or which any Borrower (or any guarantor) or any Borrowers related entices or
affiliates has guaranteed in the amount of $100,000 or
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more in the aggregate if the default consists of failing to make a payment when
due or gives the other lender the right to accelerate the obligation.
11.11 Default under Related Documents. Any guaranty, subordination
agreement, security agreement, deed of trust, or other document required by this
Agreement is violated or no longer in effect.
11.12 Other Bank Agreements. A Borrower (or any guarantor) fails to
meet the conditions of, or fails to perform any obligation under any other
agreement which a Borrower (or any guarantor) has with the Bank, BofA or any
other affiliate of the Bank. If, in the Bank's opinion, the breach is capable of
being remedied, the breach will not be considered an event of default under this
Agreement for a period of 10 days after the date on which the Bank gives written
notice of the breach to the Borrowers; provided, however, that the Bank will not
be obligated to extend any additional credit to the Borrowers during that
period.
11.13 ERISA Plans. The occurrence of any one or more of the
following events with respect to any Borrower, provided such event or events
could reasonably be expected, in the judgment of the Bank, to subject any
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of any Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan
which is, in the reasonable judgment of the Bank likely to result in the
termination of such Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings
to terminate a Plan) or a Borrower's full or partial withdrawal from a Plan.
11.14 Other Breach Under Agreement. The Borrowers fail to meet the
conditions of, or fail to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. This includes any
failure or anticipated failure by the Borrowers to comply with any financial
covenants set forth in this Agreement, whether such failure is evidenced by
financial statements delivered to the Bank or is otherwise known to the
Borrowers or the Bank. If, in the Bank's opinion, the breach is capable of being
remedied, the breach will not be considered an event of default under this
Agreement for a period of 10 days after the date on which the Bank gives written
notice of the breach to the Borrowers; provided, however, that the Bank will not
be obligated to extend any additional credit to the Borrowers during that
period.
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12. ENFORCING THIS AGREEMENT; MISCELLANEOUS
12.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently applied
(herein, "GAAP").
12.2 Georgia Law. This Agreement is governed by Georgia law.
12.3 Successors and Assigns. This Agreement is binding on each
Borrower's and the Bank's successors and assignees. The Borrowers agree that
they will not assign this Agreement without the Bank's prior consent. The Bank
may sell participations in or assign this loan, and may exchange financial
information about the Borrowers with actual or potential participants or
assignees. If a participation is sold or the loan is assigned, the purchaser
will have the right of set-off against the Borrowers.
12.4 Arbitration.
(a) Dispute Resolution. Any controversy or claim between
or among the parties or their assignees arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith, including any claim based on or arising from an alleged
tort, shall at the request of any party be determined by arbitration, reference,
or trial by a judge as provided hereafter. A controversy involving only a single
claimant, or claimants who are related or asserting claims arising from a single
transaction, shall be determined by arbitration as described below. Any other
controversy shall be determined by judicial reference of the controversy to a
referee appointed by the court or, if the court where the controversy is venued
lacks the power to appoint a referee, by trial by a judge without a jury, as
described below. THE PARTIES AGREE AND UNDERSTAND THAT THEY ARE GIVING UP THE
RIGHT TO TRIAL BY JURY, AND THERE SHALL BE NO JURY WHETHER THE CONTROVERSY OR
CLAIM IS DECIDED BY ARBITRATION, BY JUDICIAL REFERENCE, OR BY TRIAL BY A JUDGE.
(b) Arbitration. Since this Agreement touches and
concerns interstate commerce, an arbitration under this Agreement shall be
conducted in accordance with the United States Arbitration Act (Title 9, United
States Code), notwithstanding any choice of law provision in this Agreement. The
Commercial Rules of the American Arbitration Association ("AAA") also shall
apply. The arbitrator(s) shall follow the law and shall give effect to statutes
of limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrator(s). The award of the
arbitrator(s) shall be in writing and include a statement of reasons for the
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award. The award shall be final. Judgment upon the award may be entered in any
court having jurisdiction, and no challenge to entry of judgment upon the award
shall be entertained except as provided by Section 10 of the United States
Arbitration Act or upon a finding of manifest injustice.
(c) Judicial Reference or Trial by a Judge. At the
request of any party, any controversy or claim under subparagraph (a) that is
not submitted to arbitration as provided in subparagraph (b) shall be
determined by reference to a referee appointed by the court who, sitting alone
and without a jury, shall decide all questions of law and fact. The parties
shall designate to the court a referee selected under the auspices of the AAA
in the same manner as arbitrators are selected in AAA-sponsored proceedings.
The referee shall be an active attorney or retired judge. If the court where
the controversy is venued lacks the power to appoint a referee, the controversy
instead shall be decided by trial by a judge without a jury.
(d) Self-Help, Foreclosure, and Provisional Remedies. No
provision of this paragraph shall limit the right of any party to this Agreement
to exercise self-help remedies such as set off or repossession, to foreclose by
power of sale or judicially against or sell any collateral or security, or to
obtain any provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration under
subparagraph (6), above. Neither the obtaining nor the exercise of any such
remedy shall waive the right of either party to demand that the related or any
other dispute or controversy be determined by arbitration as provided above.
12.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes an advance after default. If the Bank waives a default,
it may enforce a later default. Any consent or waiver under this Agreement must
be in writing.
12.6 Reimbursement Costs. The Borrowers agree to reimburse the Bank
immediately for any expenses it incurs in the preparation of this Agreement and
any agreement or instrument required by this Agreement. Expenses include, but
are not limited to, reasonable attorneys' fees, including any allocated costs of
the Bank's in-house counsel, filing, recording and search fees, appraisal fees,
title report fees and documentation fees.
12.7 Administration Costs. The Borrowers shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
12.8 Attorneys' Fees. The Borrowers shall reimburse the Bank for
any reasonable costs and attorneys' fees incurred by the Bank in connection with
the
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enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. In
the event that any case is commenced by or against the Borrowers under the
Bankruptcy Code (Title 11, United States Code) or any similar or successor
statute, the Bank is entitled to recover costs and reasonable attorneys' fees
incurred by the Bank related to the preservation, protection, or enforcement of
any rights of the Bank in such a case. As used in this paragraph, "attorneys'
fees" includes the allocated costs of the Bank's in-house counsel.
12.9 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and severally
liable to the Bank for the payment of all obligations arising under this
Agreement, and that such liability is independent of the obligations of the
other Borrower(s) (or any guarantor). The Bank may bring an action against any
Borrower, whether an action is brought against the other Borrower(s) (or any
guarantor).
(b) Each Borrower agrees that any release which may be
given by the Bank to the other Borrower(s) (or any guarantor) will not release
such Borrower from its obligations under this Agreement.
(c) Each Borrower waives any right to assert against the
Bank any defense, setoff, counterclaim, or claims which such Borrower may have
against the other Borrower(s) or any other party (including any grantor) liable
to the Bank for the obligations of the Borrowers under this Agreement.
(d) Each Borrower agrees that it is solely responsible
for keeping itself informed as to the financial condition of the other
Borrower(s) and of all circumstances which bear upon the risk of nonpayment.
Each Borrower waives any right it may have to require the Bank to disclose to
such Borrower any information which the Bank may now or hereafter acquire
concerning the financial condition of the other Borrower(s).
(e) Each Borrower waives all rights to notices of default
or nonperformance by any other Borrower under this Agreement. Each Borrower
further waives all rights to notices of the existence or the creation of new
indebtedness by any other Borrower.
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(f) The Borrowers represent and warrant to the Bank that
they each will derive benefit, directly and indirectly, from the collective
administration and availability of credit under this Agreement. The Borrowers
agree that the Bank will not be required to inquire as to the disposition by any
Borrower of funds disbursed in accordance with the terms of this Agreement.
(g) Each Borrower waives any right of subrogation,
reimbursement, indemnification and contribution (contractual, statutory or
otherwise), including without limitation, any claim or right of subrogation
under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute,
which such Borrower may now or hereafter have against any other Borrower with
respect to the indebtedness incurred under this Agreement, unless and until this
Agreement is terminated and all debts to the Bank arising hereunder have been
fully paid and satisfied. Each Borrower further waives any right to enforce any
remedy which the Bank now has or may hereafter have against any other Borrower,
and waives any benefit of, and any right to participate in, any security now or
hereafter held by the Bank.
12.10 One Agreement. This Agreement and any related security or
other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and
agreements between the Bank and the Borrowers concerning this credit;
(b) replace any prior oral or written agreements between
the Bank and the Borrowers concerning this credit; and
(c) are intended by the Bank and the Borrowers as the
final, complete and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by is Agreement, this Agreement will prevail.
12.11 Disposition of Schedules. The Bank will not be obligated to
return any schedules, invoices, statements, budgets, forecasts, reports or other
papers delivered by the Borrowers. The Bank will destroy or otherwise dispose of
such materials at such time as the Bank, in its discretion, deems appropriate.
12.12 Credit Adjustments. Until the Bank exercises its rights to
collect the accounts receivable as provided under any security agreement
required under this Agreement, the Borrowers may continue their present policies
for credit adjustments. If a
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credit adjustment is made with respect to any Acceptable Receivable, the amount
of such adjustment shall no longer be included in the amount of such Acceptable
Receivable in computing the Borrowing Base.
12.13 Verification of Receivables. The Bank may at any time, either
orally or in writing, request confirmation from any debtor of the current amount
and status of the accounts receivable upon which such debtor is obligated.
12.14 Indemnification. The Borrowers will indemnify and hold the
Bank harmless from any loss, liability, damages, judgments, and costs of any
kind relating to or arising directly or indirectly out of (a) this Agreement or
any document required hereunder, (b) any credit extended or committed by the
Bank to the Borrowers hereunder, (c) any claim, whether well-founded or
otherwise, that there has been a failure to comply with any law regulating the
Borrowers' sales or leases to or performance of services for debtors obligated
upon the Borrowers' accounts receivable and disclosures in connection therewith,
and (d) any litigation or proceeding related to or arising out of this
Agreement, any such document, any such credit, or any such claim. This indemnity
includes but is not limited to attorneys' fees (including the allocated cost of
in-house counsel). This indemnity extends to the Bank, its parent, its and its
parent's subsidiaries (including BofA) and all of their directors, officers,
employees, agents, successors, attorneys, and assigns. This indemnity will
survive repayment of the Borrowers' obligations to the Bank and this Agreement's
termination. All sums due to the Bank hereunder shall be obligations of the
Borrowers, due and payable immediately without demand.
12.15 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
the Bank and the Borrowers may specify from time to time in writing.
12.16 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.
12.17 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
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This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA, FSB EDUCATIONAL MEDICAL, INC.
By By /s/ Vince Pisano
------------------------ ----------------------------------------
Typed Name Typed Name Vince Pisano
---------------- --------------------------------
Title Title Vice President and Chief Financial
--------------------- -------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Address where notices to Address where notices to
the Bank are to be sent: the Borrowers are to be sent:
1230 Peachtree Street, Suite 3600 1327 Northmeadow Parkway, Suite 132
Atlanta, Georgia 30309 Roswell, Georgia 30076
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<PAGE> 46
ANDON COLLEGES, INC.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
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<PAGE> 47
CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN, INC.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
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<PAGE> 48
DBS ACQUISITION CORP.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
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<PAGE> 49
DEST EDUCATION CORPORATION
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
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<PAGE> 50
ICM ACQUISITION CORP.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
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<PAGE> 51
HBC ACQUISITION CORP.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
-44-
<PAGE> 52
MARIC LEARNING SYSTEMS
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
-45-
<PAGE> 53
MTSX ACQUISITION CORP.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
-46-
<PAGE> 54
OIOPT ACQUISITION CORP.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
-47-
<PAGE> 55
PALO VISTA COLLEGE OF NURSING AND
ALLIED HEALTH SCIENCES, INC.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
-48-
<PAGE> 56
SACMD ACQUISITION CORP.
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
-49-
<PAGE> 57
SCOTTSDALE EDUCATIONAL CENTER FOR
ALLIED HEALTH CAREERS, INCORPORATED
By /s/ Vince Pisano
----------------------------------------
Typed Name Vince Pisano
--------------------------------
Title Vice President and Chief Financial
-------------------------------------
Officer
-------------------------------------
Attest /s/ Morris C. Brown
-------------------------------------
Typed Name Morris C. Brown
--------------------------------
Title Secretary
-------------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
-50-
<PAGE> 58
SCHEDULE 8.1
[SUBSIDIARIES]
Dest Education Corporation is a subsidiary of Andon Colleges, Inc.
-51-
<PAGE> 59
SCHEDULE 9.9
[LIENS]
[See attached]
-52-
<PAGE> 1
EXHIBIT 10.47
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of
February 25, 1997, between EDUCATIONAL MEDICAL, INC., a Delaware corporation
(herein called the "Pledgor"), and BANK OF AMERICA, FSB (the "Bank"),
individually and as agent for itself and each "Issuer," as that term is defined
below (the Bank, acting in such capacity, herein called the "Secured Party").
W I T N E S S E T H:
WHEREAS, pursuant to a Business Loan Agreement, dated as of even date
herewith, among Pledgor, its subsidiaries and Secured Party (herein, as the
same may be amended, modified, supplemented or renewed from time to time,
called the "Loan Agreement"; capitalized terms used herein, but not expressly
defined herein, shall have the meanings given to such terms in the Loan
Agreement), the Bank has agreed to extend credit and other financial
accommodations to Borrowers; and
WHEREAS, the Pledgor is the owner of all shares of capital stock of
each Borrower (other than Pledgor), all as specified on Schedule "A" attached
hereto and by reference made part hereof (all such owned shares, together with
other shares delivered or required to be delivered hereunder hereinafter called
the "Pledged Shares"); and
WHEREAS, it is a condition to the making of such financial
accommodations that the Pledgor execute and deliver this Pledge Agreement in
favor of Secured Party and, it being in the Pledgor's best interest that
Borrowers obtain such financial accommodations, Pledgor is willing to execute
and deliver this Pledge Agreement;
NOW, THEREFORE, in consideration of the foregoing, the Pledgor agrees
with Secured Party that:
SECTION 1. Pledge. To secure the due and punctual payment of the
"Secured Obligations" (as hereinafter defined), the Pledgor hereby pledges,
hypothecates, assigns, transfers, sets over and delivers unto Secured Party,
and hereby grants to the Secured Party a security interest in, the following:
(i) the Pledged Shares and the certificates representing the Pledged Shares,
and all cash securities, dividends, rights, and other property at any time and
from time to time received, receivable or otherwise distributed in respect of
or in exchange for any or all of the Pledged Shares; (ii) all additional shares
of stock at any time and from time to time acquired by the Pledgor in any
manner, and the certificates representing such additional shares, and also any
cash, securities, dividends, rights, and other property at any time and from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares; and (iii) all other property hereafter
delivered to the Secured Party in substitution for or in addition to any of the
foregoing, all certificates and instruments representing or evidencing such
property and all cash,
<PAGE> 2
securities, interest, dividends, rights, and other property at any time and
from time to time received, receivable or otherwise distributed in respect of
or in exchange for any or all thereof (all such Pledged Shares, additional
shares, certificates, notes, instruments, cash, securities, interest,
dividends, rights, and other property being herein collectively called the
"Collateral");
TO HAVE AND TO HOLD the Collateral, together with all rights, titles,
interest, privileges, and preferences appertaining or incidental thereto, unto
the Secured Party, its successors and assigns, forever, subject, however, to
the terms, covenants, and conditions hereinafter set forth. As used herein,
the terms "Issuer," "Loan Documents" and "Secured Obligations," shall mean as
follows:
"Issuer" shall mean Bank of America National Trust and Savings
Association, or any affiliate thereof, which at any time or from time
to time issues any letter of credit, banker's acceptance, foreign
exchange contract, interest rate "hedge" or similar agreement, or
otherwise extends any credit or other financial accommodation to, with
or on behalf of Borrowers, or any one or more of them, whether
pursuant to the Loan Agreement or otherwise.
"Loan Documents" shall mean the Loan Agreement and any
document, instrument or agreement, whether now or hereafter existing,
evidencing, giving rise to or otherwise securing any of the Secured
Obligations.
"Secured Obligations" shall mean (i) all of the unpaid
principal amount of, and accrued interest on, the Loans, (ii) all
prepayment, facility commitment and other fees owing under the Loan
Agreement to Bank and (iii) all other debts, liabilities and other
obligations owing at any time or from time to time to the Bank or any
Issuer by the Borrowers, or any one or more of them, whether joint or
several, or as maker, surety, guarantor or otherwise, including any
arising under or in respect of any loan, lease, letter of credit,
banker's acceptance, foreign exchange contract, interest rate "hedge"
agreement or any other similar agreement, whether arising pursuant to
the Loan Agreement or otherwise.
SECTION 2. Warranties and Further Assurances. The Pledgor warrants
to the Secured Party that the Pledgor is, or at the time of any future
delivery, pledge, assignment, or transfer will be, the lawful owner of the
Collateral, free of all claims and liens other than the security interest
hereunder (and those security interests described in Schedule "A" with regard
to certain of the Pledged Shares), with full right to deliver, pledge, assign
and transfer the Collateral to the Secured Party as Collateral hereunder. The
Pledgor agrees to deliver to the Secured Party from time to time upon request
of the Secured Party such stock powers and similar documents, satisfactory in
form and substance to the Secured Party, with respect to the Collateral as the
Secured Party may reasonably request. The Pledgor further agrees not to sell,
assign, exchange, pledge or otherwise transfer or encumber any of its right to
any of the Collateral (except as described in Schedule "A").
SECTION 3. Care of Collateral. The Secured Party shall be deemed to
have exercised reasonable care with respect to the interest of the Pledgor in
the custody and preservation of the
<PAGE> 3
Collateral if it takes such action for that purpose as the Secured Party takes
customarily with respect to similar property of others in its custody or
control, but no failure of the Secured Party to preserve or protect any rights
with respect to the Collateral against prior parties, or to do any act with
respect to preservation of the Collateral not so requested by the Pledgor,
shall be deemed a failure to exercise reasonable care in the custody of
preservation of the Collateral.
SECTION 4. Certain Rights Regarding Collateral and Secured
Obligations. The Secured Party may from time to time, if a Default (as
hereinafter defined) exists hereunder, without notice to the Pledgor, take all
or any of the following actions: (i) transfer all or any part of the Collateral
into the name of the Secured Party or its nominee, with or without disclosing
that such Collateral is subject to the lien and security interest hereunder,
(ii) notify the parties obligated on any of the Collateral to make payment to
the Secured Party of any amounts due or to become due thereunder, (iii) enforce
collection of any of the Collateral by suit or otherwise, and surrender,
release or exchange all or any part thereof or compromise or extend or renew
for any period (whether or not longer than the original period) any obligations
of any nature of any party with respect thereto, (iv) take control of any
proceeds of the Collateral, and (v) resort to the Collateral for payment of any
of the Secured Obligations whether or not it shall have resorted to any other
property securing the Secured Obligations or shall have proceeded against any
party primarily or secondarily liable on any of the Secured Obligations. The
Secured Party may, furthermore from time to time, whether before or after any
of the Secured Obligations shall become due and payable, without notice to the
Pledgor, take all or any of the following actions: (i) retain or obtain a
security interest in any property, in addition to the Collateral, to secure any
of the Secured Obligations, (ii) retain or obtain the primary or secondary
liability of any party or parties, in addition to the Pledgor with respect to
any of the Secured Obligations, (iii) extend or renew for any period (whether
or not longer than the original period) or exchange any of the Secured
Obligations or release or compromise any obligation of any nature of any party
with respect thereto, and (iv) surrender, release or exchange all or any part
of any property, in addition to the Collateral, securing any of the Secured
Obligations, or compromise or extend or renew for any period any obligations of
any nature of any party with respect to any such property.
SECTION 5. Voting Right and Dividends.
(a) So long as no Default (as hereinafter defined) shall have
occurred and be continuing:
(i) The Pledgor shall have the right to vote the Pledged
Shares in a manner consistent with the terms of the
Loan Agreement and the other Loan Documents;
(ii) If and to the extent permitted under the Loan
Documents, the Pledgor shall be entitled to receive
any and all cash dividends on the Pledged Shares,
which it is otherwise entitled to receive, but any
and all stock and/or liquidating dividends,
distributions in property, returns of capital or
other distributions made on or in respect of the
Pledged Shares, whether resulting from a
-3-
<PAGE> 4
subdivision, combination or reclassification of the
outstanding capital stock of any issuer thereof or
received in exchange for the Pledged Shares or any
part thereof or as a result of any merger,
consolidation, acquisition or other exchange of
assets to which any issuer may be a party or
otherwise, and any and all cash and other property
received in exchange for any Collateral shall be and
become part of the Collateral pledged hereunder and,
if received by the Pledgor, shall forthwith be
delivered to the Secured Party or its designated
nominee (accompanied, if appropriate, by proper
instruments of assignment and/or stock power executed
by the Pledgor in accordance with the Secured Party's
instructions) to be held subject to the terms of this
Pledge Agreement; and
(iii) If the Pledged Shares shall have been registered in
the name of the Secured Party or its subagent, the
Secured Party shall execute and deliver (or cause to
be executed and delivered) to the Pledgor all such
dividend orders and other instruments as the Pledgor
may request for the purpose of enabling the Pledgor
to receive the dividends or other payments which it
is authorized to receive and retain pursuant to
subparagraph (i) above.
(b) Upon the occurrence and during the continuance of a Default:
(i) after written notice from the Secured Party to the
Pledgor, all rights of the Pledgor pursuant to Section 5(a)(i)
to vote the Pledged Shares shall cease and Secured Party or
its designated nominee shall have the sole and exclusive
authority to exercise such rights, (ii) all rights of the
Pledgor pursuant to Section 5(a)(ii) and 5(a)(iii) shall
cease, and (iii) the Secured Party shall have the sole and
exclusive right and authority to receive and retain the
dividends which the Pledgor would otherwise be authorized to
receive and retain pursuant to Section 5(a)(ii) hereof. Any
and all money and other property paid over to or received by
the Secured Party pursuant to the provisions of this paragraph
(b) shall be retained by the Secured Party as additional
Collateral hereunder and be applied in accordance with the
provisions hereof.
SECTION 6. Default.
(a) The occurrence of any of the following shall constitute a
"Default" hereunder: nonpayment, when due, whether by
acceleration or otherwise, of any amount due and payable on
any of the Secured Obligations; an "event of default,"
"default" or similar event or occurrence, howsoever
denominated, at any time arising under any of the Loan
Documents; any representation of the Pledgor contained herein
or given pursuant hereto shall be untrue in any material
respect; or the Pledgor shall default in the performance of
any agreement contained herein which is not cured to Secured
Party's satisfaction within ten (10) days after Pledgor
receives written notice thereof from Pledgor. Upon any such
Default, (i) the Secured Party may exercise from time to time
any rights and remedies available to it under the Uniform
Commercial Code
-4-
<PAGE> 5
as in effect from time to time in Georgia or otherwise
available to it, and (ii) the Secured Party may, without
demand or notice of any kind, appropriate and apply toward the
payment of such of the Secured Obligations, and in such order
or application, as the Secured Party may from time to time
elect, any balances, credits, deposits, accounts or moneys of
the Pledgor then constituting part of, or proceeds from, the
Collateral. If any notification of intended disposition of
any of the Collateral is required by law, such notification
shall be deemed reasonably and properly given if given at
least ten (10) days before such disposition, in the manner
prescribed for the giving of notices in Section 10 below. Any
proceeds of any disposition of Collateral may be applied by
the Secured Party to the payment of expenses in connection
with the Collateral, including reasonable attorneys' fees and
legal expenses, and any balance of such proceeds may be
applied by the Secured Party toward the payment of such of the
Secured Obligations and in such order of application, as
provided in Section 7 hereof. All rights and remedies of the
Secured Party expressed hereunder are in addition to all other
rights and remedies possessed by it, including those under any
other Loan Document. No delay on the part of the Secured
Party in the exercise of any right or remedy shall operate as
a waiver thereof, and no single or partial exercise by the
Secured Party of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or
remedy. No action of the Secured Party permitted hereunder
shall impair or affect the rights of the Secured Party in and
to the Collateral.
(b) The Pledgor agrees that in any sale of any of the Collateral
whenever a Default hereunder shall have occurred and be
continuing, the Secured Party is hereby authorized to comply
with any limitation or restriction in connection with such
sale as it may be advised by counsel is necessary in order to
avoid any violation of applicable law (including, without
limitation, compliance with such procedures as may restrict
the number of prospective bidders and purchasers, require that
such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and
purchasers to persons who will represent and agree that they
are purchasing for their own account for investment and not
with a view to the distribution or resale of such Collateral),
or in order to obtain any required approval of the sale or of
the purchaser by any governmental regulatory authority or
official, and the Pledgor further agrees that such compliance
shall not result in such sale being considered or deemed not
to have been made in a commercially reasonable manner, nor
shall the Secured Party be liable or accountable to the
Pledgor for any discount allowed by the reason of the fact
that such Collateral is sold in compliance with any such
limitation or restriction.
SECTION 7. Application of Proceeds of Sale or Cash Held as
Collateral. The proceeds of sale of Collateral sold pursuant to Section 6
hereof and/or, after a Default, the cash held as Collateral hereunder, shall be
applied by the Secured Party as follows:
-5-
<PAGE> 6
First: to payment of the costs and expenses of such sale
actually incurred by Secured Party, including the out-of-pocket
expenses of the Secured Party and the reasonable fees and
out-of-pocket expenses of counsel employed in connection therewith,
and to the payment of all advances made by the Secured Party for the
account of the Pledgor hereunder and the payment of all costs and
expenses incurred by the Secured Party in connection with the
administration and enforcement of this Pledge Agreement, to the extent
that such advances, costs and expenses shall not have been reimbursed
to the Secured Party (it being understood that, as used herein, costs
of "counsel" includes the allocated costs of the Secured Party's
in-house counsel);
Second: to the Bank and each Issuer, as appropriate, in an
amount equal to the then unpaid amount of the Secured Obligations in
such manner and order as they may elect, and if such proceeds shall be
insufficient to pay in full such amount, then to the Bank and each
Issuer ratably in accordance with the then unpaid amounts thereof
owing to them; and
Third: upon full payment and satisfaction of the Secured
Obligations, the balance, if any, of such proceeds shall be paid to
the Pledgor, its successors and assigns, or as a court of competent
jurisdiction otherwise may direct.
SECTION 8. Authority of Secured Party. The Secured Party shall have
and be entitled to exercise all such powers hereunder as are specifically
delegated to the Secured Party by the terms hereof, together with such powers
as are incidental thereto. The Secured Party may execute any of its duties
hereunder by or through agents or employees and shall be entitled to retain
counsel and to act in reliance upon the advice of such counsel concerning all
matters pertaining to its duties hereunder. Neither the Secured Party, nor any
director, officer or employee of the Secured Party, shall be liable for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith, except for its or their own gross negligence or willfull misconduct.
The Pledgor hereby agrees to reimburse the Secured Party, on demand, for all
expenses incurred by the Secured Party in connection with the administration
and enforcement of this Agreement (including expenses incurred by any sub-agent
employed by the Secured Party) and agrees to indemnify and hold harmless the
Secured Party and/or any such sub-agent from and against any and all liability
incurred by the Secured Party (or such sub-agent) hereunder or in connection
herewith, unless such liability shall be due to willful misconduct or gross
negligence on the part of the Secured Party or such sub-agent.
SECTION 9. Term of Agreement; Reinstatement. This Pledge Agreement
and the security interests granted hereunder shall remain in full force and
effect until all Secured Obligations have been fully paid and satisfied and all
Loan Documents have been terminated (except for any obligations designated
under any Loan Document as continuing on an unsecured basis). Further this
Agreement shall remain in full force and effect and continue to be effective
should any petition be filed by or against any Borrower for liquidation or
reorganization, should any Borrower become insolvent or make an assignment for
the benefit of creditors or should a receiver or trustee be appointed for all
or any significant part of any Borrower's assets, and shall continue to be
effective
-6-
<PAGE> 7
or be reinstated, as the case may be, if at any time payment and performance of
the Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by
any obligee of the Secured Obligations, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
SECTION 10. Notices. Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other party any other communication with respect to
this Security Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be delivered
in the manner and to the addresses set forth in the Loan Agreement.
SECTION 11. Severability. Any provision of this Pledge Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 12. No Waiver; Cumulative Remedies. Secured Party shall not
by any act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder, and no waiver shall be valid unless in writing,
signed by Secured Party, and then only to the extent therein set forth. A
waiver by Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which Secured Party
would otherwise have had on any future occasion. No failure to exercise nor
any delay in exercising on the part of Secured Party, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may
be exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Pledge
Agreement may be waived, altered, modified or amended except by an instrument
in writing, duly executed by Secured Party and, where applicable, by Pledgor.
SECTION 13. Successor and Assigns; Governing Law.
A. This Security Agreement and all obligations of
Pledgor hereunder shall be binding upon the successors and assigns of Pledgor,
and shall, together with the rights and remedies of Secured Party hereunder,
inure to the benefit of Bank, the Issuers and the Secured Party and their
respective successors and assigns. No sales of participations, other sales,
assignments, transfers or other dispositions of any agreement governing or
instrument evidencing the Secured Obligations or
-7-
<PAGE> 8
any portion thereof or interest therein shall in any manner affect the security
interest granted to Secured Party hereunder.
B. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA,
WITHOUT REGARD TO THE PROVISIONS THEREOF REGARDING CONFLICTS OF LAWS.
SECTION 14. Further Indemnification. Pledgor agrees to pay, and to
save Secured Party harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Security Agreement.
IN WITNESS WHEREOF, the Pledgor has caused this Pledge Agreement to be
duly executed by its officers thereunto duly authorized as of the date first
above written.
PLEDGOR:
EDUCATIONAL MEDICAL, INC.
By: /s/ Vince Pisano
---------------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
-----------------------------------
Name: Morris C. Brown
Title: Secretary
-8-
<PAGE> 9
SCHEDULE "A"
SCHEDULE OF SHARES OF CAPITAL STOCK
OWNED BY PLEDGOR
<TABLE>
<CAPTION>
Corporation No. Shares Stock Certificate No(s).
- ----------- ---------- ------------------------
<S> <C> <C>
Andon Colleges, Inc.
California Academy
of Merchandising,
Art and Design, Inc.
DBS Acquisition Corp.
ICM Acquisition Corp.
HBC Acquisition Corp.
Maric Learning Systems
MTSX Acquisition Corp.
OIOPT Acquisition Corp.
Palo Vista College of
Nursing and Allied
Health Sciences, Inc.
SACMD Acquisition Corp.
Scottsdale Educational
Center for Allied Health
Careers, Incorporated
</TABLE>
-9-
<PAGE> 1
EXHIBIT 10.48
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement"), dated as
of February 25, 1997, made by EDUCATIONAL MEDICAL, INC., a Delaware corporation
("EMI") and all of those subsidiaries of EMI identified as such on the
signature page(s) to this Agreement (EMI and all such subsidiaries herein
called, collectively, "Borrowers" and, individually, a "Borrower"), to and in
favor of BANK OF AMERICA, FSB (the "Bank"), individually and as agent for
itself and each "Issuer," as that term is defined below (the Bank, acting in
such capacity, herein called "Secured Party");
W I T N E S S E T H :
WHEREAS, pursuant to the Business Loan Agreement, dated as of
even date herewith, between Borrowers and Bank (as the same may from time to
time be amended, modified, supplemented or renewed, called the "Loan
Agreement"), Bank has agreed to extend credit and other financial
accommodations to Borrowers (the same being collectively referred to herein as
the "Loans"); and
WHEREAS, Bank is willing to make the Loans but only upon the
condition that Borrowers shall have executed and delivered to Secured Party
this Security Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined
in the Loan Agreement are used herein as therein defined, and the following
terms shall have the following meanings (such meanings being equally applicable
to both the singular and plural forms of the terms defined):
"Account Debtor" shall mean any "account debtor," as such term
is defined in Section 9-105(1)(a) of the UCC.
"Accounts" shall mean any "accounts," as such term is defined
in Section 9-106 of the UCC, now owned or hereafter acquired by a
Borrower or in which a Borrower now has or hereafter acquires any
rights, and, in any event, shall include, without limitation, all
accounts receivable, intercompany accounts and other forms of
obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments), now owned or hereafter received or
acquired by or belonging or owing to a Borrower (including, without
limitation, under any trade names, styles or divisions thereof)
whether arising out of goods sold or leased or services rendered by a
Borrower or from any other transaction, whether or not the same
involves the sale or lease of goods or services by a Borrower
(including, without limitation, any such obligation, which might be
characterized as an account or
<PAGE> 2
contract right under the UCC) and all of a Borrower's rights in, to
and under all purchase orders or receipts now owned or hereafter
acquired by it for goods or services, and all of a Borrower's rights
to any goods represented by any of the foregoing (including, without
limitation, unpaid seller's rights of rescission, replevin,
reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all moneys due or to become due to a
Borrower under all contracts for the sale of goods or the performance
of services or both by a Borrower (whether or not yet earned by
performance on the part of a Borrower or in connection with any other
transaction), now in existence or hereafter occurring, including,
without limitation, the right to receive the proceeds of said purchase
orders and contracts, and all collateral security and guarantees of
any kind given by any Person with respect to any of the foregoing.
"Chattel Paper" shall mean any "chattel paper," as such term
is defined in Section 9-105(1)(b) of the UCC, now owned or hereafter
acquired by a Borrower or in which a Borrower now has or hereafter
acquires any rights and wherever located.
"Collateral" shall have the meaning assigned to such term in
Section 2 of this Security Agreement.
"Contracts" shall mean all contracts, undertakings, or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which a Borrower may now or hereafter have
any right, title or interest, including, without limitation, with
respect to an Account, any agreement relating to the terms of payment
or the terms of performance thereof.
"Documents" shall mean any "documents," as such term is
defined in Section 9-105(1)(f) of the UCC, now owned or hereafter
acquired by a Borrower or in which a Borrower now has or hereafter
acquires any rights and wherever located.
"Equipment" shall mean any "equipment," as such term is
defined in Section 9-109(2) of the UCC, now owned or hereafter
acquired by a Borrower or in which a Borrower now has or hereafter
acquires any rights and wherever located, and, in any event, shall
include, without limitation, all machinery, equipment, molds,
furnishings, fixtures, motor vehicles and computers and other
electronic data-processing and other office equipment now owned or
hereafter acquired by a Borrower or in which a Borrower now has or
hereafter acquired any rights and wherever located, and any and all
additions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"Event of Default" shall mean any "default," "event of
default," or similar event or occurrence, howsoever denominated, at
any time arising under any of the Loan Documents.
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<PAGE> 3
"General Intangibles" shall mean any "general intangibles," as
such term is defined in Section 9-106 of the UCC, now owned or
hereafter acquired by a Borrower or in which Borrower now has or
hereafter acquires any rights, and, in any event, shall include,
without limitation, all right, title and interest which a Borrower may
now or hereafter have in or under any Contract, causes of action,
franchises, tax refund claims, customer lists, Trademarks, Patents,
rights in intellectual property, Licenses, permits, copyrights, trade
secrets, proprietary or confidential information, inventions and
discoveries (whether patented or patentable or not) and technical
information, procedures, designs, knowledge, know-how, software, data
bases, business records data, skill, expertise, experience, processes,
models, drawings, materials and records, goodwill, all claims under
guarantees, security interests or other security held by or granted to
a Borrower to secure payment of the Accounts by an account debtor
obligated thereon, all rights of indemnification and all other
intangible property of any kind and nature.
"Instruments" shall mean any "instrument," as such term is
defined in Section 9-105(1)(i) of the UCC, now owned or hereafter
acquired by a Borrower or in which a Borrower now has or hereafter
acquires any rights and wherever located, other than instruments that
constitute, or are a part of a group of writings that constitute,
Chattel Paper.
"Inventory" shall mean any "inventory," as such term is
defined in Section 9-109(4) of the UCC, now owned or hereafter
acquired by a Borrower or in which a Borrower now has or hereafter
acquires any rights and wherever located, and, in any event, shall
include, without limitation, all inventory, merchandise, supplies,
goods and other personal property, now owned or hereafter acquired by
a Borrower or in which a Borrower now has or hereafter acquires any
rights and wherever located, which are held for sale or lease or are
furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or
consumed or to be used or consumed in a Borrower's business, or the
processing, packaging, delivery or shipping of the same, and all
finished goods.
"Issuer" shall mean Bank of America National Trust and Savings
Association, or any affiliate thereof, which at any time or from time
to time issues any letter of credit, banker's acceptance, foreign
exchange contract, interest rate "hedge" or similar agreement, or
otherwise extends any credit or other financial accommodation to, with
or on behalf of Borrowers, or any one or more of them, whether
pursuant to the Loan Agreement or otherwise.
"License" shall mean any Patent License, Trademark License or
other license as to which Secured Party has been granted a security
interest hereunder.
"Loan Documents" shall mean the Loan Agreement and any
document, instrument or agreement, whether now or hereafter existing,
evidencing, giving rise to or otherwise securing any of the Secured
Obligations.
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"Patent License" shall mean all of the following now owned or
hereafter acquired by a Borrower or in which a Borrower now has or
hereafter acquires any rights: to the extent assignable by a
Borrower, any written agreement granting any right to make, use, sell
and/or practice any invention or discovery that is the subject matter
of a Patent.
"Patent" or "Patents" shall mean one or all of the following
now or hereafter owned by Borrower or in which a Borrower now has or
hereafter acquires any rights: (i) all letters patent of the United
States or any other country and all applications for letters patent of
the United States or any other country, (ii) all reissues,
continuations, continuations-in-part, divisions, reexaminations or
extensions of any of the foregoing, and (iii) all inventions disclosed
in and claimed in the Patents and any and all trade secrets and
knowhow related thereto.
"Proceeds" shall mean "proceeds," as such term is defined in
Section 9-306(1) of the UCC and, in any event, shall include, without
limitation, (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to a Borrower from time to time with
respect to any of the Collateral, (ii) any and all payments (in any
form whatsoever) made or due and payable to a Borrower from time to
time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any
governmental body, authority, bureau or agency (or any person acting
under color of governmental authority), (iii) any claim of a Borrower
against third parties (A) for past, present or future infringement of
any Patent or Patent License or (B) for past, present or future
infringement or dilution of any Trademark or Trademark License or for
injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License, (iv)
any and all other amounts from time to time paid or payable under or
in connection with any of the Collateral, and (v) the following types
of property acquired with cash proceeds: Accounts, Chattel Paper,
Contracts, Documents, General Intangibles, Equipment and Inventory.
"Secured Obligations" shall mean (i) all of the unpaid
principal amount of, and accrued interest on, the Loans, (ii) all
prepayment, commitment and other fees owing under the Loan Agreement
to Bank and (iii) all other debts, liabilities and other obligations
owing at any time or from time to time to the Bank or any Issuer by
the Borrowers, or any one or more of them, whether joint or several,
or as maker, surety, guarantor or otherwise, including any arising
under or in respect of any loan, lease, letter of credit, banker's
acceptance, foreign exchange contract, interest rate "hedge" agreement
or any other similar agreement, whether arising pursuant to the Loan
Agreement or otherwise.
"Security Agreement" shall mean this Security Agreement, as
the same may from time to time be amended, modified or supplemented
and shall refer to this Security Agreement as in effect of the date
such reference becomes operative.
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<PAGE> 5
"Supplemental Documentation" shall have the meaning assigned
to it in Section 5(a) of this Security Agreement.
"Trademark License" shall mean all of the following now owned
or hereafter acquired by a Borrower or in which a Borrower now has or
hereafter acquires any rights: any written agreement granting any
right to use any Trademark or Trademark registration.
"Trademark" or "Trademarks" shall mean one or all of the
following now owned or hereafter acquired by a Borrower or in which a
Borrower now has or hereafter acquires any rights: (i) all
trademarks, trade names, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing
or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, including,
without limitation, registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or
agency of any State of the United States or any other country or any
political subdivision thereof, (ii) all extensions or renewals thereof
and (iii) the goodwill symbolized by any of the foregoing.
"UCC" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of Georgia; provided,
however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of Secured
Party's security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of
Georgia, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
2. Grant of Security Interest. (a) Collateral. As collateral
security for the prompt and complete payment and performance when due (whether
at stated maturity, by acceleration or otherwise) of all the Secured
Obligations, each Borrower hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Secured Party and hereby grants to Secured Party,
a security interest in, all of such Borrower's right, title and interest in, to
and under the following (all of which being hereinafter collectively called the
"Collateral"):
(i) all Accounts of each Borrower;
(ii) all Chattel Paper of each Borrower;
(iii) all Contracts of each Borrower;
(iv) all Documents of each Borrower;
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<PAGE> 6
(v) all Equipment of each Borrower;
(vi) all General Intangibles of each Borrower;
(vii) all Instruments of each Borrower;
(viii) all Inventory of each Borrower;
(ix) all other goods and personal property of each
Borrower, whether tangible or intangible, including without
limitation, all bank accounts of each Borrower, now owned or hereafter
acquired by such Borrower or in which such Borrower now has or
hereafter acquires any rights and wherever located; and
(x) to the extent not otherwise included, all Proceeds of
each of the foregoing and all accessions to, substitutions and
replacements for, and rents, profits and products of each of the
foregoing and all books and records relating to each of the foregoing.
(b) Property in Possession. In addition, as collateral
security for the prompt and complete payment when due of the Secured
Obligations, Secured Party is hereby granted a lien and security interest in
all property of any Borrower held by Bank or any Issuer, including, without
limitation, all property of every description, now or hereafter in the
possession or custody of or in transit to Bank or any Issuer, for any purpose,
including for deposit, safekeeping, collection or pledge, for the account of
any Borrower, or as to which any Borrower may have any right or power.
3. Right of Secured Party; Limitations on Secured Party's
Obligations; License.
(a) Borrowers Remain Liable. It is expressly agreed by
Borrowers that, anything herein to the contrary notwithstanding, each Borrower
shall remain liable under each of its Contracts and each of its Licenses to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder and such Borrower shall perform all of its duties
and obligations thereunder, all in accordance with and pursuant to the terms
and provisions of each such Contract or License, unless and except to the
extent that the same are being Properly Contested. Secured Party shall not
have any obligation or liability under any Contract or License by reason of or
arising out of this Security Agreement or the granting to Secured Party of a
security interest therein or the receipt by Secured Party of any payment
relating to any Contract or License pursuant hereto, nor shall Secured Party be
required or obligated in any manner to perform or fulfill any of the
obligations of any Borrower under or pursuant to any Contract or License, or to
make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party
under any Contract or License, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times.
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<PAGE> 7
(b) Direct Collection. Secured Party may at any time,
after the occurrence of, and during the continuance of, any Event of Default,
after first notifying Borrowers of its intention to do so, open any Borrower's
mail and collect any and all amounts due from Account Debtors, and notify
Account Debtors of any Borrower, parties to the Contracts of any Borrower,
obligors of Instruments of any Borrower and obligors in respect of Chattel
Paper of any Borrower that the Accounts and the right, title and interest of
Borrower in and under such Contracts, such Instruments and such Chattel Paper
have been assigned to Secured Party and that payments shall be made directly to
Secured Party or to a lockbox designated by Secured Party. Upon the request of
Secured Party made at any time after the occurrence of, and during the
continuance of, an Event of Default, Borrowers will so notify such Account
Debtors, parties to such Contracts, obligors of such Instruments and obligors
in respect of such Chattel Paper. Secured Party also may at any time, upon
reasonable advance notice to Borrowers (unless an Event of Default has
occurred, in which case no notice is necessary), in its own name or in the name
of any Borrower, communicate with such Account Debtors, parties to such
Contracts, obligors of such Instruments and obligors in respect of such Chattel
Paper to verify with such Persons to Secured Party's sole satisfaction the
existence, amount and terms of any such Accounts, Contracts, Instruments or
Chattel Paper.
(c) Test Verifications. Upon reasonable prior notice to
Borrowers (unless an Event of Default has occurred, in which case no notice is
necessary), Secured Party shall have the right to make test verifications of
the Accounts and physical verifications of the Inventory in any reasonable
manner and through any reasonable medium that it considers advisable, and
Borrowers agree to furnish all such assistance and information as Secured Party
may require in connection therewith.
(d) License to Borrowers. Unless and until there shall
have occurred and be continuing an Event of Default, Secured Party hereby
grants to Borrowers the worldwide, exclusive, nontransferable (subject to each
Borrower's right to grant sublicenses), royalty-free right and license or
sublicense, in the case of the Patent Licenses and Trademark Licenses, to use
and enjoy the Patents, Trademarks, Patent Licenses and Trademark Licenses for
each Borrower's own benefit and account and for none other, including, without
limitation, the right to make, have made for it, use, sell, sublicense and/or
practice the inventions disclosed in any of the Patents or Patent Licenses.
With respect to Trademarks and Trademark Licenses, without limitation, each
Borrower shall maintain standards of quality that conform to those high-quality
standards presently established and used by such Borrower, standards with which
such Borrower is presently familiar, or established and used by such Borrower
from time to time in the future in connection with products and/or services
presently offered for sale by such Borrower or hereafter offered for sale by
such Borrower. Each Borrower agrees not to sell or assign its interest in, or,
after the occurrence of and during the continuance of an Event of Default, to
grant any sublicenses under, the license granted to such Borrower in this
Section 3(d) without the prior written consent of Secured Party. Upon the
occurrence of an Event of Default, Secured Party may terminate the license
granted under this Section 3(d) and exercise all of the rights and remedies
granted to it under this Security Agreement. In furtherance of the license or
sublicense granted to Borrowers hereunder, unless an Event of Default has
occurred and is continuing, Secured Party shall from time to time execute and
deliver,
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<PAGE> 8
upon the written request of Borrowers, any and all instruments, certificates,
or other documents, in the form so requested, necessary or appropriate in the
judgment of Borrowers to permit a Borrower to continue to exploit, license, use
and enjoy the Patents, Trademarks, Patent Licenses and Trademark Licenses.
4. Representations and Warranties. Each Borrower hereby
represents and warrants to Secured Party that:
(a) Sole Owner. Except for the security interest granted
to Secured Party pursuant to this Security Agreement, each Borrower is the sole
owner or lessee or authorized licensee of each item of the Collateral in which
it purports to grant a security interest hereunder, having good and sufficient
title thereto, or a valid interest as a lessee or licensee thereunder, free and
clear of any and all liens, and, in the case of Patents and Trademarks, free
and clear of licenses, registered user agreements and covenants not to sue
third persons. No amount in excess of $5,000 in the aggregate payable under or
in connection with any of its Accounts or Contracts are evidenced by
Instruments which have not been delivered to Secured Party.
(b) No Security Agreement. No currently effective
security agreement, financing statement, equivalent security or lien instrument
or continuation statement covering all or any part of the Collateral is on file
or of record in any public office, except such as may have been filed by any
Borrower in favor of Secured Party pursuant to this Security Agreement.
(c) Financing Statements. Upon the filing of appropriate
financing statements in the jurisdictions listed in Schedule I hereto and, upon
the filing of the Patent, Trademark and License Assignments to be filed in the
United States Patent and Trademark Office, this Security Agreement is effective
to create a valid and continuing first priority lien on and first priority
perfected security interest in the Collateral with respect to which a security
interest may be perfected by filing pursuant to the UCC or by the filing of an
appropriate document in the United States Patent and Trademark Office in favor
of Secured Party, prior to all other Liens, and is enforceable as such as
against creditors of and purchasers from Borrowers (other than purchasers of
Inventory in the ordinary course of business) and as against any purchaser of
real property where any of the Equipment is located and any present or future
creditor obtaining a Lien on such real property. Upon such filing, all action
requested by Secured Party as necessary or desirable to protect and perfect
such security interest in each item of the Collateral will have been duly
taken.
(d) Locations. Each Borrower's chief executive office,
principal place of business and the place where its records concerning the
Collateral are kept and the locations of its Inventory and Equipment are set
forth on Schedule II hereto, and such Borrower will not change such principal
place of business or remove such records or Inventory or Equipment (except for
removal of Inventory for transfer from one such location to another or upon its
sale) unless it has taken such action (if any) as is necessary to cause the
security interest of Secured Party in the Collateral to continue to be
perfected and has given thirty (30) days' prior written notice thereof to
Secured Party.
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<PAGE> 9
Any new place of business of Borrower or Collateral location shall be within
the United States of America.
(e) Patents. As of the date hereof, no Borrower has any
rights in or to any Patents or Patent Licenses.
(f) Trademarks. The Trademarks and, to the best of each
Borrower's knowledge, any trademarks in which a Borrower has been granted
rights pursuant to Trademark Licenses, are subsisting and have not been
adjudged invalid or unenforceable; each of the Trademarks and, to the best of
each Borrower's knowledge, any trademark in which such Borrower has been
granted rights pursuant to Trademark Licenses is valid and enforceable; no
claim has been made that the use of any of the Trademarks or any trademark in
which such Borrower has been granted rights pursuant to the Trademark Licenses
does or may violate the rights of any third person; upon registration of its
Trademarks, each Borrower will use for the duration of this Security Agreement,
proper statutory notice in connection with its use of the Trademarks; and each
Borrower will use for the duration of this Security Agreement, consistent
standards of quality in its manufacture of products sold under the Trademarks
and any Trademarks in which such Borrower has been granted rights pursuant to
the Trademark Licenses.
5. Covenants. Each Borrower covenants and agrees with Secured
Party that from and after the date of this Security Agreement and until the
Secured Obligations are fully satisfied and the Loan Documents have been
terminated:
(a) Further Documentation; Pledge of Instruments. At any
time and from time to time, upon the written request of Secured Party, and at
the sole expense of such Borrower, such Borrower will promptly and duly execute
and deliver any and all such further instruments, documents and agreements and
take such further action as Secured Party may reasonably deem desirable to
obtain the full benefits of this Security Agreement and of the rights and
powers herein granted, including, without limitation, using its best efforts to
secure all consents and approvals necessary or appropriate for the assignment
to Secured Party of any License or Contract held by such Borrower or in which
such Borrower has any rights not heretofore assigned, the filing of any
financing or continuation statements under the UCC with respect to the liens
and security interests granted hereby, transferring Collateral to Secured
Party's possession (if a security interest in such Collateral can be perfected
only by possession), placing the interest of Secured Party as lienholder on the
certificate of title of any vehicle and using its best efforts to obtain
waivers of liens from landlords and mortgagees. Each Borrower hereby
irrevocably makes, constitutes and appoints Secured Party (and all Persons
designated by Secured Party for that purpose) as such Borrower's true and
lawful attorney, effective upon the failure or refusal of such Borrower upon
request to execute and/or deliver to Secured Party any financing statement,
continuation statement, instrument, document, or agreement which Secured Party
may reasonably deem desirable to obtain the full benefits of this Security
Agreement and of the rights and powers granted hereunder (herein, "Supplemental
Documentation"), to sign such Borrower's name on any such Supplemental
Documentation and to deliver any such Supplemental Documentation to such Person
as Secured
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<PAGE> 10
Party, in its sole discretion, shall elect. Each Borrower also hereby
authorizes Secured Party to file any financing or continuation statement
without the signature of such Borrower to the extent permitted by applicable
law. Each Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Security Agreement or of a financing statement is
sufficient as a financing statement and may be filed by Secured Party in any
filing office. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Document, such
Instrument or Document shall be immediately pledged to Secured Party hereunder,
and, if requested by Secured Party, shall be duly endorsed in a manner
satisfactory to Secured Party and delivered to Secured Party.
(b) Indemnification. In any suit, proceeding or action
brought by Secured Party relating to any Account, Chattel Paper, Contract,
General Intangible or Instrument for any sum owing thereunder, or to enforce
any provision of any Account, Chattel Paper, Contract, General Intangible or
Instrument, each Borrower will save, indemnify and keep Secured Party harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever of the
obligor thereunder, arising out of a breach by such Borrower of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors from such
Borrower, and all such obligations of such Borrower shall be and remain
enforceable against and only against such Borrower and shall not be enforceable
against Secured Party.
(c) Limitation on Liens on Collateral. No Borrower will
create, permit or suffer to exist, and will defend the Collateral against and
take such other action as is necessary to remove, any Lien on the Collateral
except Permitted Encumbrances, and will defend the right, title and interest
of Secured Party in and to any of Borrower's rights under the Chattel Paper,
Contracts, Documents, General Intangibles and Instruments and to the Equipment
and Inventory and in and to the Proceeds thereof against the claims and demands
of all Persons whomsoever.
(d) Maintenance of Insurance. Each Borrower will
maintain, with financially sound and reputable companies, casualty and
liability insurance policies with respect to the Collateral which conform in
all respects to any requirements of the Loan Documents in respect of insurance.
(e) Limitations on Disposition. No Borrower will sell,
lease, transfer or otherwise dispose of any of the Collateral, or attempt or
contract to do so except as may be permitted by the Loan Documents.
(f) Right of Inspection. Secured Party shall at all
times have the rights of inspection set forth in the Loan Documents. Secured
Party and its representatives shall also have the right, with reasonable notice
and at all reasonable times, to enter into and upon any premises where any of
the Equipment or Inventory is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein.
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(g) Continuous Perfection. No Borrower will change its
name, identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith seriously
misleading within the meaning of Section 9-402(7) of the UCC (or any other then
applicable provision of the UCC) unless such Borrower shall have given Secured
Party at least thirty (30) days' prior written notice thereof and shall have
taken all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by Secured Party to amend such
financing statement or continuation statement so that it is not seriously
misleading.
6. Covenants Regarding Specific Collateral. Each Borrower
covenants and agrees with Secured Party that from and after the date of this
Security Agreement and until the Secured Obligations have been fully satisfied
and the Loan Documents have been terminated:
(a) Covenants Relating to Accounts, Etc.
(i) Each Borrower will perform and comply with
all obligations in respect of Accounts, Chattel Paper, Contracts and Licenses
and all other agreements to which it is a party or by which it is bound, unless
and except to the extent that the same are being Properly Contested.
(ii) No Borrower will, without Secured Party's
prior written consent, with respect to any Eligible Accounts and, after the
occurrence of, and during the continuance of, any Default or Event of Default,
any Accounts, Chattel Paper or Instruments, grant any extension of the time of
payment of any of the Accounts, Chattel Paper or Instruments, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any Person liable for the payment thereof, or allow any
credit or discount whatsoever thereon other than trade discounts granted in the
ordinary course of business of such Borrower.
(iii) Secured Party may rely, in determining which
Accounts listed on any Borrowing Base Certificate, collateral valuation report
or any other report delivered by a Borrower to Secured Party pursuant to the
Loan Agreement are Eligible Accounts, on all statements or representations made
by such Borrower on or with respect to any such certificate or report and,
unless otherwise indicated in writing by such Borrower, that: (A) they are
genuine, are in all respects what they purport to be, are not evidenced by a
judgment and are only evidenced by one, if any, executed original instrument,
agreement, contract, or document, which, if requested by Secured Party, has
been delivered to Secured Party; (B) they represent undisputed, bona fide
transactions completed in accordance with the terms and provisions contained in
any documents related thereto; (C) except as set forth in Subsection (D) below,
the amounts of the face value shown on any certificate or report provided to
Secured Party, and/or any invoices and statements delivered to Secured Party
with respect to any Account are actually and absolutely owing to such Borrower
and are not contingent for any reason; (D) there are no setoffs, counterclaims
or disputes existing or asserted with respect thereto and such Borrower has not
made any agreement with any Account Debtor thereunder for any deduction
therefrom, except for discounts, rebates or allowances by such
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<PAGE> 12
Borrower in the ordinary course of its business for prompt payments, all of
which discounts, rebates or allowances are reflected in the calculation of the
face value of each respective invoice related thereto or have been disclosed by
such Borrower to Secured Party in writing; (E) there are no facts, events, or
occurrences which in any way impair the validity or enforceability thereof or
reduce the amount payable thereunder from the amount of the invoice face value
shown on any such certificate or report and on all contracts, invoices and
statements delivered to Secured Party with respect thereto; (F) to the best of
each Borrower's knowledge, all Account Debtors thereunder had the capacity to
contract at the time any contract or other document giving rise to the Account
was executed and are solvent; (G) the goods giving rise thereto are not, and
were not at the time of the sale thereof, subject to any lien, claim,
encumbrance or security interest, except those of Secured Party and those
removed, terminated or assigned to Secured Party on or prior to the date
hereof; (H) such Borrower has no knowledge of any fact or circumstance which
would impair the validity or collectibility thereof; (I) to the best of such
Borrower's knowledge, there are no proceedings or actions which are threatened
or pending against any Account Debtor thereunder which might result in any
material adverse change in its financial condition; (J) no security interest
therein has been granted by such Borrower to any Person other than that granted
to Secured Party pursuant hereto; and (K) each invoice or other evidence of
payment obligation furnished to Account Debtors with respect to outstanding
Accounts is issued in Borrower's corporate name; provided, however, that a
Borrower may use other trade styles different from its corporate name from time
to time for invoicing purposes so long as (i) such Borrower shall notify
Secured Party in writing thereof prior to the use of such trade styles; (ii)
the Accounts so created and the payments received with respect thereto shall be
and remain Borrower's property; (iii) no other person shall have any interest
in such Accounts; and (iv) the trade styles so used are names either owned by
such Borrower or for the use of which such Borrower shall have obtained prior
approval.
(b) Maintenance of Equipment. Subject to each Borrower's
right to dispose of Equipment from time to time to the extent provided in the
Loan Documents, Borrower will at all times maintain and preserve the Equipment
in use or useful in the conduct of its business and keep the same in good
repair, working order and condition (taking into account ordinary wear and
tear) and from time to time make, or cause to be made, all needful and proper
repairs, renewals and replacements, betterments and improvements thereto
consistent with industry practice so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
(c) Covenants Regarding Patent and Trademark Collateral.
(i) Each Borrower shall notify Secured Party
immediately if it knows or has reason to know that any Patent or any
registration relating to any Trademark which is material to the conduct of such
Borrower's business may become abandoned, cancelled or declared invalid, or if
any Trademark or the invention disclosed in any of the Patents is dedicated to
the public domain, or of any adverse determination or development in any
proceeding in the United States Patent and Trademark Office, in analogous
offices or agencies in other countries or in any court
-12-
<PAGE> 13
regarding such Borrower's ownership of any Patent or Trademark which is
material to the conduct of such Borrower's business, its right to register the
same, or to keep and maintain the same.
(ii) If a Borrower, either itself or through any
agent, employee, licensee or designee, applies for a patent or files an
application for the registration of any Trademark with the United States Patent
and Trademark Office or any analogous office or agency in any other country or
any political subdivision thereof or otherwise obtains rights in any Patent or
Trademark, such Borrower will promptly inform Secured Party, and, upon request
of Secured Party, execute and deliver any and all agreements, instruments,
documents, and papers as Secured Party may request to evidence Secured Party's
security interest in such Patent or Trademark and the General Intangibles,
including, without limitation, in the case of Trademarks, the goodwill of such
Borrower, relating thereto or represented thereby.
(iii) Each Borrower will take all necessary actions
to prosecute vigorously each application and to attempt to obtain the broadest
Patent or registration of a Trademark therefrom and to maintain each Patent and
Trademark registration which is material to the conduct of such Borrower's
business, including, without limitation, with respect to Patents, payments of
required maintenance fees, and, with respect to Trademarks, filing of
applications for renewal, affidavits of use and affidavits of incontestability.
In the event that any Borrower fails to take any of such actions, Secured Party
may do so in such Borrower's name or in Secured Party's name and all reasonable
expenses incurred by Secured Party in connection therewith shall be paid by
Borrowers in accordance with Section 9 hereof.
(iv) Each Borrower shall use its best efforts to
detect infringers of the Patents and Trademarks. In the event that any of the
Patents or Trademarks is infringed, misappropriated or diluted by a third
party, Borrower shall notify Secured Party promptly after it learns thereof and
shall, if such Patents or Trademarks is material to the conduct of such
Borrower's business, promptly take appropriate action to protect such Patents
or Trademarks. In the event that any Borrower fails to take any such actions
Secured Party may do so in such Borrower's name or Secured Party's name and all
expenses incurred by Secured Party in connection therewith shall be paid by
Borrower in accordance with Section 9 hereof.
7. Reporting and Recordkeeping. Each Borrower covenants and
agrees with Secured Party that from and after the date of this Security
Agreement and until the Secured Obligations have been fully satisfied and the
Loan Documents have been terminated:
(a) Maintenance of Records Generally. Each Borrower will
keep and maintain at its own cost and expense satisfactory and complete records
of the Collateral, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and all other
dealings with the Collateral. Each Borrower will mark its books and records
pertaining to the Collateral to evidence this Security Agreement and the
security interests granted hereby. If requested by Secured Party, all Chattel
Paper will be marked with the following legend: "This writing and the
obligations evidenced or secured hereby are subject to the security interest of
Bank
-13-
<PAGE> 14
of America, FSB, as Agent." If requested by Secured Party, the security
interest of Secured Party shall be noted on the certificate of title of each
vehicle. For Secured Party's further security, each Borrower agrees that
Secured Party and Secured Party shall have a special property interest in all
of such Borrower's books and records pertaining to the Collateral and, upon the
occurrence and during the continuation of any event of default, each Borrower
shall deliver and turn over any such books and records to Secured Party or to
its representatives at any time on demand of Secured Party. Prior to the
occurrence of an Event of Default and upon reasonable notice from Secured
Party, each Borrower shall permit any representative of Secured Party to
inspect such books and records and will provide photocopies thereof to Secured
Party.
(b) Special Provisions Regarding Maintenance of Records.
(i) EMI, on behalf of Borrowers, shall deliver to
Secured Party the Borrowing Base Certificate and such other reports and
schedules with respect to the Accounts as shall be required by the Loan
Agreement, and upon the request of Secured Party, invoice registers and copies,
(or originals to the extent necessary or advisable for Secured Party to collect
on Accounts after the occurrence of an Event of Default), of all invoices,
shipping receipts, orders and other documents relating to the creation of the
Accounts listed on such certificates, reports and schedules. Borrower shall
keep complete and accurate records of its Accounts.
(ii) EMI shall maintain accurate, itemized records
itemizing and describing the kind, type, quantity and value of its Equipment
and shall furnish Secured Party with a current schedule containing the
foregoing information on an annual basis and more often if requested by Secured
Party.
(iii) EMI will promptly upon, but in no event later
than five (5) Business Days after its learning thereof, in addition to any
obligation to disclose such information or the Borrowing Base Certificate,
immediately inform Secured Party in writing in the event any Eligible Accounts
having an aggregate value equal to five percent (5%) or more of total Eligible
Accounts, become ineligible and of the reasons for such ineligibility.
(iv) Each Borrower will promptly notify Secured
Party in writing if any of the Accounts, the face value of which exceeds
$5,000, arises out of a contract with the United States of America, or any
department, agency, subdivision or instrumentality thereof (which shall make
such Account ineligible) and at any time will take any action required or
reasonably requested by Secured Party to give notice of Secured Party's
security interest in such Accounts under the provisions of the federal
Assignment of Claims Act or any comparable law or act enacted by any state or
local governmental authority; and
(v) Each Borrower at its expense will cause
certified independent public accountants satisfactory to Secured Party to
prepare and deliver to Secured Party at any time and from time to time promptly
upon Secured Party's request, the following reports: (A) a reconciliation of
all of its Accounts, (B) an aging of all of its Accounts, (C) trial balances,
and (D) a test
-14-
<PAGE> 15
verification of such Accounts as Secured Party may request. At Secured Party's
request, each Borrower at its expense will cause certified independent public
accountants satisfactory to Secured Party to prepare and deliver to Secured
Party the results of the annual physical verification of its Inventory made or
observed by such accountants.
(c) Further Identification of Collateral. Each Borrower
will if so requested by Secured Party furnish to Secured Party, as often as
Secured Party reasonably requests, statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as Secured Party may reasonably request, all in reasonable detail.
(d) Notices. In addition to the notices required by
Section 7(b) hereof, each Borrower will advise Secured Party promptly, in
reasonable detail, (i) of any lien, security interest, encumbrance or claim
made or asserted against any of the Collateral, (ii) of any material change in
the composition of the Collateral, and (iii) of the occurrence of any other
event which would have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereunder.
8. Secured Party's Appointment as Attorney-in-Fact. Each
Borrower hereby irrevocably constitutes and appoints Secured Party and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Borrower and in the name of such Borrower or in its own name,
from time to time in Secured Party's discretion, for the purpose of carrying
out the terms of this Security Agreement, to take any and all appropriate
action and to execute and deliver any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Security
Agreement and, without limiting the generality of the foregoing, hereby gives
Secured Party the power and right, on behalf of such Borrower, without notice
to or assent by such Borrower to do the following:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all moneys due and to become due under
any Collateral and, in the name of such Borrower or its own name or otherwise,
to take possession of and endorse and collect any checks, drafts, notes,
acceptances or other Instruments for the payment of moneys due under any
Collateral and to file any claim or to take any other action or proceeding in
any court of law or equity or otherwise deemed appropriate by Secured Party for
the purpose of collecting any and all such moneys due under any Collateral
whenever payable and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
Secured Party for the purpose of collecting any and all such moneys due under
any Collateral whenever payable;
(ii) to pay or discharge taxes, liens, security
interests or other encumbrances levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part of the premiums therefor and
the costs thereof; and
-15-
<PAGE> 16
(iii) (A) to direct any party liable for any
payment under any of the Collateral to make payment of any and all moneys due,
and to become due thereunder, directly to Secured Party or as Secured Party
shall direct; (B) to receive payment of and receipt for any and all moneys,
claims and other amounts due, and to become due at any time, in respect of or
arising out of any Collateral; (C) to sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with accounts and
other Documents constituting or relating to the Collateral; (D) to commence
and prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any part thereof
and to enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against any Borrower with respect to any
Collateral; (F) to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges or
releases as Secured Party may deem appropriate; (G) to license or, to the
extent permitted by an applicable license, sublicense, whether general, special
or otherwise, and whether on an exclusive or non-exclusive basis, any Patent or
Trademark, throughout the world for such term or terms, on such conditions, and
in such manner, as Secured Party shall in its sole discretion determine; and
(H) generally, to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
Secured Party were the absolute owner thereof for all purposes, and to do, at
Secured Party's option and Borrowers' expense, at any time, or from time to
time, all acts and things which Secured Party reasonably deems necessary to
protect, preserve or realize upon the Collateral and Secured Party's lien
therein, in order to effect the intent of this Security Agreement, all as fully
and effectively as any Borrower might do.
(a) Secured Party agrees that, except upon the occurrence
and during the continuation of an Event of Default, it will not exercise the
power of attorney or any rights granted to Secured Party pursuant to this
Section 8 except for the rights granted under clause (ii) above, provided that
the foregoing shall not limit Secured Party's rights under the power of
attorney granted in Section 5(a) hereof. Each Borrower hereby ratifies, to the
extent permitted by law, all that said attorneys shall lawfully do or cause to
be done by virtue hereof. The power of attorney granted pursuant to this
Section is a power coupled with an interest and shall be irrevocable until the
Secured Obligations are indefeasibly paid in full and the Loan Documents have
been terminated.
(b) The powers conferred on Secured Party hereunder are
solely to protect Secured Party's interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to Borrowers for any act or failure to
act, except for its own gross negligence or willful misconduct.
(c) Each Borrower also authorizes Secured Party, at any
time and from time to time upon the occurrence and during the continuation of
any Event of Default, (i) to communicate in its own name with any party to any
Contract with regard to the assignment of the right, title and interest of
Borrower in and under the Contracts hereunder and other matters relating
thereto and
-16-
<PAGE> 17
(ii) to execute, in connection with the sale provided for in Section 10 hereof,
any endorsements, assignments or other instruments of conveyance or transfer
with respect to the Collateral.
9. Performance by Secured Party of a Borrower's Obligations. If
any Borrower fails to perform or comply with any of its agreements contained
herein and Secured Party, as provided for by the terms of this Security
Agreement, shall (after giving any notices thereof to Borrower which are
required under the Loan Agreement) itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable expenses of
Secured Party incurred in connection with such performance or compliance,
together with interest thereon at the highest contract rate then applicable to
advances under Facility No. 1 shall be payable by Borrowers to Secured Party on
demand and shall constitute Secured Obligations secured hereby.
10. Remedies and Rights Upon Default. (a) If an Event of Default
shall occur and be continuing, Secured Party may exercise in addition to all
other rights and remedies granted to it in this Security Agreement and in any
other instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the UCC. Without
limiting the generality of the foregoing, each Borrower expressly agrees that
in any such event Secured Party, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Borrower or any other person
(all and each of which demands, advertisements and/or notices are hereby
expressly waived to the maximum extent permitted by the UCC and other
applicable law), may forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, and/or may forthwith sell, lease, assign,
give an option or options to purchase, or sell or otherwise dispose of and
deliver said Collateral (or contract to do so), or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange or broker's
board or at any of Secured Party's offices or elsewhere at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. Secured Party shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of said Collateral so sold, free of
any right or equity of redemption, which equity of redemption each Borrower
hereby releases. Each Borrower further agrees, at Secured Party's request, to
assemble the Collateral and make it available to Secured Party at places which
Secured Party shall reasonably select, whether at a Borrower's premises or
elsewhere. Secured Party shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, as provided in Section
10(d) hereof, Borrowers remaining liable for any deficiency remaining unpaid
after such application, and only after so paying over such net proceeds and
after the payment by Secured Party of any other amount required by any
provision of law, including Section 9-504(1)(c) of the UCC, need Secured Party
account for the surplus, if any, to Borrowers. To the maximum extent permitted
by applicable law, each Borrower waives all claims, damages, and demands
against Secured Party arising out of the repossession, retention or sale of the
Collateral except such as arise out of the gross negligence or wilful
misconduct of Secured Party. Each Borrower agrees that Secured Party need not
give more than ten (10) days' notice (which notification shall be deemed given
when mailed or delivered on an overnight basis, postage prepaid, addressed to
each Borrower at its address referred to in Section 14 hereof) of the time and
place of any public sale or of the time after which
-17-
<PAGE> 18
a private sale may take place and that such notice is reasonable notification
of such matters. Each Borrower shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
all amounts to which Secured Party is entitled, each Borrower also being liable
for the reasonable fees actually incurred of any attorneys to collect such
deficiency.
(b) Each Borrower also agrees to pay all costs of Secured
Party, including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
(c) Each Borrower hereby waives presentment, demand,
protest or any notice (to the maximum extent permitted by applicable law) of
any kind in connection with this Security Agreement or any Collateral, except
for any notices which are expressly required to be given under the Loan
Agreement or hereunder.
(d) The Proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be distributed by
Secured Party in the following order of priorities:
first, to Secured Party in an amount sufficient to
pay in full the reasonable expenses of Secured Party in connection with such
sale, disposition or other realization, including all expenses, liabilities and
advances incurred or made by Secured Party in connection therewith, including,
without limitation, reasonable attorney's fees (it being understood that, as
used herein, "attorney's fees" includes the allocated costs of the Secured
Party's in-house counsel);
second, to the Bank and each Issuer in an amount
equal to the then unpaid amount of the Secured Obligations, in such manner and
order as they may elect, and if such Proceeds shall be insufficient to pay in
full such amount, then to the Bank and each Issuer ratably in accordance with
the then unpaid amounts thereof owing to them; and
finally, upon full payment and satisfaction of all of
the Secured Obligations, to pay to Borrowers or as a court of competent
jurisdiction otherwise may direct, any surplus then remaining from such
Proceeds.
11. Grant of License to Use Patent and Trademark Collateral. For
the purpose of enabling Secured Party to exercise rights and remedies under
Section 10 hereof at such time as Secured Party, without regard to this Section
11, shall be lawfully entitled to exercise such rights and remedies, each
Borrower hereby grants to Secured Party an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to any Borrower)
to use, license or sublicense any Patent or Trademark, now owned or hereafter
acquired by any Borrower, and wherever the same may be located, and including,
without limitation, in such license reasonable access to all media in which any
of the licensed items may be recorded or stored and to all computer and
automatic machinery software and programs used for the compilation or printout
thereof.
-18-
<PAGE> 19
12. Limitation on Secured Party's Duty in Respect of Collateral.
Secured Party shall not have any duty as to any Collateral in its possession or
control or in the possession or control of any agent or nominee of it or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto, except that Secured Party shall use reasonable
care with respect to the Collateral in its possession or under its control.
Upon request of Borrowers, Secured Party shall account for any moneys received
by it in respect of any foreclosure on or disposition of the Collateral.
13. Term of Agreement; Reinstatement. This Agreement and the
security interests granted hereunder shall remain in full force and effect
until all Secured Obligations have been fully paid and satisfied and all Loan
Documents have been terminated (except for any obligations designated under any
Loan Document as continuing on an unsecured basis). Further this Agreement
shall remain in full force and effect and continue to be effective should any
petition be filed by or against any Borrower for liquidation or reorganization,
should any Borrower become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any
significant part of any Borrower's assets, and shall continue to be effective
or be reinstated, as the case may be, if at any time payment and performance of
the Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by
any obligee of the Secured Obligations, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
14. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other party any other communication with respect to
this Security Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be delivered
in the manner and to the addresses set forth in the Loan Agreement.
15. Severability. Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
16. No Waiver; Cumulative Remedies. Secured Party shall not by
any act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder, and no waiver shall be valid unless in writing,
signed by Secured Party, and then only to the extent therein set forth. A
waiver by Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which Secured Party
would otherwise have had on any
-19-
<PAGE> 20
future occasion. No failure to exercise nor any delay in exercising on the
part of Secured Party, any right, power or privilege hereunder, shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or future exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Secured Party
and, where applicable, by Borrowers.
17. Successor and Assigns; Governing Law.
(a) This Security Agreement and all obligations of
Borrowers hereunder shall be binding upon the successors and assigns of each
Borrower, and shall, together with the rights and remedies of Secured Party
hereunder, inure to the benefit of Bank, the Issuers and the Secured Party and
their respective successors and assigns. No sales of participations, other
sales, assignments, transfers or other dispositions of any agreement governing
or instrument evidencing the Secured Obligations or any portion thereof or
interest therein shall in any manner affect the security interest granted to
Secured Party hereunder.
(b) THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA,
WITHOUT REGARD TO THE PROVISIONS THEREOF REGARDING CONFLICTS OF LAWS.
18. Use and Protection of Patent and Trademark Collateral.
Notwithstanding anything to the contrary contained herein, unless an Event of
Default has occurred and is continuing, Secured Party shall from time to time
execute and deliver, upon the written request of Borrowers, any and all
instruments, certificates or other documents, in the form so requested,
necessary or appropriate in the judgment of a Borrower to permit such Borrower
to continue to exploit, license, use, enjoy and protect the Patents and
Trademarks.
19. Further Indemnification. Each Borrower agrees to pay, and to
save Secured Party harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Security Agreement.
-20-
<PAGE> 21
IN WITNESS WHEREOF, Borrowers have caused this Security
Agreement to be executed and delivered by their duly authorized officers, under
seal, as of the date first set forth above.
"EMI"
EDUCATIONAL MEDICAL, INC., a Delaware
corporation
By: /s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
-------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
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<PAGE> 22
"SUBSIDIARIES"
ANDON COLLEGES, INC., a California
corporation
By: /s/ Vince Pisano
--------------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
----------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN, INC., a
Delaware corporation
By: /s/ Vince Pisano
--------------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
----------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
-22-
<PAGE> 23
DBS ACQUISITION CORP., a Virginia
corporation
By: /s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
-------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
DEST EDUCATION CORPORATION, a
California corporation
By: /s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
-------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
-23-
<PAGE> 24
ICM ACQUISITION CORP., a Delaware
corporation
By: /s/ Vince Pisano
-------------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
---------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
HBC ACQUISITION CORP., a Delaware
corporation
By: /s/ Vince Pisano
-------------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
---------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
-24-
<PAGE> 25
MARIC LEARNING SYSTEMS, a California
corporation
By: /s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
--------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
MTSX ACQUISITION CORP., a Delaware
corporation
By: /s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
--------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
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<PAGE> 26
OIOPT ACQUISITION CORP., a Delaware
corporation
By: /s/ Vince Pisano
----------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
PALO VISTA COLLEGE OF NURSING AND ALL
IED HEALTH SCIENCES, INC., a
California corporation
By: /s/ Vince Pisano
----------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
-26-
<PAGE> 27
SACMD ACQUISITION CORP., a Delaware
corporation
By: /s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
-------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
SCOTTSDALE EDUCATIONAL CENTER FOR
ALLIED HEALTH CAREERS, INCORPORATED,
an Arizona corporation
By: /s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President and
Chief Financial Officer
Attest: /s/ Morris C. Brown
-------------------------------
Name: Morris C. Brown
Title: Secretary
[SEAL]
Accepted and Acknowledged by:
BANK OF AMERICA, FSB
By: ______________________________
Name:_____________________________
Title:____________________________
-27-
<PAGE> 28
SCHEDULE I
FILINGS
JURISDICTION FILING OFFICES
------------ --------------
1. Educational Medical, Inc.
(a) Secretary of State of Arizona
(b) Secretary of State of California
(c) Secretary of State of Florida
(d) Fulton County, Georgia
(e) Department of Assessments and Taxation of Maryland
(f) Secretary of State of Ohio
(g) Montgomery County, Ohio
(h) Secretary of Commonwealth of Pennsylvania
(i) Allegheny County, Pennsylvania
(j) Secretary of State of Texas
(k) Secretary of State of Virginia
(l) Rockingham County, Virginia
(m) City of Roanoke, Virginia
(n) City of Stauntan, Virginia
2. Bauder College (trade name of Educational Medical, Inc.)
(a) Fulton County, Georgia (included in 1(d) above)
3. Andon Colleges, Inc. (subsidiary)
(a) Secretary of State of California
(b) Fulton County, Georgia
4. Andon College (trade name of Andon Colleges, Inc.)
(a) Secretary of State of California (included in 3(a) above)
(b) Fulton County, Georgia (included in 3(b) above)
5. Andon College at Modesto (trade name of Andon Colleges, Inc.)
(a) Secretary of State of California (included in 3(a) above)
-28-
<PAGE> 29
(b) Fulton County, Georgia (included in 3(b) above)
6. California Academy of Merchandising, Art and
Design, Inc. (subsidiary)
(a) Secretary of State of California
(b) Fulton County, Georgia
7. California Academy of Fashion Merchandising,
Art and Design (trade name of California Academy of
Merchandising, Art and Design, Inc.)
(a) Secretary of State of California (included in 6(a) above)
(b) Fulton County, Georgia (included in 6(b) above)
8. DBS Acquisition Corp. (subsidiary)
(a) Fulton County, Georgia
(b) Secretary of State of Virginia
(c) Rockingham County, Virginia
(d) City of Roanoke, Virginia
(e) City of Staunton, Virginia
9. Dominion Business School (a trade name of DBS Acquisition
Corp.)
(a) Fulton County, Georgia (included in 8(a) above)
(b) Secretary of State of Virginia
(c) Rockingham County, Virginia
(d) City of Roanoke, Virginia
(e) City of Staunton, Virginia
10. DEST Education Corporation (subsidiary)
(a) Secretary of State of California
(b) Fulton County, Georgia
11. Andon College (trade name of DEST Education Corporation)
(a) Secretary of State of California (included in 10(a) above)
(b) Fulton County, Georgia (included in 10(b) above)
12. Andon College at Stockton (trade name of DEST Education
Corporation)
-29-
<PAGE> 30
(a) Secretary of State of California (included in 10(a) above)
(b) Fulton County, Georgia (included in 10(b) above)
13. HBC Acquisition Corp. (subsidiary)
(a) Fulton County, Georgia
(b) Secretary of State of Maryland
14. Hagerstown Business College (trade name of HBC Acquisition
Corp.)
(a) Fulton County, Georgia (included in 13(a) above)
(b) Secretary of State of Maryland
15. ICM Acquisition Corp. (subsidiary)
(a) Fulton County, Georgia
(b) Secretary of Commonwealth of Pennsylvania
(c) Allegheny County, Pennsylvania
16. ICM School of Business (a trade name of ICM Acquisition Corp)
(a) Fulton County, Georgia (included in 15(a) above)
(b) Secretary of Commonwealth of Pennsylvania
(c) Allegheny County, Pennsylvania
17. Maric Learning Systems (subsidiary)
(a) Secretary of State of California
(b) Fulton County, Georgia
18. Maric College of Medical Careers (a trade name of Maric
Learning Systems)
(a) Secretary of State of California (included in 17(a) above)
(b) Fulton County, Georgia (included in 17(b) above)
19. MTSX Acquisition Corp. (subsidiary)
(a) Secretary of State of California
(b) Fulton County, Georgia
-30-
<PAGE> 31
20. Modern Technology School of X-Ray (a trade name of MTSX
Acquisition Corp.)
(a) Secretary of State of California (included in 19(a) above)
(b) Fulton County, Georgia (included in 19(b) above)
21. OIOPT Acquisition Corp. (subsidiary)
(a) Fulton County, Georgia
(b) Secretary of State of Ohio
(c) Montgomery County, Ohio
22. Ohio Institute of Photography and Technology (d/b/a)
(a) Fulton County, Georgia (included in 21(a) above)
(b) Secretary of State of Ohio
(c) Montgomery County, Ohio
23. Palo Vista College of Nursing and Allied Health Sciences, Inc.
(subsidiary)
(a) Secretary of State of California
(b) Fulton County, Georgia
24. Maric College of Medical Careers (a trade name of Palo Vista
College of Nursing and Allied Health Sciences, Inc.)
(a) Secretary of State of California (included in 23(a) above)
(b) Fulton County, Georgia (included in 23(b) above)
25. SACMD Acquisition Corp. (subsidiary)
(a) Fulton County, Georgia
(b) Secretary of State of Texas
26. Career Centers of Texas (a trade name of SACMD Acquisition
Corp.)
(a) Fulton County, Georgia (included in 25(a) above)
(b) Secretary of State of Texas (included in 25(b) above)
27. San Antonio College of Medical and Dental Assistants
-31-
<PAGE> 32
(a trade name of SACMD Acquisition Corp.)
(a) Fulton County, Georgia (included in 25(a) above)
(b) Secretary of State of Texas
28. Scottsdale Educational Center for Allied Health Careers, Inc.
(subsidiary)
(a) Secretary of State of Arizona
(b) Fulton County, Georgia
29. Long Medical Institute (a trade name of Scottsdale Center
for Allied Health Careers, Inc.)
(a) Secretary of State of Arizona
(b) Fulton County, Georgia (included in 28(b) above)
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<PAGE> 33
SCHEDULE II
LOCATION OF RECORDS AND CERTAIN COLLATERAL
1. Principal Place of Business
and Chief Executive Office:
Ownership Status:
2. Other Collateral Location
-33-
<PAGE> 1
EXHIBIT 10.49
FIRST AMENDMENT TO BUSINESS LOAN AGREEMENT
PREAMBLE: THIS AMENDMENT, dated as of June 30, 1997 (this "Amendment"),
is made and entered into by and among BANK OF AMERICA, FSB (the "Bank"),
EDUCATIONAL MEDICAL, INC. ("EMI") and all those subsidiaries of EMI listed on
the signature page(s) to this Amendment (EMI and such subsidiaries hereinafter
sometimes collectively called the "Borrowers" and individually called a
"Borrower").
RECITALS:
WHEREAS, Borrowers and Lender are parties to a certain Business Loan
Agreement dated as of February 25, 1997 (the "Loan Agreement"; capitalized terms
used herein and not defined herein have the meanings assigned to them in the
Loan Agreement); and
WHEREAS, Borrowers and Lender desire to enter into this Amendment to
amend the Loan Agreement in certain respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and conditions herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows agree as follows:
1. AMENDMENT TO SECTION 9.5 OF THE LOAN AGREEMENT. Section 9.5 of the
Loan Agreement is hereby amended by deleting the ratio "1.75:1.00" set forth
therein and substituting in lieu thereof the ratio of "1.50:1.00."
2. AMENDMENT TO SECTION 9.10 OF THE LOAN AGREEMENT. Section 9.10 of
the Loan Agreement is hereby amended by adding the following sentence at the
end of such Section:
In determining Borrowers' compliance with the covenant set forth in
this Section 9.10, there shall be excluded from the calculation of
Borrowers' capital expenditures that amount (which as of March 31, 1997
was approximately $900,000) reflected as capital expenditures on the
consolidated financial statements of EMI as a result of its accounting
for its acquisition of Educational Management, Inc. (pursuant to a
merger of such entity with and into EMI's wholly-owned subsidiary,
Nebraska Acquisition Corp.) as a pooling of interests.
3. MISCELLANEOUS.
(a) Effect of Amendment. The amendments to the Loan Agreement specified
hereinabove shall have retroactive effect to February 25, 1997, as if such
amendments were an integral part of the Loan Agreement as of that date. Except
as set forth expressly herein, all terms of the Loan Agreement and the other
documents, instruments and agreements executed and delivered in connection
therewith (collectively, "Loan Documents"), as amended hereby, shall be and
remain in full force and effect and shall constitute the legal, valid, binding
and enforceable
<PAGE> 2
obligations of Borrowers to Lender. To the extent any terms and conditions in
any of the Loan Documents shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this Amendment, such
terms and conditions are hereby deemed modified and amended accordingly to
reflect the terms and conditions of the Loan Agreement as modified and amended
hereby.
(b) Reaffirmation of Representations and Warranties. Borrowers hereby
ratify and reaffirm all of the representations and warranties set forth in the
Loan Agreement and the other Loan Documents, including without limitation, in
Section 8 of the Loan Agreement, except to the extent that such representation
and warranties relate to an earlier date or may be untrue or incorrect solely as
a result of occurrences permitted under the Loan Agreement.
(c) Ratification. Borrowers hereby restate, ratify and reaffirm each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Loan Documents effective as of the date hereof.
(d) Estoppel. To induce Lender to enter into this Amendment, Borrowers
hereby acknowledge and agree that, as of the date hereof, and after giving
effect to this Amendment, no default or event of default hs occurred and is
continuing and, in addition, there exists no right of offset, defense,
counterclaim or objection in favor of Borrowers with respect to any obligations
of Borrowers to Lender.
(e) Governing Law. This Amendment shall be governed by Georgia law.
(f) Costs and Expenses. Borrowers agree to pay all reasonable costs and
expenses of Lender in connection with the preparation, execution, delivery and
enforcement of this Amendment and all other Loan Documents executed in
connection herewith, the closing hereof, and any other transactions contemplated
hereby, including the reasonable fees and out-of-pocket expense of Lender's
counsel.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officer or officers thereunto duly authorized, s of
the date first above written.
BANK OF AMERICA, FSB.
By:/s/
------------------------------
Name:
--------------------
Title:
-------------------
<PAGE> 4
EDUCATIONAL MEDICAL, INC.
By:/s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President/CFO
ANDON COLLEGE, INC.
By:/s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President/CFO
CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND DESIGN,
INC.
By:/s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President/CFO
DBS ACQUISITION CORP.
By:/s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President/CFO
DEST EDUCATION CORPORATION
By:/s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President/CFO
ANDON COLLEGE, INC.
By:/s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President/CFO
<PAGE> 5
ICM ACQUISITION CORP.
By:/s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President/CFO
HBC ACQUISITION CORP.
By:/s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President/CFO
MARIC LEARNING SYSTEMS
By:/s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President/CFO
MTSX ACQUISITION CORP.
By:/s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President/CFO
OIOPT ACQUISITION CORP.
By:/s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President/CFO
<PAGE> 6
PALO VISTA COLLEGE OF NURSING
AND ALLIED HEALTH SCIENCES, INC.
By:/s/ Vince Pisano
-----------------------------------
Name: Vince Pisano
Title: Vice President/CFO
SACMD ACQUISITION CORP.
By:/s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President/CFO
SCOTTSDALE EDUCATIONAL CENTER
FOR ALLIED HEALTH CAREERS,
INCORPORATED.
By:/s/ Vince Pisano
------------------------------------
Name: Vince Pisano
Title: Vice President/CFO
<PAGE> 1
EXHIBIT 10.50
STOCK PURCHASE AGREEMENT
Agreement dated as of February 14, 1998 among EDUCATIONAL MEDICAL,
INC., a Delaware corporation ("EMI"), CHI ACQUISITION CORP., a Delaware
corporation wholly owned by EMI (the "Buyer"), COMPUTER HARDWARE SERVICE
COMPANY, INC., a Pennsylvania corporation (the "Corporation"), JOSEPH COLYAR, an
individual residing within the State of Pennsylvania ("Colyar"), CLAUDE H.
HARING, an individual residing within the State of Pennsylvania ("Haring"), and
JAMES FRITZ, an individual residing within the State of Pennsylvania ("Fritz").
(Colyar, Haring and Fritz shall be collectively referred to hereinafter as the
"Shareholders").
PRELIMINARY STATEMENT
The Corporation is the owner of two (2) postsecondary educational
institutions located at Westchester Pike and Malin Road, Broomall, Pennsylvania
19008 and 520 Street Road, Southampton, Pennsylvania 18966 (collectively, the
"Schools"). The Shareholders own all of the outstanding and issued capital stock
(the "Stock") of the Corporation. Subject to the terms and conditions contained
in this Agreement, the Buyer wants to buy the Stock, and the Shareholders want
to sell the Stock to the Buyer.
This Agreement contains the terms pursuant to which the Shareholders
have agreed to sell to Buyer all of the Stock. In addition, the Shareholders
have agreed not to compete with EMI and its schools pursuant to the terms of
this Agreement. EMI has entered into this Agreement to reflect that it is
jointly and severally liable with the Buyer with regard to the obligations of
the Buyer provided for in it.
IN CONSIDERATION OF THE COVENANTS CONTAINED IN THIS AGREEMENT, AND THE
OTHER CONSIDERATION PROVIDED FOR IN IT, THE PARTIES, EACH INTENDING TO BE
LEGALLY BOUND, AGREE AS FOLLOWS:
1. THE PURCHASE PRICE; CONVEYANCE OF THE STOCK; CERTAIN DEFINITIONS;
EFFECTIVE DATE OF TRANSACTION.
(a) The Purchase Price. The purchase price for the Stock is
$11,750,000 (the "Purchase Price"). The Purchase Price will be allocated as
follows: (i) $11,650,000 to the Stock, and (ii) $100,000 to the Non-Competition
Agreement (the "Non-Competition Agreement") contained in Section 7 of this Stock
Purchase Agreement.
(b) Conveyance of the Stock; Exclusive Right to Purchase the Stock.
On February 14, 1998 (the "Closing Date"), or such other date as the parties may
specify prior to March 31, 1998 (the "Termination Date"), the Shareholders shall
convey to Buyer all of their Stock (the "Closing"). The Parties to this
Agreement agree that EMI and the Buyer shall have the exclusive right to
consummate the transactions contemplated herein prior to the Termination Date
and that the Corporation and/or Shareholders shall not negotiate with any other
potential buyer during such exclusivity period.
<PAGE> 2
(c) Cash Payments by the Buyer. On the Closing Date the Buyer shall
pay to the Shareholders $1,500,000 (the "Initial Payment"), by wire transfer or
otherwise in immediately available funds. Of the Initial Payment, $84,755 shall
be paid to Fritz as payment in full for his 250 shares of stock and payments of
$707,622 shall be made to each of Colyar and Haring, as the initial payment on
account of their 16,820 shares of Stock held by each of them.
(d) Delivery of Second Payment Note, the Purchase Money Promissory
Note, the Pledge Agreement, Security Agreement and the EMI Stock by the Buyer.
On the Closing Date the Buyer shall deliver to Messrs. Colyar and Haring:
(e) its Promissory Notes in the aggregate principal amount of
$3,000,000 (the "Second Payment Note") in the form attached to this Agreement as
EXHIBIT 1, payable with interest as provided below on the earlier of the last
business day within the first 30 calendar days following the date on which the
Prerequisite Student Aid Approvals are obtained, but no later than six months
from the date of Closing with interest accruing at an interest rate equal to 8%
per annum commencing ninety (90) days from the Closing Date. "Prerequisite
Student Aid Approvals" mean approvals by the United States Department of
Education and all other applicable private and governmental agencies and
organizations of the change in control resulting from the change in ownership of
the Schools resulting from the sale of the Schools pursuant to this Stock
Purchase Agreement which are a prerequisite to receipt of federal and state aid
by the Schools' students, and
(f) its Promissory Notes in the aggregate amount of $5,750,000 (the
"Purchase Money Promissory Note") in the form attached to this Agreement as
EXHIBIT 2, pursuant to which the Buyer shall pay to the Shareholders an initial
payment equal to One Million One Hundred Thousand and no/100 Dollars
($1,100,000) plus interest at 8% per annum on the first anniversary of the
Closing Date and thereafter amortize the remaining principal in equal quarterly
principal payments along with all accrued interest over the remaining four (4)
years with interest at 8% per annum.
(g) a pledge agreement in the form attached to this Agreement as
EXHIBIT 3 (the "Pledge Agreement") pursuant to which EMI secures the payment of
the Second Payment Notes and the Purchase Money Promissory Notes, and the
related interest by a pledge of all of the outstanding and issued capital stock
(the "Buyer's Stock") of the Buyer.
(h) a Security Agreement in the form attached to this Agreement as
EXHIBIT 4 (the "Security Agreement") pursuant to which the Buyer secures the
payment of the Second Payment Notes and the Purchase Money Promissory Notes by
granting to the Shareholders a security interest in the Assets (as defined in
Section 2(d) hereof) subordinate only to EMI's senior lender.
(i) $1,500,000 of Common Stock of EMI (the "EMI Purchase Stock")
based upon the last sale (the "Last Sale") of EMI Stock as of the business day
-2-
<PAGE> 3
immediately prior to the Closing Date. The specific number of shares of the EMI
Purchase Stock shall be calculated by dividing $1,500,000 by the price per share
of the Last Sale.
2. REPRESENTATIONS OF THE CERTAIN SHAREHOLDERS. Messrs. Colyar and
Haring, jointly and severally, represent and warrant to Buyer as follows,
provided, however, that except with respect to subsections (c), (d), (e), (h),
the second and third paragraphs of subsection (i) and subsection (x) of this
Section 2, such representations are made to the best of the knowledge of such
Shareholder or to facts or circumstances of which they reasonably should have
had knowledge:
(a) No Misstatements. The representations of the Shareholders and
information supplied by the Shareholders and/or the Corporation contained in
this Agreement, the Exhibits attached to it and the documents incorporated into
it by reference do not contain any untrue statement of a material fact or omit
to state any fact necessary to make such representations or information not
materially misleading.
(b) Validity of Actions. The Corporation (i) is duly organized,
validly existing and in good standing under the laws of its organization, (ii)
has all requisite corporate and other appropriate authorization to operate the
Schools in the manner in which they are currently operated, (iii) is qualified
to do business in all jurisdictions in which such qualification is necessary for
the operation of the Schools, other than those jurisdictions where the failure
to so qualify would not have a material adverse effect upon the Schools' assets
or operations, and (iv) has full power and authority to enter into this
Agreement and to carry out all acts contemplated by it. This Agreement has been
duly executed and delivered on behalf of the Shareholders and/or the
Corporation, has received all necessary corporate authorization and is a legal,
valid and binding obligation of the Corporation and the Shareholders,
enforceable against each of them in accordance with its terms. Entering into
this Stock Purchase Agreement and the consummation of the transactions
contemplated by it will not (i) violate any provision of the Articles of
Incorporation or Bylaws of the Corporation or, (ii) conflict with or result in
any breach of in any material respect of any of the provisions of any material
agreement to which the Corporation or the Shareholders are a party or by which
any of them or any of their respective assets are bound, or (iii) cause a breach
of any applicable law, governmental regulation, order, or other decree of any
court or governmental agency. The Articles of Incorporation and Bylaws of the
Corporation, as presently in effect, are attached to the Disclosure Memorandum
delivered to EMI and the Buyer simultaneously with the execution and delivery of
this Stock Purchase Agreement (the "Disclosure Memorandum") as SCHEDULE 2(B).
(c) Corporation's Financial Statements
(1) Attached as SCHEDULE 2(C)(1)(I) to the Disclosure
Memorandum are the Corporation's audited balance sheets at September 30, 1997,
1996 and 1995, and statements of income and expense and cash flows for the
years then ending (the "Corporation's Audited Financial Statements"). Attached
as SCHEDULE
-3-
<PAGE> 4
2(C)(1)(II) to the Disclosure Memorandum is the Corporation's unaudited balance
sheet as of January 31, 1997, modified to give effect to adjustments through
the date of Closing (February 14, 1998) based on the Corporation's divestiture
of assets used in lines of business unrelated to the operations of its Schools
and/or limited partnership interests in real estate to be leased to the
Corporation as a closing condition to the sale of the Stock and with Profit
and Loss Statements for the same period reflecting the same adjustments. No
cash flow statements for this period are included (the "Corporation's Most
Recent Balance Sheet") (collectively, the Corporation's Unaudited Financial
Statement"). The Corporation's Audited and Unaudited Financial Statements are
collectively called the "Corporation's Financial Statements." Attached as
SCHEDULE 2(C)(1)(III) to the Disclosure Memorandum are the Corporation's
corporate tax returns for the years of 1996 and 1995. [Definition of Schedule
2(c)(1)(ii) modified pursuant to stipulation by the parties' counsel dated
February 16, 1998.]
(2) The Corporation's Financial Statements: (i) accurately
represent the transactions appearing on the books and records of the
Corporation, and (ii) fairly present in all material respects the Corporation's
financial condition and its results of operations at the times and for the
periods presented, including normal adjustments consistent with year end
adjustments to properly reflect accruals through the end of the period;
provided, however, that the Corporation's Unaudited Financial Statements do not
contain footnotes and the related disclosures. The Corporation's Audited
Financial Statements have been prepared on the accrual basis in accordance with
generally accepted accounting principles consistently applied ("GAAP"), except
as otherwise disclosed in the reports accompanying them or in the notes attached
to them.
(3) There have been no material adverse changes in the
financial condition or in the operations, properties or assets of the
Corporation since the date of the Corporation's Most Recent Balance Sheets.
(d) Liabilities of the Corporation. The Corporation has no liabilities,
contingent or otherwise, including, without limitation, liabilities for state or
Federal income, withholding, sales, or other taxes, except to the extent
reflected, reserved against, or provided for, in the Corporation's Most Recent
Balance Sheet, except for taxes, trade payables and other obligations incurred
after the date of the Corporation's Most Recent Balance Sheet in amounts
consistent in all material respects, with those incurred in prior periods in the
ordinary course of business, including without limitation liabilities for
unearned tuition.
(e) Assets of the Corporation. The Corporation has good title to all of
its assets (the "Assets"). Except as otherwise disclosed in the Corporation's
Financial Statements or the related notes accompanying them or in the Exhibits
to this Agreement or the Disclosure Memorandum, all of the Assets are owned free
and clear of any adverse claims, security interests, or other encumbrances or
restrictions, except liens for current taxes not yet due and payable, landlords'
liens as provided for in the relevant leases or by applicable law, or liens or
similar security interests granted as part of personal property financing
agreements made in the ordinary course of business and which in the aggregate
-4-
<PAGE> 5
are not material. The Assets constitute all of the assets necessary for the
operation of the Schools as currently conducted.
(f) Facility and Facility Operations.
(1) Included as SCHEDULE 2(F)(1) to the Disclosure Memorandum
are copies of the leases (the "Schools Facility Leases") pursuant to which the
Schools' Facilities (the "School Facilities") are leased. The Schools'
operations are conducted solely at the School Facilities and all of the tangible
Assets used in connection with such operations are located at the School
Facilities. All of the improvements located at the School Facilities are in good
operating condition and repair, subject only to ordinary wear and tear. There is
no pending or, to the knowledge of the Shareholders, threatened condemnation
proceeding with respect to the School Facilities.
(2) Attached as SCHEDULE 2(F)(2) to the Disclosure Memorandum
is a schedule of all of the furnishings, fixtures and equipment with values in
excess of the baseline used in determining such inventory, located on, or used
in connection with, the operation of the School Facilities as of the date
indicated on such inventory, subject to immaterial omissions occurring in the
ordinary course of compiling such inventory.
(3) Except for (i) environmental law compliance (which is
addressed in Section 2(f)(4) below) and (ii) accreditation, recruitment,
admissions, student loan and funding matters compliance (which are addressed in
Sections 2(h) and 2(i) below) as to which no representation or warranty is made
in this Section 2(f), all activities at, and the physical condition of, the
School Facilities are in compliance with all legal and regulatory requirements
applicable to the Corporation, the conduct of its business, and the use of each
School's Facility, and the Corporation has not received any actual notice to the
contrary. The Corporation has paid for and obtained all licenses, permits, and
other authorizations material to the conduct of its business at the School
Facilities (the "Permits"). All Permits currently in effect and pertaining to
the School Facilities or the Corporation's activities at the School Facilities
are listed on SCHEDULE 2(F)(3) of the Disclosure Memorandum. The representations
contained in this subsection 3 shall not apply to incidental instances of
non-compliance occurring in the ordinary course of business without the actual
knowledge of the Corporation, which are immaterial to the operation of the
Schools and capable of being cured without significantly disrupting the Schools'
operations.
(4) There are no Hazardous Substances(1) in, on or under the
School Facilities except for those which are used by the Corporation in
compliance, in all
- ---------------------
(1) The term "Hazardous Substance" shall include without limitation:
(l) Those substances included within the definitions of "hazardous
substances," "hazardous materials," "toxic substances," or "solid
waste" in CERCLA, RCRA, and the Hazardous Materials Transportation
-5-
<PAGE> 6
material respects, with applicable law, and the Corporation is not now engaged
in any litigation, proceedings or investigations, nor knows of any pending or
threatened litigation, proceedings or investigations regarding the presence of
Hazardous Substances in, on or under the School Facilities.
(g) Equipment Leases and Financing Agreements. All of the leases and
financing agreements to which the Corporation is a party and which relate to the
operations of the Schools are described in SCHEDULE 2(G) of the Disclosure
Memorandum (the "Financing and Related Agreements"). Copies of the Financing and
Related Agreements are attached to such Schedule or have been provided to the
Buyer. Except as reflected in such Disclosure Memorandum, there have been no
modifications to any of the Financing and Related Agreements; the Corporation is
not in default in any material respect with respect to them; and none of the
interests of the Corporation in any of them is subject to any restriction except
as stated in the applicable document or as provided by applicable law.
(h) Accreditation and Compliance with Title IV Requirements. Attached
as SCHEDULE 2(H) to the Disclosure Memorandum is a list of all Federal, state or
other licenses and approvals, including without limitation all accreditations
and certifications, granted to the Corporation with respect to the conduct of
its educational or training business at the Schools (the "Accreditations and
Certifications"), and the governmental
-----------------------------------------------------------------------
Act, 49 U.S.C. Sections 1801 et seq., and in the regulations
promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any applicable
state statute and in the regulations promulgated pursuant to any
applicable state statute;
(iii) Those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or become
regulated under applicable local, state or federal law, or which are
classified as hazardous or toxic under federal, state, or local laws or
regulations; and
(v) Any material, waste or substance which is (A) petroleum, (B)
asbestos, (C) polychlorinated biphenyl, (D) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
SS1251 et seq. or listed pursuant to Section 307 of the Clean Water
Act, (E) flammable explosive, or (F) radioactive materials.
-6-
<PAGE> 7
body or agency or other entity granting such Accreditation or Certification.
Included in such Disclosure Memorandum are copies of all such Accreditations and
Certifications.
(1) Except for the Permits and the Accreditations and
Certifications, no license or approval is material to the conduct of the
Corporation's operation of the Schools as they are now being conducted, and the
Corporation has received no notice that any other license or approval is
necessary for the continued operation of the Schools or that any such license or
approval will not be renewed.
(2) The Schools are accredited by the Accrediting Commission
of Career Schools and Colleges of Technology. The Corporation's operation of the
Schools are and have been conducted in all material respects in accordance with
all relevant standards imposed by applicable accrediting agencies, or agencies
administering state government student aid programs in which the Corporation, or
any students attending any of the Schools, participate, or other applicable laws
or regulations.
(3) Each of the Schools is an institution certified by the
United States Department of Education (the "Department of Education"). The
Corporation is a party to, and is and at all times has been in compliance with,
a valid program participation agreement with the Department of Education with
respect to the operations being conducted by the Schools. The Corporation has
not received any notice, not previously complied with, with respect to any
alleged violation of the rules or regulations of the Department of Education or
any applicable accrediting agency in respect of the Schools or the terms of any
program participation agreement to which it is or was a party. If any such
notices have been received and complied with, the Corporation has disclosed its
receipt and disposition to Buyer prior to the execution of this Agreement in
writing by a letter making specific reference to this Section of this Agreement.
The Corporation is and at all times has been, in compliance with all of the
provisions of the Higher Education Act of 1965 ("HEA") and the regulations
promulgated by the Department of Education thereunder (the "DOE Regulations")
necessary to establish and maintain its eligibility to participate in the Title
IV funding programs provided for therein ("Title IV Funding Programs"),
including without limitation, the demonstration of financial and administrative
responsibility as provided for in the DOE Regulations. The Corporation has
submitted audited financial statements to the Department of Education for the
fiscal years ended September 30, 1996 and September 30, 1995 relating to its
financial responsibility to participate in Title IV Funding Programs as provided
for in the DOE Regulations (the "DOE Financial Statements") and was in
compliance with all DOE Regulations relating to financial and administrative
responsibility as of September 30, 1997. The Corporation has submitted audits of
the Title IV Financial Aid Programs to the DOE for purposes of demonstrating
compliance with the DOE Regulations regarding the administration of funds
received pursuant to Title IV Funding Programs for the applicable federal fiscal
years June 30, 1996 and June 30, 1995 (the "Title IV Financial Aid Audits").
Except as set forth in SCHEDULE 2(H)(3) to the Disclosure Memorandum, the DOE
Financial Statements and Title IV Financial Aid Audits are true and correct in
all material respects.
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<PAGE> 8
(4) The Corporation is not aware of any investigation or
review of student financial aid programs (including without limitation Title IV
Programs) in which the Schools or its students participate, or any review of any
of the Schools' Accreditations or Certifications whether by a party to any
relevant agreement, the issuer of such Accreditation or Certification or
otherwise.
(i) Recruitment; Admissions Procedures; Attendance; Reports. Attached
as SCHEDULE 2(H)(I) to the Disclosure Memorandum are all policy manuals and
other statements of procedures or instruction relating to recruitment of the
Schools' students, including procedures for assisting in the application by
prospective students for direct or indirect state or Federal financial
assistance; admissions procedures, including any descriptions of procedures for
insuring compliance with state or Federal or other appropriate standards or
tests of eligibility; procedures for encouraging and verifying attendance,
minimum required attendance policies, and other relevant criteria relating to
course completion and certification (collectively referred to as the "Policy
Guidelines") which have previously been delivered to the Buyer by the
Corporation. The Schools' operations have been conducted in all material
respects in accordance with the Policy Guidelines.
The Corporation has submitted all reports, audits, and other
information, whether periodic in nature or pursuant to specific requests
("Compliance Reports"), to all agencies or other entities with which such
filings are required relating to the Schools' compliance with (I) applicable
accreditation standards governing its activities or (ii) laws or regulations
governing programs pursuant to which the Schools or students attending the
Schools receive funding, including, without limitation, the Perkins Loan
Program, the Federal Family Education Loan Programs, the Pell Grant program and
the Supplemental Educational Opportunity Grant Program, the Federal Direct
Student Loan Program or the Federal Work Study Program, all of which are
provided for pursuant to Title IV of the HEA.
Complete and accurate records in all material respects for all present
and past students attending the Schools have been maintained consistent with the
operations of a school business. All forms and records have been prepared,
completed, maintained and filed in all material respects in accordance with all
federal and state laws and regulations applicable to the operations of the
Schools, and are true and correct in all material respects. All financial aid
grants and loans, disbursements and record keeping relating to them have been
completed in compliance in all material respects with all federal and state
requirements, and there are no material deficiencies in respect thereto. No
student at the Schools has been funded prior to the date for which such student
was eligible for funding and such student's records have been processed in all
material respects in accordance with all applicable federal, state and relevant
third party funding source requirements. All appropriate reports and surveys
have been accurately prepared, taken and filed prior to delinquency.
(j) Default. Attached as SCHEDULE 2(J) to the Disclosure Memorandum is
a list indicating the cohort default rate, as calculated by the Department of
Education, of all students attending the Schools receiving assistance pursuant
to the Stafford Loan and
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<PAGE> 9
Supplemental Loans for Students programs (or their applicable predecessor
programs) for the federal fiscal years ended September 30, 1993, 1994, 1995 and
1996. To the best of the knowledge of Shareholders and the Corporation, such
schedule is materially accurate in all respects.
(k) Trademarks, etc. Attached to the Disclosure Memorandum as Schedule
15 is a list of all tradenames, trademarks, service marks, copyrights and the
registrations for them owned or used by the Corporation in connection with the
operation of the Schools. To the best knowledge of the Corporation, it has not
infringed and is not now infringing, any trademark, tradename, service mark, or
copyright belonging to any other person in connection with the operation of the
Schools. Except as set forth on such Schedule, the Corporation is not a party to
any license, agreement or arrangement, whether as licensor, licensee or
otherwise, with respect to any trademark, tradename, service mark, or copyright
used by the Corporation in connection with the operation of the Schools. The
Corporation's operation of the School's may be conducted without license by
others for the use of any tradename, trademark, service mark, or copyright.
(l) Material Contracts. Attached as SCHEDULE 2(L) to the Disclosure
Memorandum is (i) a schedule identifying all material contracts relating to the
Schools' operations not otherwise specifically identified in the other Schedules
to the Disclosure Memorandum, including, without limitation, all agreements
relating to state or Federal funding of educational services provided by the
Corporation through grants, loans or direct payments either to the Corporation,
individual students or otherwise, and any agreements relating to the placement
of students following their completion of relevant educational programs provided
by the Schools other than agreements with students involving the teaching of
standard courses, for standard prices as set forth in the Schools' catalog or in
the enrollment agreement for such students (the "Contracts"); (ii) a summary of
all material provisions of the Contracts that are oral and not reduced to
written documents; and (iii) a copy of all written Contracts. Except as
disclosed in this Schedule 16: (i) all of the Contracts remain unmodified and in
full force and effect, and (ii) the Corporation is not in default of any
material nature (nor, to the best knowledge of the Shareholders, does any state
of facts exist which, with the giving of notice, the passing of time, or
otherwise, would constitute a default of any material nature by the Corporation)
with respect to any of the Contracts.
(m) Maintenance and Employment Agreements. Attached to the Disclosure
Memorandum as SCHEDULE 2(M) is (i) a schedule of all written agreements between
the Corporation and independent contractors, employees and agents who are
employed or engaged in the management or operation of the Schools or the School
Facilities; (ii) the names of all parties entitled to payments from the
Corporation under any such agreements or arrangements; (iii) the amounts payable
by the Corporation under the terms of all such agreements and arrangements,
including without limitation, the terms of employment and compensation,
including vacation and other employee benefit provisions and the cost of all
employee benefits and payroll taxes; and (iv) a copy of all written contracts
for such services. There are no material oral agreements in effect for any such
services. Except as disclosed on such Schedule 2(l): (x) there are no written
agreements between any of
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<PAGE> 10
such contractors, employees or agents and the Corporation; (y) there is no party
entitled to compensation or remuneration for any such services arising from the
operation of the Schools after the Closing; and (z) the Corporation's agreements
and arrangements providing for the services described on such Schedule may be
terminated by the Corporation at any time, with or without cause, and without
any obligation to pay any of said parties any amounts whatsoever except as may
be required by law (including, without limitation, severance pay or accrued
vacation pay or other benefits).
(n) Employee Benefit Plans. The Corporation maintains employee benefit
plans as listed on SCHEDULE 2(N) of the Disclosure Memorandum (the "Employee
Benefit Plans") with respect to employees involved in the operation of the
Schools. Copies of such plans have been previously delivered to the Buyer.
Except as listed on such Schedule, the Corporation does not maintain any profit
sharing, pension or other employee benefit plan related to the Schools'
operations. The Corporation has no unfunded obligations pursuant to any
insurance, retirement, pension, profit sharing or deferred compensation plan or
program relating to the Schools' operations.
(o) Labor. There is no existing labor dispute affecting the operation
of the Schools. None of the Corporation's employees involved in the operations
of the Schools are covered by any union or collective bargaining agreement.
(p) Insurance. A schedule of all of the policies of insurance
maintained by the Corporation in connection with the operation of the Schools is
attached as SCHEDULE 2(P) to the Disclosure Memorandum. The insurance coverage
provided by such policies complies in all material respects, with all agreements
to which the Corporation is a party, and applicable legal requirements to which
it is subject. All such policies are currently in effect.
(q) Taxes. The Corporation has filed all Federal, state and local tax
returns which it is required to file and has no outstanding liability for any
Federal, state or local taxes or interest or penalties thereon, whether disputed
or not, except taxes not yet payable which have been provided for in accordance
with GAAP and are disclosed in the Corporation's Effective Most Recent Balance
Sheet or have subsequently accrued in the normal course of business.
(r) Actions Pending. Except as disclosed in SCHEDULE 2(R) to the
Disclosure Memorandum: (i) there are no actions, suits, proceedings or claims
pending or threatened against the Corporation or Shareholders which, if
determined adversely to the Corporation or Shareholders, would (A) have a
material adverse effect on the Assets, or the operation of the Schools, or (B)
prevent or delay the consummation of any of the transactions contemplated by
this Agreement; (ii) the Corporation or Shareholders, is not the subject of any
pending or threatened investigation relating to any aspect of the Corporation's
operation of the Schools, by any Federal, state or local governmental agency or
authority; (iii) the Corporation, is not and has not been the subject of any
formal or informal complaint, investigation or inspection under the Equal
Employment Opportunity
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<PAGE> 11
Act or the Occupational Safety and Health Act (or their state or local
counterparts) or by any other Federal, state or local authority.
(s) Accounts Receivable. Each of the accounts receivable of the
Corporation relating to the Schools' operations, constitutes a valid claim in
its full amount against the debtor charged on the Corporation's books and has
arisen in the ordinary course of the Schools' operations. The Shareholders have
no knowledge that each such account receivable is not fully collectible to the
extent of the face value thereof, except to the extent of the normal allowance
for doubtful accounts with respect to accounts receivable computed as a
percentage of sales consistent with the Corporation's prior practices as
reflected on the Effective Date Balance Sheet. No account debtor has asserted
any right to any setoff, deduction or defense with respect thereto.
(t) No Guaranties. None of the Corporation's obligations or liabilities
is guaranteed by any other person, firm or corporation, except the Shareholders
have guaranteed the Corporation's obligation which was originally incurred to
First Fidelity, N.A., in connection with its acquisitions of the Schools nor has
the Corporation guaranteed the obligations or liabilities of any other person,
firm or corporation.
(u) Bank Accounts and Deposit Boxes. Attached to the Disclosure
Memorandum as SCHEDULE 2(U) are the names and addresses of all banks or
financial institutions in which the Corporation has an account, deposit or
safety deposit box with the names of all persons authorized to draw on these
accounts or deposits or to have access to the boxes, and an indication of which
accounts or deposits or boxes contain financial aid funds, in each case to the
extent such accounts are used in connection with the Schools' operations.
(v) Records. The books of account of the Corporation relating to the
Schools' operations are complete and correct in all material respects, and there
have been no transactions involving the Schools' operations which properly
should have been set forth therein and which have not been accurately so set
forth.
(w) Transactions With Certain Persons. The Schools, on the one hand,
and the Corporation, on the other, when considered on a consolidating basis, do
not owe any amount to, the other or have any contract with or commitment to the
other except as reflected on the Schools' Financial Statements. The Corporation
has made no distributions or other intra company transfers from or to the
Schools subsequent to the date of the Corporation's Most Recent Balance Sheet.
(x) Capital Stock and Subsidiaries. The Corporation's authorized
capital stock consists solely of 100,000 shares of common stock with no par
value of which 33,890 shares (previously defined in the Preliminary Statement
set forth above as the "Stock") are outstanding, validly issued and are
presently held beneficially and of record by the Shareholders. The Stock are
fully paid and non-assessable. All of the Stock are owned absolutely by the
Shareholders, free and clear of all liens, encumbrances and adverse claims.
There are no voting trusts, proxies, Shareholders agreements or similar
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<PAGE> 12
contracts or understandings in effect relating to the Stock. Except for this
Agreement, there are no outstanding rights, options, warrants, convertible
securities or agreements of any kind entitling any person to purchase or acquire
any shares of capital stock or any other securities or agreements of any kind
entitling any person or purchase or acquire any shares of capital stock or any
other securities of the Corporation, including, without limitation, rights to
acquire capital stock contingent upon the payment of money, passage of time or
other contingency. The Corporation is not a partner or a joint venturer in any
enterprise, and has no subsidiaries.
3. REPRESENTATIONS AND WARRANTIES OF EMI AND BUYER. Each of EMI and
Buyer represents to the Corporation and Shareholders as follows:
(a) No Misstatements. The representations and the information supplied
by it contained in this Agreement, the Exhibits attached to it, and the
documents incorporated by reference into it do not contain any untrue statement
of a material fact or omit to state any fact necessary to make such
representations or information not materially misleading.
(b) Validity of Actions. It is duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the authority to
carry on its business as currently conducted, and is qualified to do business in
all jurisdictions in which such qualification is necessary. It has full power
and authority to enter into this Agreement and to carry out all acts
contemplated by it. This Agreement and each of the documents provided for in it
to be delivered as part of this transaction, have been duly executed and have or
will be delivered pursuant to all appropriate corporate authorization on its
behalf and is, or will be, its legal, valid and binding obligation and is
enforceable against it in accordance with its terms. The execution and delivery
of this Agreement, and each of the documents to be executed and delivered by EMI
and the Buyer pursuant to its terms, and the consummation of the transactions
contemplated by them will not violate any provision of their respective
Certificates of Incorporation or Bylaws or, violate, conflict with or result in
any breach of any of the terms, provisions of or conditions of, or constitute a
default or cause acceleration of any indebtedness under, any indenture,
agreement or instrument to which it is a party or by which it or its assets may
be bound, or, cause a breach of any applicable law or governmental regulation,
or any applicable order, judgment, writ, award, injunction or decree of any
court or governmental instrumentality.
(c) Capitalization.
(1) EMI. As of the date hereof, the authorized capital stock
of EMI consists of: (i) 15,000,000 shares of EMI Common Stock, par value $0.01
per share, of which as of the date of this Agreement, there were 7,369,100
shares issued and outstanding as of December 31, 1997; and (ii) 5,000,000 shares
of Preferred Stock, par value $.01 per share ("EMI Preferred Stock") of which as
of the date of this Agreement there were no shares issued and outstanding. All
outstanding shares of EMI Common Stock have been validly issued by EMI and are
fully paid, non-assessable and free of preemptive rights. There are no
subscriptions, options, warrants, calls, rights, contracts,
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<PAGE> 13
commitments, understandings or arrangements relating to the issuance, sale or
transfer by EMI of any shares of its Capital Stock, including any right of
conversion or exchange under any outstanding security or other instrument,
except as disclosed in EMI's Registration Statement on Form S-1 (No. 333-09777),
or in its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q or its
current reports on Form 8-K, (all as may have been amended from time to time)
filed pursuant to the provisions of the Securities Act of 1933 and/or the
Securities Exchange Act of 1934 with the Securities and Exchange Commission.
(2) The Buyer. As of the date of this Agreement, the authorized
capital stock of the Buyer consists of 1,000 shares of Common Stock of which all
are issued and outstanding. All outstanding shares of the Buyer have been
validly issued and are fully paid, non-assessable and free of preemptive rights,
and all of such shares are owned, beneficially and of record, by EMI.
(d) Actions Pending. There are no actions, suits, proceedings or claims
pending or to the knowledge of EMI or the Buyer, threatened against either of
them which, if determined adversely to either of them would (A) have a material
adverse effect on their operations, or (B) prevent or delay the consummation of
any of the transactions contemplated by this Agreement. Neither EMI nor Buyer is
the subject of any pending or (to its knowledge) threatened investigation
relating to any aspect of its operations.
(e) EMI's Financial Statements
(1) Attached as SCHEDULE 3(D) to the Disclosure Memorandum are
(A) EMI's audited balance sheets at March 31, 1995, 1996, and 1997, and
statements of income and expense and cash flows for the years then ending (EMI's
Audited Financial Statements") and (B) EMI's unaudited balance sheets at
September 30, 1997, and statements of income and expense and cash flows for the
periods then ending ("EMI's Interim Financial Statements" collectively with
EMI's Audited Financial Statements, "EMI's Financial Statements").
(2) EMI's Financial Statements: (i) have been prepared on the
accrual basis in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except as otherwise disclosed in the reports
accompanying them or in the notes attached to them, and (ii) fairly present
EMI's financial condition and its results of operations at the times and for the
periods presented.
(3) There have been no material adverse changes in the financial
condition or in the operations, business, prospects, properties of assets of EMI
since the date of EMI's Interim Financial Statements.
(f) Buyer's Financial Condition. The Buyer is a newly formed
Corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
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<PAGE> 14
(g) EMI Purchase Stock. Upon issuance, the EMI Purchase Stock shall be
validly issued, fully paid and non-assessable to the Shareholders free and clear
of all liens, encumbrances and adverse claims.
4. COVENANTS OF THE PARTIES.
(a) Conduct of the Business Prior to the Closing. Pending consummation
of the transactions contemplated in this Agreement or prior to termination of
this Agreement, the Corporation and Shareholders agree, without prior written
consent of Buyer, given in a letter which specifically refers to this Section of
the Agreement:
(1) not to (i) perform any act or omit to take any act that
would make any of the Shareholders' representations made in Section 2 above,
inaccurate in any material respect or materially misleading as of the Closing
Date, or (ii) allow the Corporation to make any payment or distribution with
respect to the Schools or their operations except for the payment of liabilities
provided for in the Corporation's Financial Statements or incurred in the
ordinary course of business;
(2) to conduct the business of the Schools in the ordinary and
regular course, maintain the School Facilities, protect the Schools'
Accreditation Certifications and Permits, and keep their books of account,
records and files in substantially the same manner as at present.
(3) to make all tuition refunds with respect to the Schools'
operations within the time frames provided for in the Regulations and any
applicable state or accrediting agency regulations, and to pay all accounts
payable as they become due.
(b) Notice. Pending the consummation of the transactions contemplated
in this Agreement or prior to termination of this Agreement, each party agrees
that it will promptly advise the others of the occurrence of any condition or
event which would make any of its representations contained in this Agreement
inaccurate, incorrect, or materially misleading.
(c) Access. Prior to the Closing, the Corporation shall afford to the
Buyer (and its officers, attorneys, accountants and other authorized
representatives), upon reasonable notice, free and full access during usual
business hours to its relevant offices, personnel, books and records and other
data, financial or otherwise, so that Buyer may have full opportunity to make
such investigation as it shall desire of the Assets and the business and
operations of the Schools by the Corporation, provided that such investigation
shall not unreasonably interfere with the Corporation's operations. The scope of
the investigation will include, but not be limited to, a verification of the
Corporation's Financial Statements and a review of the Corporation's control
procedures, regulatory compliance relating to the Schools, the Schools Facility,
and material contracts and litigation relating to the Schools. Duly authorized
representatives of the Buyer shall also be entitled to discuss with officers of
the Corporation, its counsel, employees and
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<PAGE> 15
independent public accountants, all of its books, records and other corporate
documents, contracts, pricing and service policies, commitments and future
prospects to the extent such materials and matters relate to the operation of
the Schools. Representatives of the Corporation will furnish to Buyer and such
other persons, copies of all materials relating to the business affairs,
operations, Facility, Assets and liabilities of the Corporation relating to the
Schools which may be reasonably requested from time to time and will cause
representatives and employees of the Corporation to assist Buyer in its
investigation of the matters relative to the Schools. All information obtained
by Buyer, EMI or any of their officers, directors, employees, lender, investors,
agents and other representatives (the "Buyer's Representatives") in connection
with the transactions contemplated by this Agreement or in the course of their
investigations of the Schools, whether obtained before or after the date of this
Agreement (the "Evaluation Material") shall be used only in connection with this
Agreement and the subsequent operation of the Schools, and each of Buyer and EMI
shall assure that all Evaluation Material will be otherwise kept strictly
confidential by each of them and the Buyer's Representatives.
(d) Additional Documents. At the request of any party, each party
will execute and deliver any additional documents and perform in good faith such
acts as reasonably may be required in order to consummate the transactions
contemplated by this Agreement and to perfect the conveyance and transfer of any
property or rights to be conveyed or transferred or perfect the assumption of
any liabilities assumed under the terms of this Agreement.
(e) Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the Closing, each of the
parties to this Agreement will execute such documents and take such other
actions as reasonably may be appropriate to fulfill the conditions to Closing
provided for in Section 5 of this Agreement.
5. CONDITIONS TO CLOSING BY THE RESPECTIVE PARTIES. The obligation of
EMI and Buyer, on the one hand, and the Corporation and Shareholders on the
other hand, to consummate the transactions contemplated by this Agreement shall
be subject to compliance with or satisfaction of the following conditions by the
other, to the extent applicable:
(a) Bring Down. The representations and warranties set forth in this
Agreement shall be true and correct in all material respects on and at the
Closing Date as if then made by the relevant party (except for those
representations and warranties made as of a given date, which shall continue to
be true and correct as of such given date).
(b) Compliance. Each party shall have complied with all of the
covenants and agreements in this Agreement on its or their part, respectively,
to be complied with as of or prior to the Closing Date.
(c) No Material Adverse Changes. Since the date of the Most Recent
Balance Sheet, there shall not have occurred any material adverse change in the
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<PAGE> 16
condition or operations (financial or otherwise) of the Schools, the School
Facilities, or the Assets. Since September 30, 1997, there shall not have
occurred any material adverse change (financial or otherwise) of EMI.
(d) Buyer Certificates. There shall be delivered to the
Shareholders:
(1) a certificate executed by the President and Secretary of
each of Buyer and EMI, dated the Closing Date, certifying that the conditions to
be fulfilled by each of them set forth in this Section 5 have been fulfilled;
(2) a certificate of incumbency for each of the Buyer and EMI
executed by its President or any Vice President and by the Secretary or any
Assistant Secretary of such entity, listing the officers of such entity
authorized to execute (to the extent applicable) the Agreement and the other
documents, certificates, schedules and instruments to be delivered on behalf of
such entity, and their respective offices, and containing the genuine signature
of each such person set forth opposite his name; and
(3) good standing certificates and certified charter documents
of each of them of recent date, from the Secretary of the State of the
jurisdiction of incorporation of such entity and a copy of their respective
By-Laws certified by an officer thereof.
The certificates described in subsections (1), (2) and (3) above are
hereafter referred to collectively as the "Buyer's Certificates."
(e) Shareholders' Certificates. There shall be delivered to the
Buyer and EMI:
(1) a certificate executed by the President and Secretary of the
Corporation and the Shareholders, dated the Closing Date, certifying that the
conditions to be fulfilled by it as set forth in this Section 5 have been
fulfilled;
(2) a certificate of incumbency for the Corporation executed by
its President or any Vice President and by the Secretary or any Assistant
Secretary of the Corporation, listing the officers of such entity authorized to
execute (to the extent applicable) the Agreement and the other documents,
certificates, schedules and instruments to be delivered on behalf of such
entity, and their respective offices, and containing the genuine signature of
each such person set forth opposite his name; and
(3) good standing certificates and certified charter documents
of the Corporation of recent date, from the Secretary of the State of the
jurisdiction of incorporation of such entity and a copy of their respective
By-Laws certified by an officer thereof.
The certificates described in subsections (1), (2) and (3), above, are
hereafter referred to collectively as the "Corporation's Certificates."
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<PAGE> 17
(f) No Suits. No action or proceeding shall have been instituted in any
court or before any Federal, state or local governmental agency against any
party seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or which could have a material adverse effect on
any of the parties, which shall not have been dismissed or withdrawn prior to
the Closing Date.
(g) Documents. All documents required to be delivered to Buyer or the
Corporation or the Shareholders pursuant to this Agreement at or prior to
Closing shall have been so delivered.
(h) Authority. There shall be in full force and effect on the Closing
Date resolutions of the Boards of Directors of the Buyer, EMI and the
Corporation approving this Agreement the other documents executed and delivered
by each of them in connection with this Agreement and the transactions
contemplated in it. At or prior to the Closing, each party will deliver to the
other a copy of the resolutions of its Board of Directors, and in the case of
the Corporation, the resolutions or consent of the Shareholders, together with
any and all required resolutions or consent of the Shareholders thereof,
approving the execution and delivery of this Agreement and the other documents
to be delivered pursuant to this Agreement and the consummation of all of the
transactions contemplated hereby, duly certified by an appropriate officer.
(i) Opinions of Counsel. Each party shall receive the opinion of
counsel to the other party reasonably satisfactory in form and content to the
party receiving such opinion.
(j) Current Insurance Coverage. Payments will have been made as of the
Closing Date with respect to all of the Corporation's insurance policies,
relating to the Schools, and all insurance coverage concerning the Assets and
the Schools' operations shall be continued in force through at least 10 days
subsequent to the Closing Date, unless canceled subsequent to the Closing Date
by Buyer.
(k) Bankruptcy, Dissolution, etc. No petition or other commencement of
proceedings in bankruptcy or proceedings for dissolution, termination,
liquidation or an arrangement, reorganization or readjustment of any party's
debts under any state or Federal law enacted for the relief of debtors or
otherwise, whether instituted by or against a party, has been effected or
commenced by or against any party.
(l) State Approvals. The transactions provided for in this Agreement
shall have been approved by all applicable state regulatory agencies or
authorities and such approvals shall have been delivered to Buyer.
(m) Leases. The parties shall have entered into a satisfactory lease
with respect to the premises located at 520 Street Road, Southampton Park.
6. CLOSING AND POST CLOSING AGREEMENTS.
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(a) Closing Date and Place. The closing of the transactions provided
for in this Agreement shall take place at the time provided for in Section 1(b)
of this Agreement at such place as the parties may agree, and shall be effective
as provided therein.
(b) Deliveries by Buyer to the Shareholders. At the Closing, Buyer and
EMI shall deliver to the Shareholders:
(1) Initial Payment;
(2) The Second Payment Notes;
(3) The Purchase Money Promissory Notes;
(4) Certificates representing the EMI Purchase Stock;
(5) The Pledge Agreement;
(6) The Security Agreement and related UCC-1's;
(7) The Buyer's Certificates; and
(8) The Registration Rights Agreement in the form attached to
this Agreement as EXHIBIT 5.
(c) Deliveries by the Corporation to Buyer. At the Closing,
Shareholders shall deliver to Buyer:
(1) The original certificates representing the Stock;
(2) The Stock Power (the (Stock Power") in substantially the
form attached to this Agreement as EXHIBIT 6; and
(3) The Shareholders' Certificates;
(d) Filing of Tax Returns and Other Reports. The Corporation and
Shareholders shall timely file all federal and state income tax and other
returns or reports relating to the transactions provided for in this Agreement
and relating to all periods during which the Shareholders owned the Stock, and
to the extent required by law or regulation, all reports with the Department of
Education or any other applicable state of federal regulatory or accrediting
agency relating to such periods including without limitation the Financial Aid
Audits for the federal fiscal year ended June 30, 1996 to be filed by the
Schools with the Department of Education pursuant to applicable regulations.
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(e) Access to Records. Following the effective Closing Date, Buyer and
EMI shall give to the Shareholders reasonable access to (and the right to make
copies at the expense of the Corporation) all financial and other records of the
Schools which reflect or relate to the business, operations, income, expenses
and assets of the Schools existing on, accruing or prior to the Closing Date,
and to preserve such records for a period of time reasonably necessary to insure
their availability for purposes of state and federal regulatory compliance or
production or review in the case of an audit, investigation or inquiry. Access
to such records shall be conducted by the Shareholders in such manner as not to
interfere unreasonably with the operations of the business following the Closing
Date.
(f) Filing for Prerequisite Student Aid Approvals. Prior to 30 days
after the Closing Date, the Buyer shall file all necessary applications for the
Prerequisite Student Aid Approvals.
(g) Acid Test; Minimum Stockholders' Equity. Within thirty (30) days
after the Closing Date, the Shareholders shall provide the Buyer with audited
balance sheets of each school and a combined balance sheet (the "Closing Balance
Sheets") (which shall be subject to the same representations and warranties
provided for in Section 2(c) of this Agreement), which indicates stockholders'
equity as of the Closing Date and the ratio (the "Ratio") of the Corporation's
(i) total cash, cash equivalents and current accounts receivable ("Eligible
Assets") to (ii) current liabilities. In the event that the Ratio on the Closing
Balance Sheets exceeds one (1) to (1) (without giving effect to recording any
liability with respect to the judgment entered against the Corporation in
Richardson v. CHI Institute (the "Judgment") in the aggregate principal amount
of approximately $230,000), the Buyer shall pay to the Shareholders within
fifteen (15) business days an amount equal to the excess Eligible Assets over
current liabilities, provided that such payment shall be limited to an amount
which, after giving effect to such pament, shall not reduce Shareholders' equity
as shown on such Closing Balance Sheet to less than $1,000,000 (without giving
effect to the recording of any liability with respect to the Judgment) and
further provided that $250,000 of such payment shall be deferred and paid on
March 15, 1999 as part of the Purchase Money Promissory Notes. In the event that
the Ratio is less than one (1) to one (1), then the Shareholders shall pay to
the Buyer within fifteen (15) business days an amount equal to the difference
between current liabilities and Eligible Assets The audit fees incurred in
connection with the preparation of the Closing Balance Sheet shall be shared
equally by the Shareholders and the Buyer.
(h) Payments With Respect to Judgments. The Shareholders shall pay to
the Buyer as provided herein up to $50,000 upon receipt of evidence of payment
to the plaintiffs and/or their attorneys with respect to the Judgment. Such
payments shall be made by deduction from the next applicable payment of
principal from the second payment Note or the Purchase Money Promissory Note, as
the case may be.
(i) Further Documents or Acts. The parties will execute, deliver,
record (where appropriate) and/or perform at Closing and from time to time
thereafter, at the
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request of Buyer, EMI, or the Shareholders, all other documents or acts required
to consummate any of the transactions contemplated by this Agreement or
otherwise carry out the purposes of this Agreement, including without
limitation, any and all instruments or other documents of transfer, conveyance,
assignment and assumption as may be reasonably necessary to effect evidence of
the transactions contemplated by this Agreement.
(j) Retention of Certain Key Employees. The Buyer intends to continue
the employment of (i) Glenn Murray through to September 4, 1998, and (ii) Kevin
Quinn prior to February 14, 1999, upon their present terms of employments,
subject to applicable regulations, provided that such employees' complete
interviews reasonably acceptable to the Buyer's management and perform their
employment tasks in a manner consistent with the reasonable expectations of the
Buyer's management.
(k) Guarantee. Within 180 days from the date of the Closing, Buyer will
(i) secure the release of any guaranty of any shareholder of the indebtedness of
the corporation to First Fidelity Bank, N.A. outstanding as of the date hereof
(the "Acquisition Debt") or (ii) satisfy such indebtedness in full.
7. CONFIDENTIALITY AND JOINT NON-COMPETITION AGREEMENT.
(a) Shareholders acknowledges that, as a result of his ownership of the
Schools he had access to and knowledge of confidential or proprietary
information developed by the Corporation and Shareholders with respect to the
Schools and its operations and of a special and unique nature and value to the
Buyer, including, but not limited to, the methods and systems used in connection
with the Schools' operations, the names and addresses of their students and
sources of referral, tuition charged and paid by with respect to the Schools or
their customers, curricula, related memoranda, research reports, designs,
records, student files, services, and operating procedures, and other
information, data, and documents now existing or later acquired by the
Corporation or Shareholders in connection with the Schools' operations,
regardless of whether any such information, data, or documents, qualify as a
"trade secret" under applicable Federal or state law (collectively "Confidential
Information"). Confidential Information does not include information that (i)
becomes generally available to the public other than as a result of disclosures
by the Corporation or Shareholders in violation of the terms of this Agreement,
or (ii) becomes available to the Corporation or Shareholders on a
non-confidential basis from a source that is not bound by a confidentiality
agreement with Buyer or EMI or each of their respective directors, officers,
employees, agents or representatives. As a material inducement to Buyer to enter
into this Agreement, the Shareholders covenants and agrees not at any time
following the Closing Date directly or indirectly, to divulge or disclose for
any purpose whatsoever, any Confidential Information which is in the possession
of the Corporation or Shareholders as a result of their ownership of the
Schools, or otherwise as a result of the relationship between the Corporation,
Shareholders and the Schools' operations. In accordance with the foregoing, the
Shareholders agrees at no time retain or remove from the School Facilities
records of any kind or description whatsoever for any
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purpose whatsoever unless authorized by Buyer. Notwithstanding the foregoing
provisions of this Section 7(a), Shareholders may disclose Confidential
Information (i) to his counsel, accountants and agents on a need-to-know basis
(provided that any such person shall be informed of the confidential nature of
such information and directed not to disclose or make public such Confidential
Information), (ii) to the extent required by applicable law, rules and
regulation, and (iii) in any action, suit or proceeding between the parties,
provided that in connection with disclosures permitted by clauses (ii) and (iii)
above, Shareholders shall provide Buyer with at least three (3) days notice of
such intent so that an appropriate protective order may be sought by Buyer if
desired.
(b) As a material inducement to Buyer to enter into this Agreement, the
Shareholders covenants and agrees for a period of ten (10) years after the
Closing of the transactions provided for in this Agreement not to (i) engage in
the operation of a post secondary school facility (the "Prohibited Activities")
anywhere within the State of Pennsylvania or within 50 miles (the "Area") of the
location of any school owned or operated by EMI or any postsecondary educational
school which EMI subsequently operates during such period with respect to which
EMI either gives written notice to the Buyer or includes on its Internet
Homepage or any successor generally available information service prior to the
Shareholders' commencement of such activities; (ii) become associated as
manager, consultant, advisor, or stockholder owning more that 5% of the
outstanding stock of a company or participate in the management or direction of
a company or otherwise with any person, the Corporation or entity engaging in
Prohibited Activities anywhere within the Area; (iii) call upon any of Buyer's,
EMI's or any of EMI's subsidiary schools' students, teachers or referral sources
for the purpose of promoting any Prohibited Activities for any person, person,
the Corporation or entity within the Area; or (iv) divert, solicit or take away
any of Buyer's, EMI's or any of EMI's subsidiary school's teachers or other
personnel for the purpose of engaging in any Prohibited Activities regardless of
the location of such activities.
(c) In the event of a breach or threatened breach by the Shareholders
of any of the provisions of this Section 7, Buyer, in addition to and not in
limitation of any other rights, remedies, or damages available to Buyer at law
or in equity, shall be entitled to a permanent injunction in order to prevent or
to restrain any such breach by Shareholders, or by Shareholders' partners,
agents, representatives, servants, employers, employees and/or any and all
persons directly or indirectly acting for or with them.
(d) Shareholders agrees that, if he shall violate any of his covenants
or agreements provided for in this Section 7, Buyer shall be entitled to an
accounting and repayment of all profits, compensation, commissions,
remuneration, or benefits which Shareholders directly, or indirectly, has
realized and/or may realize as a result of, growing out of, or in connection
with any such violation; such remedy shall be in addition to and not in
limitation of any injunctive relief or other rights or remedies to which Buyer
may be entitled to at law or in equity or under this Agreement.
(e) Shareholders have carefully read and considered the provisions of
this Section 7, and agrees that the restrictions set forth above (including
without limitation the
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time period and geographical areas of restriction) are fair and reasonable and
are reasonably required for the protection of the interest of the Buyer and EMI.
In the event that, notwithstanding the foregoing, any of the provisions of this
Section 7 are held invalid or unenforceable, the remaining provisions shall
continue to be valid and enforceable. In the event that any provision of this
Section 7 relating to time period and/or areas of restriction are declared by a
court of competent jurisdiction to exceed the maximum time period or areas such
court deems reasonable and enforceable, said time period or areas of restriction
shall be deemed to become, and thereafter be, the maximum time period and/or
area which such court deems reasonable and enforceable.
8. INDEMNIFICATION.
(a) Colyar and Haring, jointly and severally agree to defend, indemnify
and hold harmless the Buyer and EMI and their directors, officers, employees and
agents from and against any loss, liability, damage, settlement or expense
(including, without limitation, attorneys' fees and disbursements) incurred by
Buyer or EMI arising from or related to the inaccuracy or breach of any of the
representations, warranties, covenants or agreements of Shareholders contained
in this Agreement or in any document incorporated by reference into this
Agreement.
(b) Buyer and EMI, jointly and severally, agree to defend, indemnify
and hold harmless Shareholders and their agents from and against any loss,
liability, damage, settlement or expense (including without limitation
attorneys' fees and disbursements) incurred by Shareholders arising from or
related to the inaccuracy or breach of any of the representations, warranties,
covenants or agreements of Buyer or EMI contained in this Agreement or in any
document incorporated by reference into this Agreement.
(c) The party seeking indemnification pursuant to this Section 8 (the
"Indemnified Party") shall give (or cause to be given) to the party or parties
from whom indemnification is sought hereunder (the "Indemnifying Party") written
notice of any claim or matter for which indemnity is (or will be) sought under
this Section 8. Such notice shall be given promptly after the Indemnified Party
receives actual notice or knowledge of the claim or matter that is subject to
indemnification. With respect to any claim asserted by a third party against an
Indemnified Party for which indemnity is sought hereunder, the relevant
Indemnifying Party shall have the right to employ counsel reasonably acceptable
to the relevant Indemnified Party to defend against such assertion and such
Indemnifying Party shall have the right to compromise or otherwise settle any
such action or claim only with the prior written consent of such relevant
Indemnified Party, which consent shall not be unreasonably withheld.
9. EVENTS OF DEFAULT. If any one or more of the following events occurs
then, subject to the expiration of any specified grace period and the giving of
any prior notice required under this Section 9, such event shall constitute an
Event of Default by the party responsible for such event or against whom it
should be charged.
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<PAGE> 23
(a) Warranties or Representations. Any warranty or representation by or
on behalf of any party contained in this Agreement (or in any document between
the parties furnished in compliance with this Agreement at Closing) is false or
misleading in any material respect.
(b) Agreements. Any party fails to take any action required of it to
comply with its obligations contained in this Agreement, or takes any action
prohibited or inconsistent with its obligations under this Agreement, and such
failure to act or action is not cured prior to ten (10) days after written
notice thereof is given to the defaulting party or appropriate action is
commenced within such time, pursued diligently and completed within a reasonable
time.
(c) Refusal to Close. A party refuses to consummate the transactions
provided for (and subject to the terms and conditions specified) in this
Agreement by 5 p.m., Eastern Daylight Time on the Termination Date, except if
the failure to close is based upon the failure of the other party to meet a
condition to Closing provided for in Section 5 of this Agreement.
(d) Failure of Closing Condition. Any party is unable to comply with
the conditions of Closing provided for in Section 5 of this Agreement, other
than as a result of an Event of Default as described in Sections 9(a), (b), or
(c) above.
10. TERMINATION AND RIGHTS AND REMEDIES ON DEFAULT.
(a) Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned prior to the Closing: (i) by the
mutual consent of Buyer, EMI, the Corporation and Shareholders; (ii) by Buyer
and EMI, if any condition to their obligations to close set forth in Section 5
hereof becomes impossible of performance or has not been satisfied in full (in
each case other than as a result of a breach of such party's obligations under
this Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; (iii) by the Corporation and
Shareholders if any condition to their obligations to close set forth in Article
5 hereof becomes impossible of performance or has not been satisfied in full (in
each case other than as a result of a breach of such party's obligations under
this Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; or(iv) by any party (other than a
party that is in breach of its obligations under this Agreement) if the Closing
shall not have occurred on or before the Termination Date. If this Agreement is
terminated pursuant to clause (i) of this Article 10, all obligations of the
parties hereunder shall terminate without any further liability or obligation of
either party to the other, except that the provisions of Section 11, Section
13(b) and the confidentiality provisions of Section 4(c) of this Agreement shall
survive and continue in full force and effect notwithstanding such termination.
Except as limited by the preceding sentence, the exercise by any party of the
right to terminate this Agreement shall not terminate or limit any remedy that
such party may have in this Section 10 as a result of an Event of Default.
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<PAGE> 24
(b) Rights and Remedies on Default. Upon and after an Event of Default
by any party, the other party shall have the following rights and remedies:
(1) Default by Buyer. In the event that Buyer is obligated to and
fails to close by the Termination Date, and the Corporation or Shareholders is
not in default of their obligations under this Agreement, this Agreement shall
terminate and the Corporation and Shareholders shall have the right to seek
money damages as their sole remedy. The Corporation and Shareholders hereby
agree that neither of them shall be entitled to seek or file suit for specific
performance of this Agreement.
(2) Default by the Corporation or Shareholders. If, on the
Termination Date, there exists an Event of Default as described in Section 9 of
this Agreement, chargeable against the Corporation or the Shareholders, Buyer
may either (i) waive such default and close, in which event Buyer shall have the
right to seek specific performance of this Agreement, including, without
limitation, the acquisition of the Shares and the performance by the Corporation
and Shareholders of the covenants provided for in this Agreement, or (ii) refuse
to close, and, except in the case of an Event of Default described in Section
9(d) above, seek money damages from the Corporation or Shareholders, including,
without limitation, indemnification pursuant to Section 8 of this Agreement. An
election by Buyer to proceed in accordance with subclause (i) of the preceding
sentence shall constitute the acknowledgment by Buyer and the Corporation or
Shareholders that Buyer cannot be adequately compensated by money damages for
the failure to perform by the Corporation or Shareholders, that such damages are
indeterminate, and that a court of competent jurisdiction may enter an order
pursuant to which the Corporation and Shareholders are obligated to specifically
perform their obligations to Buyer pursuant to the terms of this Agreement.
(3) Default Subsequent to Closing. If any party breaches this
Agreement subsequent to Closing, or if a default occurs pursuant to Sections
9(a) or 9(b) of this Agreement, and fails to cure such default as provided for
in such Sections the nondefaulting party(ies) shall have the right to seek money
damages from the defaulting party(ies), either pursuant to Section 8 of this
Agreement or otherwise. Alternatively, if, (i) as a result of any action taken
or not taken by the Corporation or Shareholders in violation of any applicable
law or regulation which (ii) has not been disclosed to the Buyer in this
Agreement, and which (iii) the occurrence or non occurrence of which was known
or reasonably should have been known to the Corporation or Shareholders, the
Prerequisite Student Aid Approvals are not received prior to 12 months from the
date of the Closing, or, if received or offered, can only be obtained on
conditions imposing substantial financial burdens on the Buyer in addition to
those which would otherwise be imposed in connection which such approval, the
Buyer may elect to rescind the transactions provided for in this Agreement and,
upon such election, the parties will take such action as may be reasonably
required to restore the other party to its respective positions as they existed
prior to the Closing provided for in this Agreement.
(4) Nature of Remedies Cumulative. Except as otherwise provided in
this Agreement, all rights and remedies granted in this Agreement or available
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<PAGE> 25
under applicable law shall be deemed concurrent and cumulative and not
alternative or exclusive remedies, to the full extent permitted by law and this
Agreement, and any party may proceed with any number of remedies at the same
time or in any order. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy, and any party, upon the
occurrence of an event of default by another party under this Agreement, may
proceed at any time, under any agreement, in any order and with any available
remedy.
11. FINDERS FEES. Each of the parties represents and warrants to the
other that such party has not employed any finder or broker in connection with
transactions contemplated by this Agreement. Each party agrees to indemnify and
hold harmless the others from and against any claim, damages, liabilities, and
expenses (including without limitation, attorneys' fees and disbursements)
arising from any claim or demand asserted by any person or entity on the basis
of its employment as a finder or broker by the respective party.
12. ARBITRATION. Any disputes between any of the parties to it with
respect to the agreements contained in it, or as modified in the future, are to
be settled by binding arbitration conducted pursuant to the commercial
arbitration rules of the Uniform Arbitration Act of Pennsylvania. In any such
arbitration the scope and timing of any discovery shall be determined by the
arbitrators. Such arbitration is to be the sole remedy for the settlement of
such disputes. All of the parties agree that money damages are inadequate to
compensate for a breach of the confidentiality and non-competition provisions of
this Agreement and contained in this Agreement. The Shareholders agree that upon
application by EMI and/or Acquisition, any court of competent jurisdiction, upon
a showing sufficient to justify the entry of a temporary injunction, may enjoin
any activity allegedly in breach of such agreement pending the outcome of
binding arbitration or enter a similar order of like force and effect, or may
enforce the final determination of such arbitrators by the issuance of such an
injunction or similar order.
With respect to the provisions of Section 7 (Confidentiality and
Non-Competition), the Corporation and Shareholders agree that damages, by
themselves, are an inadequate remedy at law, that a material breach of the
provisions of such Section would cause irreparable injury to the aggrieved
party, and that the provisions of Section 7 may be specifically enforced by
injunction or similar remedy in any court of competent jurisdiction without
affecting any claim for damages, provided that any such injunction shall either
be preliminary in nature, enjoining such activity pending the outcome of
arbitration as provided for in Section 12 of this Agreement, or be in assistance
of the final determination of the arbitrators as provided for in such Section.
The Corporation and Shareholders agree that such injunction may be issued
without the necessity of bond.
13. NOTICES. All notices or other communications required or permitted
under the terms of this Agreement shall be made in writing and shall be deemed
given (I) upon hand delivery, (ii) when sent by commercial overnight courier
with written verification of receipt, or (iii) three days after deposit of same
in the Certified Mail, Return Receipt
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Requested, first class postage and registration fees prepaid and correctly
addressed to the parties at the following addresses:
If to Buyer: CHI Acquisition Corp.
1327 Northmeadow Parkway, Suite 132
Roswell, Georgia 30076
Attn: President
With a copy to: Greenberg Traurig Hoffman Rosen Lipoff & Quentel
777 South Flagler Drive, Suite 300 - East Tower
West Palm Beach, Florida 33401
Attn: Morris C. Brown, Esq.
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway, Suite 132
Roswell, Georgia 33076
Attn: President
With a copy to: Greenberg Traurig Hoffman Rosen Lipoff & Quentel
777 South Flagler Drive, Suite 300 - East Tower
West Palm Beach, Florida 33401
Attn: Morris C. Brown, Esq.
If to the Corporation: Computer Hardware Service Company, Inc.
11 Vincent Circle
Jacksonville Park, Ivyland, PA 18974
Attn: President
With a copy to: England & Young, P.C.
50 E. Court Street
Doylestown, PA 18901
Attn: Boyd A. England, Esq.
If to Shareholders: Joseph Colyar
212 Patrick Drive
Richboro, PA 18954
Claude H. Haring, Jr.
2113 Edgehill Drive
Furlong, PA 18925
James Fritz
210 Suffolk Road
Fairless Hills, PA 19030
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<PAGE> 27
or to such other address as any of the parties hereto may designate by notice to
the others.
14. MISCELLANEOUS.
(a) Successors. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned prior to Closing without the prior
written consent of the other parties hereto.
(b) Expenses. Except as otherwise provided in this Agreement,
Buyer, the Corporation and Shareholders shall be responsible for any and all of
the respective fees, costs and expenses incurred by each, in connection with the
negotiation, preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by this reference
all Exhibits hereto and all documents executed and/or delivered at Closing. This
Agreement and the documents so incorporated into it contain the parties' entire
understanding and agreement with respect to the subject matter hereof; and any
and all conflicting or inconsistent discussions, agreements, promises,
representations and statements, if any, between the parties or their
representatives that are not incorporated in this Agreement shall be null and
void and are merged into this Agreement.
(d) Amendments Only in Writing. No amendment, modification, waiver
or discharge of this Agreement or any provision of this Agreement shall be
effective against any party, unles
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement, when
requested by another party, shall give all reasonable and necessary cooperation
with respect to any reasonable matters relating to the transactions contemplated
by this Agreement.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Pennsylvania, exclusive of
its choice of law provisions.
(h) Headings. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.
(i) Gender; Number. All references to gender or number in this
Agreement shall be deemed interchangeably to have a masculine, feminine, neuter,
singular or plural meaning, as the sense of the context requires.
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(j) Severability. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
(k) Survival. Except as otherwise expressly provided in this
Agreement, the liabilities and obligations of each party with respect to any and
all of its representations, warranties, covenants and agreements set forth in
this Agreement and/or in any document incorporated into it shall not be merged
into, affected or impaired by the Closing under this Agreement. All of the
representations, warranties, covenants and agreements set forth in this
Agreement shall survive the Closing for the period of two years thereafter, so
that (except as otherwise provided below) any claim under this Agreement must be
asserted by notice given to the party claimed to be liable on or before the
second anniversary of the Closing Date. Notwithstanding the foregoing, the time
limitation shall not apply to: (i) the covenants related to confidentiality and
non-competition contained in Section 7 above; (ii) claims arising out of a
misrepresentation as to matters contained in Section 2 (h) and 2 (i) (which
shall survive for a period ending on the seventh anniversary of the Closing
Date), or (iii) fraud. All obligations and liabilities described in clauses (i)
and (iii) of the previous sentence shall survive the Closing for the period in
which a claim can be asserted with respect thereto under applicable law.
(l) No Third Party Beneficiaries. This Agreement has been entered
into solely for the benefit of the parties that have executed it, and not to
confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
CHI ACQUISITION CORP. ("BUYER") COMPUTER HARDWARE SERVICE
COMPANY, INC. ("CORPORATION")
By: /s/ GARY D. KERBER By: /s/ JOSEPH COLYAR
------------------------------ -----------------------------
Authorized Signatory Authorized Signatory
EDUCATIONAL MEDICAL, INC. ("EMI")
By: /s/ GARY D. KERBER /s/ JOSEPH COLYAR
------------------------------- ----------------------------
Authorized Signatory Joseph Colyar
/s/ CLAUDE H. HARING
----------------------------
Claude H. Haring
/s/ JAMES FRITZ
----------------------------
James Fritz
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<PAGE> 30
EXHIBITS
1. The Second Payment Note
2. The Purchase Money Promissory Note
3. The Pledge Agreement
4. The Security Agreement and related UCC-1's
5. The Registration Rights Agreement
6. The Stock Power
7. The Subordination Agreement
<PAGE> 1
EXHIBIT 10.52
NON-NEGOTIABLE
SECOND PAYMENT PROMISSORY NOTE
U.S. $1,500,000.00 February 14, 1998
FOR VALUE RECEIVED, each of the undersigned, jointly and severally
(each individually called a "Maker" and collectively called the "Makers"),
hereby unconditionally promises to pay to the order of JOSEPH COLYAR ("Seller"),
or permitted assigns ("Holder"), at 212 Patrick Drive, Richboro, PA 18954, or at
such other place or to such other party as Holder may from time to time
designate in writing, the principal sum of One Million Five Hundred Thousand and
00/100 Dollars (U.S. $1,500,000.00) in lawful currency of the United States.
This Note evidences a payment to be made to the Holder pursuant to the
Stock Purchase Agreement among Seller, Educational Medical, Inc., CHI
Acquisition Corp., and CHI Institutes, Inc., dated February 14, 1998 and
providing for the purchase by CHI Acquisition Corp. of all of the outstanding
and issued Capital Stock of CHI Institutes, Inc. owned by Seller (the
"Agreement"). The terms of the Agreement are incorporated into this Note, and
this Note is the Second Payment Promissory Note referred to in the Agreement,
representing a portion of the purchase price for the Stock as defined in the
Agreement. Unless otherwise defined herein, all capitalized terms used in this
Note shall have the same meaning as set forth in the Agreement.
All amounts represented by this Note shall be due and payable on the
earlier of (1) the last business day within the first 30 calendar days following
the date on which the Prerequisite Student Aid Approvals are obtained; or (2)
180 days from the date of Closing (the earlier of the dates referred to in the
preceding two clauses is called the "Maturity Date"). All amounts owing pursuant
to this Note and not paid as of ninety (90) days subsequent to the Closing Date
(the "Interest Commencement Date") shall bear interest at the rate of 8% per
annum commencing on the Interest Commencement Date until paid.
In the event that the Makers assert a claim for monetary damages or
indemnification against the Seller pursuant to the provisions of the Agreement
(a "Claim"), the Maker shall have the right to offset (an "Offset") the amount
of the Claim, first against the Second Payment Promissory Note and then against
the Purchase Money Promissory Note. Offsets against the Purchase Money
Promissory Note shall be made first against principal payments and then interest
payments in order of such payments and to the extent that a principal payment
has been reduced as a result of such offset, all interest accrued with respect
to such principal amount cancelled and returned or set off, as the case may be.
In connection with any Offset, the Makers must
1
<PAGE> 2
deliver to the Seller written notice at or prior to the time the related payment
would otherwise be due describing the basis for such Offset with reasonable
detail. The Seller may contest the right to such Offset as provided in the
Agreement.
Maker for itself, its legal representatives, successors and assigns,
waives presentment for payment, demand, notice of dishonor or non-payment,
notice of default, notice of protest, and protest of this Note, and waives any
right to be released by reason of any extension of time or change in terms of
payment. Maker hereby consents to any number of extensions of time, and any and
all renewals, waivers, and modifications of this Note or any combination of the
foregoing that may be made or granted by Holder.
Maker agrees to pay immediately upon demand all reasonable costs and
expenses of Holder, including attorneys' fees, (i) if after default this Note is
placed in the hands of an attorney or attorneys for collection, or (ii) if
Holder finds it necessary or desirable upon default to secure the services of
one or more attorneys with regard to collection of this Note against Maker, or
for the protection of its rights under this Note. The term "attorneys' fees"
shall include attorneys' fees at trial and on appeal, and shall include
attorneys' fees incurred in connection with bankruptcy, conservatorship,
receivership or any other proceeding.
All issues arising hereunder shall be governed by the laws of
Pennsylvania. The undersigned consent to the jurisdiction of the Courts of
Pennsylvania in any action or proceeding which may be brought against the
undersigned, under or in connection with this Note or otherwise, and, in the
event any such action or proceeding shall be brought against the undersigned,
the undersigned agree not to raise any objection to such jurisdiction or to the
laying of venue in Bucks County. The undersigned agree that service of process
in any action or proceeding may be duly effected upon the undersigned by service
in accordance with the provisions of the Uniform Interstate and International
Procedure Act.
The undersigned agrees to pay Holder on demand such amounts as are
necessary to reimburse Holder for fees paid to a public officer for filing,
recording or releasing any instrument, financial statement or lien, and all
costs, including attorney's fees, of legal process or proceedings to secure or
collect any and all sums due hereunder.
The undersigned do hereby authorize and empower the Prothonotary or
Clerk or any attorney of any Court of Record of Pennsylvania or elsewhere to
appear for and to enter judgment against any one or more or all of the
undersigned at any time following the Maturity Date for the full principal
amount of this note with interest as stated herein and subject to any Offsets,
with or without declaration filed with costs of suit, release of errors, without
stay of execution, and the undersigned and each of them waive the right
2
<PAGE> 3
of inquisition on any real estate that may be levied on the collection of this
note and do hereby voluntarily condemn the same and authorize the Prothonotary
or Clerk to enter upon the fieri fascias (writ of execution) said voluntary
condemnation and agree that said real estate may be sold on a fieri fascias. The
undersigned hereby voluntarily agree that any property, real or personal,
subject to such judgment may be sold on a writ, and the undersigned hereby waive
and release all relief from any and all appraisement, stay or exemption laws of
any state, or of the United States, now in force or which hereafter may be
passed, and for doing so this agreement or a copy hereof verified by affidavit
shall be sufficient warrant. The authority herein granted to confess judgment
shall not be exhausted by any single exercise thereof, but shall continue from
time to time and at all times until full payment of all of said liability.
Except with respect to any Offsets, the undersigned hereby knowingly,
intelligently and voluntarily waive their right to due process to include a
prejudgment determination of liability and waive their right to enter a defense
on the liability. The undersigned also represent that they have consulted with
an attorney regarding the implications of this provision, that this is a
business transaction, and the Holder's income exceeds $10,000.00 per year.
The word "liability" as used herein shall include any and all debts and
obligations of the undersigned to Holder whether such be primary, secondary,
direct, contingent, sole, joint, or several, due or to become due, or that have
or may hereafter be contracted or incurred.
The obligation of every party who shall sign this Note shall be joint
and several, and any reference herein to the undersigned shall be deemed to
refer and be applicable to each one separately as well as to all. Holder may
surrender this note to any person paying the final installment hereunder, and
may endorse or assign to such person or his order without recourse.
EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER IT OR ITS SUCCESSORS OR ASSIGNS MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THE LOAN EVIDENCED BY THIS NOTE AND ANY AGREEMENTS
CONTEMPLATED THEREBY TO BE EXECUTED IN CONJUNCTION THEREWITH, OR IN CONJUNCTION
WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE PARTIES.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note on the date first above written.
3
<PAGE> 4
EDUCATIONAL MEDICAL, INC.,
a Delaware corporation
By: ______________________________
Authorized Signatory
CHI ACQUISITION CORP.,
a Delaware corporation
By: ______________________________
Authorized Signatory
4
<PAGE> 5
NON-NEGOTIABLE
SECOND PAYMENT PROMISSORY NOTE
U.S. $ 1,500,000.00 February 14, 1998
FOR VALUE RECEIVED, each of the undersigned, jointly and severally
(each individually called a "Maker" and collectively called the "Makers"),
hereby unconditionally promises to pay to the order of CLAUDE H. HARING
("Seller"), or permitted assigns ("Holder"), at 2113 Edgehill Drive, Furlong, PA
18925 or at such other place or to such other party as Holder may from time to
time designate in writing, the principal sum of One Million Five Hundred
Thousand and 00/100 Dollars (U.S. $1,500,000.00) in lawful currency of the
United States.
This Note evidences a payment to be made to the Holder pursuant to the
Stock Purchase Agreement among Seller, Educational Medical, Inc., CHI
Acquisition Corp., and CHI Institutes, Inc., dated February 14, 1998 and
providing for the purchase by CHI Acquisition Corp. of all of the outstanding
and issued Capital Stock of CHI Institutes, Inc. owned by Seller (the
"Agreement"). The terms of the Agreement are incorporated into this Note, and
this Note is the Second Payment Promissory Note referred to in the Agreement,
representing a portion of the purchase price for the Stock as defined in the
Agreement. Unless otherwise defined herein, all capitalized terms used in this
Note shall have the same meaning as set forth in the Agreement.
All amounts represented by this Note shall be due and payable on the
earlier of (1) the last business day within the first 30 calendar days following
the date on which the Prerequisite Student Aid Approvals are obtained; or (2)
180 days from the date of Closing (the earlier of the dates referred to in the
preceding two clauses is called the "Maturity Date"). All amounts owing pursuant
to this Note and not paid as of ninety (90) days subsequent to the Closing Date
(the "Interest Commencement Date") shall bear interest at the rate of 8% per
annum commencing on the Interest Commencement Date until paid.
In the event that the Makers assert a claim for monetary damages or
indemnification against the Seller pursuant to the provisions of the Agreement
(a "Claim"), the Maker shall have the right to offset (an "Offset") the amount
of the Claim, first against the Second Payment Promissory Note and then against
the Purchase Money Promissory Note. Offsets against the Purchase Money
Promissory Note shall be made first against principal payments and then interest
payments in order of such payments and to the extent that a principal payment
has been reduced as a result of such offset, all interest accrued with respect
to such principal amount cancelled and returned or set off, as the case may be.
In connection with any Offset, the Makers must deliver to the Seller written
notice at or prior to the time the related payment would otherwise be due
describing the basis for such Offset with reasonable detail. The
<PAGE> 6
Seller may contest the right to such Offset as provided in the Agreement.
Maker for itself, its legal representatives, successors and assigns,
waives presentment for payment, demand, notice of dishonor or non-payment,
notice of default, notice of protest, and protest of this Note, and waives any
right to be released by reason of any extension of time or change in terms of
payment. Maker hereby consents to any number of extensions of time, and any and
all renewals, waivers, and modifications of this Note or any combination of the
foregoing that may be made or granted by Holder.
Maker agrees to pay immediately upon demand all reasonable costs and
expenses of Holder, including attorneys' fees, (i) if after default this Note is
placed in the hands of an attorney or attorneys for collection, or (ii) if
Holder finds it necessary or desirable upon default to secure the services of
one or more attorneys with regard to collection of this Note against Maker, or
for the protection of its rights under this Note. The term "attorneys' fees"
shall include attorneys' fees at trial and on appeal, and shall include
attorneys' fees incurred in connection with bankruptcy, conservatorship,
receivership or any other proceeding.
All issues arising hereunder shall be governed by the laws of
Pennsylvania. The undersigned consent to the jurisdiction of the Courts of
Pennsylvania in any action or proceeding which may be brought against the
undersigned, under or in connection with this Note or otherwise, and, in the
event any such action or proceeding shall be brought against the undersigned,
the undersigned agree not to raise any objection to such jurisdiction or to the
laying of venue in Bucks County. The undersigned agree that service of process
in any action or proceeding may be duly effected upon the undersigned by service
in accordance with the provisions of the Uniform Interstate and International
Procedure Act.
The undersigned agrees to pay Holder on demand such amounts as are
necessary to reimburse Holder for fees paid to a public officer for filing,
recording or releasing any instrument, financial statement or lien, and all
costs, including attorney's fees, of legal process or proceedings to secure or
collect any and all sums due hereunder.
The undersigned do hereby authorize and empower the Prothonotary or
Clerk or any attorney of any Court of Record of Pennsylvania or elsewhere to
appear for and to enter judgment against any one or more or all of the
undersigned at any time following the Maturity Date for the full principal
amount of this note with interest as stated herein and subject to any Offsets,
with or without declaration filed with costs of suit, release of errors, without
stay of execution, and the undersigned and each of them waive the right of
inquisition on any real estate that may be levied on the collection of this note
and do hereby voluntarily condemn the same and authorize the Prothonotary or
Clerk to enter upon the fieri fascias (writ of execution) said voluntary
condemnation and agree that said real estate may be sold on a fieri fascias. The
undersigned hereby voluntarily agree that any property, real or personal,
subject to such judgment may be sold on a
<PAGE> 7
writ, and the undersigned hereby waive and release all relief from any and all
appraisement, stay or exemption laws of any state, or of the United States, now
in force or which hereafter may be passed, and for doing so this agreement or a
copy hereof verified by affidavit shall be sufficient warrant. The authority
herein granted to confess judgment shall not be exhausted by any single exercise
thereof, but shall continue from time to time and at all times until full
payment of all of said liability.
Except with respect to any Offsets, the undersigned hereby knowingly,
intelligently and voluntarily waive their right to due process to include a
prejudgment determination of liability and waive their right to enter a defense
on the liability. The undersigned also represent that they have consulted with
an attorney regarding the implications of this provision, that this is a
business transaction, and the Holder's income exceeds $10,000.00 per year.
The word "liability" as used herein shall include any and all debts and
obligations of the undersigned to Holder whether such be primary, secondary,
direct, contingent, sole, joint, or several, due or to become due, or that have
or may hereafter be contracted or incurred.
The obligation of every party who shall sign this Note shall be joint
and several, and any reference herein to the undersigned shall be deemed to
refer and be applicable to each one separately as well as to all. Holder may
surrender this note to any person paying the final installment hereunder, and
may endorse or assign to such person or his order without recourse.
EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER IT OR ITS SUCCESSORS OR ASSIGNS MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THE LOAN EVIDENCED BY THIS NOTE AND ANY AGREEMENTS
CONTEMPLATED THEREBY TO BE EXECUTED IN CONJUNCTION THEREWITH, OR IN CONJUNCTION
WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE PARTIES.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note on the date first above written.
EDUCATIONAL MEDICAL, INC.,
a Delaware corporation
By:
------------------------------------
Authorized Signatory
<PAGE> 8
CHI ACQUISITION CORP.,
a Delaware corporation
By:
-------------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 10.53
NON-NEGOTIABLE
PURCHASE MONEY PROMISSORY NOTE
U.S. $2,875,000.00 February 14, 1998
FOR VALUE RECEIVED, each of the undersigned, jointly and severally, (each
individually called a "Maker" and collectively called the "Makers") hereby
unconditionally promises to pay jointly to the order of CLAUDE H. HARING
(hereinafter referred to as "Seller"), or permitted assigns ("Holder") at 2113
Edgehill Drive, Furlong, PA 18925, or at such other place or to such other
party as Holder may from time to time designate in writing, the principal sum
of Two Million Eight Hundred Seventy-Five Thousand and 00/100 Dollars (U.S.
$2,875,000.00) in lawful currency of the United States.
This Note evidences obligations of the Makers to the Holder provided for in the
Stock Purchase Agreement among Educational Medical, Inc., CHI Acquisition
Corp., CHI Institutes, Inc., and Seller dated February 14, 1998 and providing
for thepurchase by CHI Acquisition Corp. of all of the outstanding and issued
Capital Stock of CHI Institutes, Inc. owned by Seller (the "Agreement"). The
terms of the Agreement are incorporated into this Note, and this Note is the
Purchase Money Promissory Note referred to in the Agreement representing a
portion of the purchase price for the Stock as defined in the Agreement.
Unless otherwise defined herein, all capitalized terms used in this Note shall
have the same meaning as set forth in the Agreement.
This Note shall bear interest at the rate of eight percent (8%) per annum. An
initial principal payment equal to Five Hundred Fifty Thousand and 100 Dollars
($550,000) together with accrued interest shall be paid by the Makers to the
Holder on February 15, 1999. A principal payment of $125,000 plus all interest
accrued with respect to such principal payment shall be made on March 15, 1999.
Thereafter, the remaining principal balance shall amortize in equal quarterly
payments over a period of four years each in the amount of One Hundred Thirty
Seven Thousand Five Hundred and 00/100 Dollars ($137,500) plus accrued interest
commencing on the last business day in May 1999, and on the last business day
of each August, November, February and May thereafter with all remaining
principal and interest due on February 13, 2003 which payment shall include all
accrued interest.
In the event that the Makers assert a claim for monetary damages or
indemnification against the Seller pursuant to the provisions of the Agreement
(a "Claim"), the Maker shall have the right to offset (an "Offset") the amount
of the Claim, first against the Second Payment Promissory Note and then against
the Purchase Money Promissory Note. Offsets against the Purchase Money
Promissory Note shall be made first against principal payments and then
interest payments in order of such payments and to the extent that a principal
payment has been reduced as a result of such offset, all interest accrued with
respect to such principal amount cancelled and returned or set off, as the case
may be. In connection with any Offset, the Makers must deliver to the Seller
1
<PAGE> 2
written notice at or prior to the time the related payment would otherwise be
due describing the basis for such Offset with reasonable detail. The Seller
may contest the right to such Offset as provided in the Agreement.
All amounts represented by this Note shall be due and payable (1) within 15
days following notice to the Maker from the Holder that a payment of principal
or interest has not been made in accordance with the terms of this Note, which
notice specifically declares the entire amount owed to Holder and provided for
in this Note immediately due and payable, or (2) February 13, 2003 (the earlier
of the dates referred to in the preceding two clauses is called the "Maturity
Date"). All amounts owing pursuant to this Note and not paid upon the Maturity
Date shall bear interest at the highest rate of interest permitted by law until
paid.
Maker for itself, its heirs, legal representatives, successors and assigns,
waives presentment for payment, demand, notice of dishonor or non-payment,
notice of default, notice of protest, and protest of this Note, and waives any
right to be released by reason of any extension of time or change in terms of
payment or any change, alteration or release of any security given for the
payment hereof. Maker hereby consents to any number of extensions of time, and
any and all renewals, waivers, and modifications of this Note or any
combination of the foregoing that may be made or granted by Holder.
Maker agrees to pay immediately upon demand all reasonable costs and expenses
of Holder, including attorneys' fees, (i) if after default this Note be placed
in the hands of an attorney or attorneys for collection, or (ii) if Holder
finds it necessary or desirable upon default to secure the services or advice
of one or more attorneys with regard to collection of this Note against Maker,
or for the protection of its rights under this Note, or any instrument relating
to property securing the Note. The term "attorneys' fees" shall include
attorneys' fees incurred by Holder whether or not suit is brought and if suit
is brought, the term shall include attorneys' fees at trial and on appeal, and
shall include attorneys' fees incurred in connection with consultations,
arbitration, bankruptcy, conservatorship, receivership or any other proceeding.
All issues arising hereunder shall be governed by the laws of
Pennsylvania. The undersigned consent to the jurisdiction of the Courts of
Pennsylvania in any action or proceeding which may be brought against the
undersigned, under or in connection with this Note or otherwise, and, in the
event any such action or proceeding shall be brought against the undersigned,
the undersigned agree not to raise any objection to such jurisdiction or to the
laying of venue in Bucks County. The undersigned agree that service of process
in any action or proceeding may be duly effected upon the undersigned by
service in accordance with the provisions of the Uniform Interstate and
International Procedure Act.
The undersigned agrees to pay Holder on demand such amounts as are
necessary to reimburse Holder for fees paid to a public officer for filing,
recording or releasing any instrument, financial statement or lien, and all
costs, including attorney's fees, of legal process or proceedings to secure or
collect any and all sums due hereunder.
2
<PAGE> 3
The undersigned do hereby authorize and empower the Prothonotary or
Clerk or any attorney of any Court of Record of Pennsylvania or elsewhere to
appear for and to enter judgment against any one or more or all of the
undersigned at any time following the Maturity Date for the full principal
amount of this note with interest as stated herein and subject to any Offsets,
with or without declaration filed with costs of suit, release of errors,
without stay of execution, and the undersigned and each of them waive the right
of inquisition on any real estate that may be levied on the collection of this
note and do hereby voluntarily condemn the same and authorize the Prothonotary
or Clerk to enter upon the fieri fascias (writ of execution) said voluntary
condemnation and agree that said real estate may be sold on a fieri fascias.
The undersigned hereby voluntarily agree that any property, real or personal,
subject to such judgment may be sold on a writ, and the undersigned hereby
waive and release all relief from any and all appraisement, stay or exemption
laws of any state, or of the United States, now in force or which hereafter may
be passed, and for doing so this agreement or a copy hereof verified by
affidavit shall be sufficient warrant. The authority herein granted to confess
judgment shall not be exhausted by any single exercise thereof, but shall
continue from time to time and at all times until full payment of all of said
liability.
Except with respect to any Offsets, the undersigned hereby knowingly,
intelligently and voluntarily waive their right to due process to include a
prejudgment determination of liability and waive their right to enter a defense
on the liability. The undersigned also represent that they have consulted with
an attorney regarding the implications of this provision, that this is a
business transaction, and the Holder's income exceeds $10,000.00 per year.
The word "liability" as used herein shall include any and all debts
and obligations of the undersigned to Holder whether such be primary,
secondary, direct, contingent, sole, joint, or several, due or to become due,
or that have or may hereafter be contracted or incurred.
The obligation of every party who shall sign this Note shall be joint
and several, and any reference herein to the undersigned shall be deemed to
refer and be applicable to each one separately as well as to all. Holder may
surrender this note to any person paying the final installment hereunder, and
may endorse or assign to such person or his order without recourse.
EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
THE RIGHT EITHER IT OR ITS SUCCESSORS, PERSONAL REPRESENTATIVES OR ASSIGNS MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH THE LOAN EVIDENCED BY THIS NOTE AND ANY
AGREEMENTS CONTEMPLATED THEREBY TO BE EXECUTED IN CONJUNCTION THEREWITH, OR IN
CONJUNCTION WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note in Doylestown, Pennsylvania, the date first above written.
EDUCATIONAL MEDICAL, INC.
a Delaware corporation
By:_________________________
Authorized Signatory
CHI ACQUISITION CORP.,
a Delaware corporation
By:_________________________
Authorized Signatory
4
<PAGE> 5
NON-NEGOTIABLE
PURCHASE MONEY PROMISSORY NOTE
U.S. $2,875,000.00 February 14, 1998
FOR VALUE RECEIVED, each of the undersigned, jointly and severally, (each
individually called a "Maker" and collectively called the "Makers") hereby
unconditionally promises to pay jointly to the order of JOSEPH COLYAR
(hereinafter referred to as "Seller"), or permitted assigns ("Holder") at 212
Patrick Drive, Richboro, PA 18954, or at such other place or to such other party
as Holder may from time to time designate in writing, the principal sum of Two
Million Eight Hundred Seventy-Five Thousand and 00/100 Dollars (U.S.
$2,875,000.00) in lawful currency of the United States.
This Note evidences obligations of the Makers to the Holder provided for in the
Stock Purchase Agreement among Educational Medical, Inc., CHI Acquisition Corp.,
CHI Institutes, Inc., and Seller dated February 14, 1998 and providing for the
purchase by CHI Acquisition Corp. of all of the outstanding and issued Capital
Stock of CHI Institutes, Inc. owned by Seller (the "Agreement"). The terms of
the Agreement are incorporated into this Note, and this Note is the Purchase
Money Promissory Note referred to in the Agreement representing a portion of the
purchase price for the Stock as defined in the Agreement. Unless otherwise
defined herein, all capitalized terms used in this Note shall have the same
meaning as set forth in the Agreement.
This Note shall bear interest at the rate of eight percent (8%) per annum. An
initial principal payment equal to Five Hundred Fifty Thousand and 100 Dollars
($550,000) together with accrued interest shall be paid by the Makers to the
Holder on February 15, 1999. A principal payment of $125,000 plus all interest
accrued with respect to such principal payment shall be made on March 15, 1999.
Thereafter, the remaining principal balance shall amortize in equal quarterly
payments over a period of four years each in the amount of One Hundred Thirty
Seven Thousand Five Hundred and 00/100 Dollars ($137,500) plus accrued interest
commencing on the last business day in May 1999, and on the last business day of
each August, November, February and May thereafter with all remaining principal
and interest due on February 13, 2003 which payment shall include all accrued
interest.
In the event that the Makers assert a claim for monetary damages or
indemnification against the Seller pursuant to the provisions of the Agreement
(a "Claim"), the Maker shall have the right to offset (an "Offset") the amount
of the Claim, first against the Second Payment Promissory Note and then against
the Purchase Money Promissory Note. Offsets against the Purchase Money
Promissory Note shall be made first against principal payments and then interest
payments in order of such payments and to the extent that a principal payment
has been reduced as a result of such offset, all interest accrued with respect
to such principal amount cancelled and returned or set off, as the case may be.
In connection with any Offset, the Makers must deliver to the Seller written
notice at or prior to the time the related payment would otherwise be due
describing the basis for such Offset with reasonable detail. The Seller may
contest the right to such Offset as
<PAGE> 6
provided in the Agreement.
All amounts represented by this Note shall be due and payable (1) within 15 days
following notice to the Maker from the Holder that a payment of principal or
interest has not been made in accordance with the terms of this Note, which
notice specifically declares the entire amount owed to Holder and provided for
in this Note immediately due and payable, or (2) February 13, 2003 (the earlier
of the dates referred to in the preceding two clauses is called the "Maturity
Date"). All amounts owing pursuant to this Note and not paid upon the Maturity
Date shall bear interest at the highest rate of interest permitted by law until
paid.
Maker for itself, its heirs, legal representatives, successors and assigns,
waives presentment for payment, demand, notice of dishonor or non-payment,
notice of default, notice of protest, and protest of this Note, and waives any
right to be released by reason of any extension of time or change in terms of
payment or any change, alteration or release of any security given for the
payment hereof. Maker hereby consents to any number of extensions of time, and
any and all renewals, waivers, and modifications of this Note or any combination
of the foregoing that may be made or granted by Holder.
Maker agrees to pay immediately upon demand all reasonable costs and expenses of
Holder, including attorneys' fees, (i) if after default this Note be placed in
the hands of an attorney or attorneys for collection, or (ii) if Holder finds it
necessary or desirable upon default to secure the services or advice of one or
more attorneys with regard to collection of this Note against Maker, or for the
protection of its rights under this Note, or any instrument relating to property
securing the Note. The term "attorneys' fees" shall include attorneys' fees
incurred by Holder whether or not suit is brought and if suit is brought, the
term shall include attorneys' fees at trial and on appeal, and shall include
attorneys' fees incurred in connection with consultations, arbitration,
bankruptcy, conservatorship, receivership or any other proceeding.
All issues arising hereunder shall be governed by the laws of Pennsylvania.
The undersigned consent to the jurisdiction of the Courts of Pennsylvania in any
action or proceeding which may be brought against the undersigned, under or in
connection with this Note or otherwise, and, in the event any such action or
proceeding shall be brought against the undersigned, the undersigned agree not
to raise any objection to such jurisdiction or to the laying of venue in Bucks
County. The undersigned agree that service of process in any action or
proceeding may be duly effected upon the undersigned by service in accordance
with the provisions of the Uniform Interstate and International Procedure Act.
The undersigned agrees to pay Holder on demand such amounts as are
necessary to reimburse Holder for fees paid to a public officer for filing,
recording or releasing any instrument, financial statement or lien, and all
costs, including attorney's fees, of legal process or proceedings to secure or
collect any and all sums due hereunder.
The undersigned do hereby authorize and empower the Prothonotary or Clerk
or any attorney of any Court of Record of Pennsylvania or elsewhere to appear
for and to enter judgment against any one or more or all of the undersigned at
any time following the Maturity
<PAGE> 7
Date for the full principal amount of this note with interest as stated herein
and subject to any Offsets, with or without declaration filed with costs of
suit, release of errors, without stay of execution, and the undersigned and each
of them waive the right of inquisition on any real estate that may be levied on
the collection of this note and do hereby voluntarily condemn the same and
authorize the Prothonotary or Clerk to enter upon the fieri fascias (writ of
execution) said voluntary condemnation and agree that said real estate may be
sold on a fieri fascias. The undersigned hereby voluntarily agree that any
property, real or personal, subject to such judgment may be sold on a writ, and
the undersigned hereby waive and release all relief from any and all
appraisement, stay or exemption laws of any state, or of the United States, now
in force or which hereafter may be passed, and for doing so this agreement or a
copy hereof verified by affidavit shall be sufficient warrant. The authority
herein granted to confess judgment shall not be exhausted by any single exercise
thereof, but shall continue from time to time and at all times until full
payment of all of said liability.
Except with respect to any Offsets, the undersigned hereby knowingly,
intelligently and voluntarily waive their right to due process to include a
prejudgment determination of liability and waive their right to enter a defense
on the liability. The undersigned also represent that they have consulted with
an attorney regarding the implications of this provision, that this is a
business transaction, and the Holder's income exceeds $10,000.00 per year.
The word "liability" as used herein shall include any and all debts and
obligations of the undersigned to Holder whether such be primary, secondary,
direct, contingent, sole, joint, or several, due or to become due, or that have
or may hereafter be contracted or incurred.
The obligation of every party who shall sign this Note shall be joint and
several, and any reference herein to the undersigned shall be deemed to refer
and be applicable to each one separately as well as to all. Holder may surrender
this note to any person paying the final installment hereunder, and may endorse
or assign to such person or his order without recourse.
EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
THE RIGHT EITHER IT OR ITS SUCCESSORS, PERSONAL REPRESENTATIVES OR ASSIGNS MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH THE LOAN EVIDENCED BY THIS NOTE AND ANY
AGREEMENTS CONTEMPLATED THEREBY TO BE EXECUTED IN CONJUNCTION THEREWITH, OR IN
CONJUNCTION WITH ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES.
<PAGE> 8
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Note in
Doylestown, Pennsylvania, the date first above written.
EDUCATIONAL MEDICAL, INC.
a Delaware corporation
By:
------------------------------
Authorized Signatory
CHI ACQUISITION CORP.,
a Delaware corporation
By:
------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 10.54
PLEDGE AGREEMENT
AGREEMENT, dated as of February 14, 1998 between EDUCATIONAL MEDICAL, INC.,
a Delaware corporation (the "Pledgor"), JOSEPH COLYAR AND CLAUDE H. HARING,
individuals residing within the State of Pennsylvania (the "Pledgees") and CHI
ACQUISITION CORP., a Delaware corporation (the "Issuer").
PRELIMINARY STATEMENT
The Pledgor is the owner of all of the issued and outstanding common stock,
par value $.01 per share (the "Pledged Securities"), of the Issuer.
The Issuer and the Pledgor have jointly and severally executed and
delivered to Pledgees their Second Payment Promissory Note in the amount of
$3,000,000 and Purchase Money Promissory Note in the amount of $5,750,000
(collectively, the "Promissory Notes"), copies of which are attached hereto as
COMPOSITE EXHIBIT 1 to this Pledge Agreement. The Pledgor's obligations with
respect to the payment of the Promissory Notes (the "Secured Obligations") are
to be secured by the Pledged Collateral, as defined in Section 1.
In consideration of the premises and of the mutual covenants herein
contained, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Pledge. As security for the due and punctual payment and performance of
the payment of the Secured Obligations, and this Agreement, the Pledgor hereby
pledges, hypothecates, assigns, transfers, sets over and delivers unto the
Pledgees, and hereby grants to the Pledgees a security interest in, the
following:
(a) the Pledged Securities and the certificates representing the
Pledged Securities, and all cash, proceeds, securities, dividends and other
property at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Securities; and
(b) all securities hereafter delivered or issued in substitution for or
in addition to any of the foregoing, all certificates and instruments
representing or evidencing such securities, together with the interest coupons
(if any) attached thereto, and all cash, proceeds, securities, interest,
dividends and other property at any time and from time to time received or
otherwise distributed in respect of or in exchange for any or all thereof (all
such Pledged Securities, certificates, interest coupons, cash, proceeds,
securities, interest, dividends and other property being herein collectively
called the "Pledged Collateral");
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the
<PAGE> 2
Pledgees, its successors and assigns, forever, subject, however to the terms,
covenants and conditions hereinafter set forth.
2. Transfer to Escrow Agent. The original certificates representing all
Pledged Collateral shall be held on behalf of Pledgees by England & Young, P.C.
(the "Escrow Agent"). The Pledgor shall deliver to the Escrow Agent all original
certificates (the "Original Certificates") representing the Pledged Collateral
issued in the name of the Pledgor, endorsed or assigned in blank in favor of the
Pledgees, and subject only to customary restrictions on transferability provided
for in the Securities Act of 1933 and applicable related state laws and
regulations. All of the Pledged Securities represented by such certificate(s)
are validly issued, duly paid and non-assessable. The Pledgees may, upon request
to the Escrow Agent and delivery by the Escrow Agent of the appropriate Pledged
Collateral to the Issuer, exchange the certificates representing the Pledged
Collateral for certificates of smaller or larger denominations for any purpose
consistent with the terms of this Pledge Agreement.
3. Voting Rights; Dividends. So long as there is no failure to make due and
punctual payment to the Pledgees in accordance with the terms of the Secured
Obligations nor any other continuing event which would constitute an event of
default under this Agreement (an "Event of Default"):
(a) The Pledgor shall be entitled to exercise any and all voting and/or
consensual rights and powers relating or pertaining to the Pledged Collateral or
any part thereof.
(b) The Pledgor shall be entitled to receive and retain any and all
ordinary cash dividends and interest payable on the Pledged Collateral, but any
and all stock and/or liquidating dividends, distributions in property, returns
of capital or other distributions made on or in respect of the Pledged
Collateral, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of an Issuer or received in
exchange for Pledged Collateral or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which the
Issuer may be a party or otherwise, and any and all cash and other property
received in payment of the principal of or in redemption of or in exchange for
any Pledged Collateral (either at maturity, upon call for redemption or
otherwise), shall be and become part of the collateral pledged by the Pledgor
hereunder and, if received by the Pledgor, shall be received in trust for the
benefit of the Pledgees or its assigns or the holder of any subsequent perfected
lien as provided in the addendum to this Pledge Agreement and shall forthwith be
delivered to the Escrow Agent (accompanied by proper instruments of assignment
and/or stock and/or bond powers executed by the Pledgor in accordance with the
Pledgees' instructions) to be held as Pledged Collateral subject to the terms of
this Pledge Agreement.
(c) The Pledgees shall execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies, powers of attorney, dividend orders,
interest coupons and other instruments as the Pledgor may request for the
purpose of
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<PAGE> 3
enabling the Pledgor to exercise the voting and/or consensual rights and powers
which it is entitled to exercise pursuant to subparagraph (a) above and/or to
receive the dividends and/or interest payments which it is authorized to receive
and retain pursuant to subparagraph (b) above.
(d) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Pledgor to exercise the voting and/or consensual
rights and powers which it is entitled to exercise pursuant to Section 3(a)
hereof and/or to receive the dividends and interest payments which it is
authorized to receive and retain pursuant to Section 3(b) hereof shall cease,
and all such rights shall thereupon become vested in the Pledgees who shall have
the sole and exclusive right and authority to exercise such voting and/or
consensual rights and powers and/or to receive and retain the dividends and/or
interest payments which the Pledgor would otherwise be authorized to retain
pursuant to Section 3(b) hereof. Any and all money and other property paid over
to or received by the Pledgees pursuant to the provisions of this paragraph (d)
or pursuant to the exercise by Pledgees of the voting and/or consensual rights
and powers shall be retained by the Pledgees as additional collateral hereunder
and be applied in accordance with the provisions of this Pledge Agreement.
4. Events of Default. The occurrence of any one or more of the following
shall constitute an Event of Default:
(a) if the Makers shall default in making any payment with respect to
the Secured Obligations; provided, however, that, in the event of a dispute as
to such payment, the relevant payment may be made into the escrow account of the
Escrow Agent subject to the resolution of such dispute or, at the discretion of
the Pledgor, into the registry of any court of competent jurisdiction and such
payment shall not constitute an Event of Default, or
(b) if Pledgor shall become bankrupt or insolvent, or file any petition
for reorganization or relief from creditors under any applicable law of any
jurisdiction, or make any general assignment for the benefit of creditors, and
in either event
(c) such default or event shall continue for 10 days after the giving
of written notice to the Pledgees.
5. Remedies upon Default. If any Event of Default shall have occurred and
be continuing, then, in addition to exercising any rights and remedies as a
secured party under the Uniform Commercial Code in effect in Pennsylvania, the
Pledgees may, at their option, do any one or more of the following without being
required to give any notice to the Pledgor:
(a) apply the cash (if any) then held by them as collateral hereunder,
first, to the payment of all costs of collection (including attorneys' fees)
incurred in enforcing Pledgees' rights under the Promissory Notes and this
Agreement; second to the payment of interest accrued and unpaid on the
Promissory Notes (first on the Second
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<PAGE> 4
Payment Promissory Note and then on the Purchase Money Promissory Note (the
"Promissory Note Payment Order") to and including the date of such application,
third to the payment or prepayment of principal of the Promissory Notes in
accordance with the Promissory Note Payment Order, and fourth, to the payment of
all other amounts then owing to the Pledgees under the terms of the Promissory
Notes in accordance with the Promissory Note Payment Order and then otherwise
pursuant to this Pledge Agreement, and
(b) sell the Pledged Collateral, or any part thereof, at any public or
private sale or at any broker's board or in any securities exchange, for cash,
upon credit or for future delivery, as the Pledgees shall deem appropriate. The
Pledgees shall be authorized at any such sale (if they deem it advisable to do
so) to restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing the Pledged Collateral for their
own account for investment and not with a view to the distribution or sale
thereof, and upon consummation of any such sale the Pledgees shall have the
right to assign, transfer and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold, free and clear from any claims or rights of Pledgor.
Further, it shall be deemed commercially reasonable for the Pledgees to impose
sufficient conditions on any such sale so as to preclude the necessity of
registration of the Pledged Collateral under the Securities Act of 1933, as
amended. Each such purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right on the part of the Pledgor, and the
Pledgor hereby waives (to the extent permitted by law) all rights of redemption,
stay and/or appraisal which it now has or may at any time in the future have
under any rule of law or statute now existing or hereafter enacted. The Pledgees
shall give the Pledgor at least 30 days' written notice in the manner specified
for notices under this Agreement of the Pledgees' intention to make any such
public or private sale or sales at any broker's board or on any such securities
exchange, and the Pledgor agrees that such notice of sale will be commercially
reasonable notice to it. Such notice, in case of public sale, shall state the
time and place fixed for such sale, and, in the case of sale at a broker's board
or exchange at which such sale is to be made, the day on which the Pledged
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places, as the Pledgees may fix in
the notice of such sale. At any such sale, the Pledged Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Pledgees may (in its sole and absolute discretion) determine and
the Pledgees or other holder of the Secured Obligations may bid (which bid may
be in whole or in part, in the form of cancellation of indebtedness) for and
purchase for the account of the Pledgees or other holder of the any Secured
Obligation the whole or any part of the Pledged Collateral. If the proceeds of
the Pledged Collateral are insufficient to satisfy Pledgor's obligations under
the Promissory Notes and this Agreement, Pledgor shall remain liable for any
deficiency. The Pledgees shall not be obligated to make any sale of Pledged
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of Pledged Collateral may have been given. The Pledgees may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announ-
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<PAGE> 5
cement at the time and place fixed for sale, and such sale may, without further
notice, be made at the time and place to which the same was so adjourned. In
case sale of all or any part of the Pledged Collateral is made on credit or for
future delivery, the Pledged Collateral so sold may be retained by the Pledgees
until the sale price is paid by the purchaser or purchasers thereof, but neither
the Pledgees nor any other holder of the Secured Obligations or the assignee of
any of the Pledgees' rights, shall incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Pledged Collateral
so sold and, in the case of such failure, such Pledged Collateral may be sold
again upon like notice. As an alternative to exercising the power of sale herein
conferred upon it, the Pledgees may proceed by a suit or suits at law or in
equity to foreclose this Pledge Agreement and to sell the Pledged Collateral, or
any portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction; and
(c) purchase the Pledged Collateral or any part thereof at any public
or private sale.
6. Application of Proceeds of Sale. The proceeds of sale of Pledged
Collateral sold pursuant to Section 5 (c) hereof shall be applied by the
Pledgees as follows:
First: in the manner provided in paragraph (a) of Section 5 hereof; and
Second: the balance (if any) of such proceeds shall be paid to the
Pledgor, its successors or assigns in proportion to their ownership of the
Pledged Collateral, or as a court of competent jurisdiction may direct.
7. Extension or Modification of the Promissory Notes. The Pledged
Collateral pledged hereunder secures the payment and performance of all of the
indebtedness of the Pledgor with respect to the Secured Obligations and the
Pledgor agrees that the Promissory Notes may be extended or otherwise modified
in accordance with its terms without affecting this Pledge Agreement or the
obligations of Pledgor hereunder, which shall continue in full force and effect
until the Secured Obligations shall have been fully paid and performed.
8. Authority of Pledgees. The Pledgees shall have and be entitled to
exercise all such powers hereunder as are specifically delegated to the Pledgees
by the terms hereof, together with such powers as are reasonably incidental
thereto. The Pledgees may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of such counsel (whether written or oral) concerning
all matters pertaining to its duties hereunder. Neither the Pledgees, nor any
director, officer or employee of the Pledgees, shall be liable for any action
taken or omitted to be taken by it or them hereunder in connection herewith,
except for its or their own gross negligence or willful misconduct. The Pledgor
hereby agrees to reimburse the Pledgees, on demand, for all expenses incurred by
the Pledgees in connection with the administration and enforcement of this
Pledge Agreement (including expenses incurred by the Escrow Agent or any
subagent
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<PAGE> 6
employed by the Pledgees) and agrees to indemnify and hold harmless the Pledgees
and/or any such subagent against any and all liability incurred by the Pledgees
(or such subagent hereunder or in connection herewith), unless such liability
shall be due to willful misconduct or gross negligence on the part of the
Pledgees or such subagent.
9. Pledgees Appointed Attorney in Fact. The Pledgor hereby appoints the
Pledgees the Pledgor's attorney-in-fact (any proxy with full power of
substitution to vote and otherwise act following an Event of Default) for the
purpose of carrying out the provisions of this Pledge Agreement and, upon the
occurrence of any Event of Default, taking any action and executing any
instrument which the Pledgees may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, upon an Event of Default, the
Pledgees shall have the right and power to receive, endorse and collect all
checks and other orders for the payment of money made payable to the Pledgor
representing any dividend, interest payment or other distribution payable or
distributable in respect of the Pledged Collateral or any part thereof and to
settle or compromise any claims relating thereto and to give full discharge for
the same.
10. Representations, Warranties and Agreements of Pledgor. To induce
Pledgees to accept the Promissory Notes, Pledgor represents and warrants to, and
agrees with, Pledgees, that:
(a) it owns the Pledged Securities and by the execution and delivery of
this Agreement and delivery of the Pledged Collateral it has created is a first
priority lien granted in favor of the Pledgees with respect to such Pledged
Collateral; and
(b) this Agreement is the valid and binding obligation of Pledgor,
enforceable in accordance with its terms; and
(c) so long as this Agreement is in effect, not to sell substantially
of its assets without the prior written consent of Pledgees.
11. No Waiver; Cumulative Remedies. No failure on the part of the Pledgees
to exercise, and no delay in exercising any right, power, privilege or remedy
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power, privilege or remedy of the Pledgees preclude
any other or further exercise thereof or the exercise of any other right, power,
privilege or remedy. All remedies hereunder are cumulative and are not exclusive
of any other remedies provided herein or by law.
12. Termination. This Pledge Agreement shall terminate when all
indebtedness secured hereby has been fully paid and performed, at which time the
Pledgees shall reassign and redeliver (or cause to be reassigned and
redelivered) to the Pledgor, or to such person or persons as the Pledgor shall
designate, such of the Pledged Collateral (if any) as shall not have been sold
or otherwise applied by the Pledgees pursuant to
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<PAGE> 7
the terms hereof and shall still be held hereunder, together with appropriate
instruments of reassignment and release. Any such reassignment shall be without
recourse against or express or implied representation or warranty by the
Pledgees and at the expense of the Pledgor.
13. Assignability. The Pledgees may assign, in whole or in part, any or all
of its rights, title and interests provided for in this Pledge Agreement, to any
holder of the Secured Obligations or portion thereof.
14. Terms Relating to Escrow Agent.
(a) England & Young, P.C. shall initially act as Escrow Agent under
this Agreement. The Escrow Agent shall acknowledge its receipt of the original
certificate(s) representing the Pledged Securities by executing this Agreement.
Pledgor shall also deliver to the Escrow Agent any and all original
certificates, funds or documents as may hereafter become part of the Pledged
Collateral. The possession of the original certificates and other documents
relating to the Pledged Collateral shall be deemed to constitute the Pledgees'
possession thereof in order to perfect Pledgees' security interest in the
Pledged Collateral.
(b) The Escrow Agent shall hold all certificates, funds and documents
representing the Pledged Collateral (collectively, the "Instruments") subject to
the following terms and conditions:
(i) If the Pledgees at any time instructs the Escrow Agent to
exchange any certificates representing any securities included in the
Pledged Collateral to change the denominations of such certificates,
the Escrow Agent shall comply with such request promptly by so
exchanging certificates directly with the Issuer. The Escrow Agent
shall give Pledgor and the holder of any subsequent perfected lien as
provided in the addendum to this Pledge Agreement notice of any such
action within 10 days after it is completed.
(ii) Either Pledgor or Pledgees may give the Escrow Agent a notice
requesting the Escrow Agent to make any delivery or take any action
with respect to any Instruments that is proposed to be taken pursuant
to this Agreement. If the notice describing any such request is
executed by both the Pledgor and the Pledgees, the Escrow Agent shall
promptly comply with the request.
If the notice is given by Pledgor or Pledgees, and is not signed by
both, the Escrow Agent shall promptly forward by hand or overnight delivery a
copy of such notice to the party that did not sign it. Thereafter, the Escrow
Agent shall refrain from taking any action with respect to such request for at
least 5 business days, or until the other party authorizes the Escrow Agent in
writing to comply with such request. If the other party fails to deliver written
notice of objection to the Escrow Agent within such 5-day period, the Escrow
Agent shall be fully protected in complying with such request.
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<PAGE> 8
(c) In order to induce the Escrow Agent to act under this Agreement,
the Pledgor and the Pledgees jointly and severally agree as follows:
(i) The Escrow Agent shall not in any way be bound or affected
by any notice or modification or cancellation of this Agreement unless
in writing, signed by all parties hereto, nor shall the Escrow Agent be
bound by any modification hereof unless the same shall be satisfactory
to the Escrow Agent. The Escrow Agent shall be entitled to rely upon
any judgment, certification, demand or other writing (including but not
limited to any instructions given to it under (b), above) without being
required to determine the authenticity or the correctness of any fact
stated therein, the propriety of validity of the service thereof, or
the jurisdiction of the court issuing such judgment or order.
(ii) The Escrow Agent may act in reliance upon any document,
instrument or signature believed by it to be genuine, and the Escrow
Agent may assume that any person purporting to give any notice or
instructions in accordance with the provisions hereof has been duly
authorized to do so.
(iii) The Escrow Agent may act relative hereto in reliance
upon advice of counsel in reference to any matter(s) connection
herewith, and shall not be liable for any mistake of fact or error of
judgment, or for any acts or omissions of any kind, unless caused by
the Escrow Agent's willful misconduct or gross negligence. The Escrow
Agent shall be entitled to consult with its counsel, which shall
include any attorney employed by it, and the Escrow Agent shall not be
liable for any action taken, suffered or omitted by it in accordance
with the advice (whether written or oral) of such counsel.
(iv) This Agreement sets forth exclusively the Escrow Agent's
duties with respect to any and all matters pertinent hereto. The Escrow
Agent shall not refer to, and shall not be bound by, the provisions of
any other agreement.
(v) The Escrow Agent may at any time resign hereunder by
giving written notice of its resignation to all parties hereto at least
thirty (30) days prior to the date specified 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
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<PAGE> 9
solely for the purpose of implementing this Agreement) and waive all
rights to contest said jurisdiction. However, the Escrow Agent's
resignation and/or interpleading of the Property shall not in any
manner affect or impair any of its obligations under this Agreement.
(vi) Pledgor and Pledgees shall be jointly and severally
obligated to reimburse the Escrow Agent for all its fees, costs and
expenses in connection herewith, including reasonable counsel fees, and
to indemnify it and hold it harmless against any claim asserted against
it or any liability, loss or damage incurred by it in connection
herewith.
(vii) Nothing herein contained shall be deemed to obligate the
Escrow Agent to deliver any securities, cash, instruments, documents or
any other property referred to herein, unless the same shall have first
been received by the Escrow Agent pursuant to this Agreement.
(viii) Pledgor acknowledges that the Escrow Agent is counsel
for the Pledgees, and agrees that no action taken by the Escrow Agent
under this Agreement shall affect or impair the right of the Escrow
Agent to represent the Pledgees in any matter, including an
interpleader action pursuant to this Agreement.
15. Miscellaneous. This Agreement shall be binding on and inure to the
benefit of the respective parties hereto and their successors and assigns. This
Agreement may be executed simultaneously in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument. This Agreement represents the entire understanding of the parties
hereto, and supersedes any and all other prior agreements between the parties.
The terms and provisions of this Agreement cannot be terminated or modified or
amended except in writing and signed by the party against whom enforcement is
sought. 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 costs and reasonable
attorneys' fees, including costs fees on one or more appeals and in bankruptcy
proceedings.
All notices required or allowed hereunder shall be in writing and shall
be deemed given as provided for in the Stock Purchase Agreement dated of even
date herewith (the "Stock Purchase Agreement") pursuant to which the Promissory
Notes have been issued, at the address written in the first paragraph hereof if
not otherwise provided for in the Stock Purchase Agreement, or such other
address as is most recently noticed for such party as aforesaid.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Pennsylvania, exclusive of its choice of law
provisions.
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<PAGE> 10
IN WITNESS WHEREOF, the Pledgees has caused this Pledge Agreement to be
duly executed and delivered by its officer thereunto duly authorized, and the
Pledgor has duly executed and delivered this Agreement, as of the date first
above written.
In the Presence of: EDUCATIONAL MEDICAL, INC.,
Delaware corporation
- ------------------------------
- ------------------------------ By:
------------------------------
Authorized Signatory
CHI ACQUISITION CORP., a Delaware
corporation
- ------------------------------
- ------------------------------ By:
------------------------------
Authorized Signatory
- ------------------------------
- ------------------------------ ---------------------------------
Joseph Colyar
- ------------------------------
- ------------------------------ ---------------------------------
Claude H. Haring
ACCEPTANCE OF ESCROW AGENT
England & Young, P.C. acknowledges receipt of the foregoing Agreement and
the Original Certificates, and agrees to act as Escrow Agent under its terms.
By:
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Authorized Signatory
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<PAGE> 11
COMPOSITE EXHIBIT 1
The Promissory Notes
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<PAGE> 1
EXHIBIT 10.55
SECURITY AGREEMENT
THIS AGREEMENT is made this 14TH day of February, 1998, by and between
COMPUTER HARDWARE SERVICE COMPANY, INC. a Pennsylvania corporation ("Borrower")
and JOSEPH COLYAR, an individual residing within the State of Pennsylvania
("Colyar") and CLAUDE H. HARING, an individual residing within the State of
Pennsylvania ("Haring"). (Colyar and Haring shall be collectively referred to
hereinafter as the "Lenders").
BACKGROUND
A. Pursuant to that certain Stock Purchase Agreement (the "Stock Purchase
Agreement") among Educational Medical, Inc., a Delaware corporation, CHI
ACQUISITION CORP., a Delaware corporation ("Acquirer") and the Lenders, dated of
even date herewith, the Acquirer shall purchase all of the shares of Common
Stock of the Borrower from the Lenders in consideration for, among other things,
a $3,000,000 Promissory Note (the "Second Payment Note") and a $5,750,000
Promissory Note (the "Purchase Money Promissory Note") (collectively the Second
Payment Note and the Purchase Money Promissory Note shall be referred to
hereinafter as the "Notes") in favor of the Lenders.
B. To secure payment of the sums due under the Notes, Borrower has agreed
to grant to Lenders a security interest in certain assets of Borrower.
TERMS OF AGREEMENT
NOW, THEREFORE, in consideration of the promises herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. To secure (a) payment of all sums which may now or hereafter be due
under the Notes and (b) the full and prompt performance of all obligations of
Borrower under the Notes, as the Notes may hereafter be amended, Borrower hereby
grants to Lenders a security interest in all of Borrower's assets (the
"Collateral").
2. The security interest in the Collateral shall be a second lien
security interest subordinate only to the liens of the Borrower's senior lender
and the existing lien of First Fidelity Bank, N.A. (the "Permitted Liens").
<PAGE> 2
3. If certificates of title are now, or hereafter become, issued or
outstanding with respect to any of the Collateral, Borrower shall cause the
security interest of Lenders to be properly noted thereon.
4. Borrower further agrees that the Collateral will be kept in good
condition and repair, reasonable wear and tear excepted, and that the expenses
of any repairs and maintenance will be borne solely by Borrower; that the
Collateral will not be used or be permitted to be used illegally; to pay all
costs of filing this Agreement and financing and other statements required to
perfect and to continue perfection of Lenders' security interest in the
Collateral and all costs required to evidence the second priority of the
security interest; not to abandon, conceal, injure, or destroy the Collateral,
nor deface any identifying marks thereon; not to sell, lease, assign, or
encumber the Collateral without Lenders' prior written consent, nor grant any
further security interest in the Collateral, nor permit Borrower's rights
therein to be reached by judicial process; to keep the Collateral free of all
liens and encumbrances, except for the Permitted Liens, the Lenders' security
interest hereunder, and the lien of taxes not delinquent; and that no injury to
or loss or destruction of the Collateral shall relieve Borrower of its
obligation to pay the indebtedness secured hereby. Borrower agrees to maintain,
at Borrower's sole cost and expense, insurance against loss of or damage to the
Collateral by fire and such other casualties as are normally included in fire
and extended coverage insurance policies for personal property, in an amount
equal to the full replacement value thereof.
5. Each of the following shall be an event of default hereunder:
(a) If Borrower is in default under the Notes;
(b) If Borrower shall fail to observe or perform any of its
obligations under the Notes;
(c) If Borrower shall default in the performance of any term or
provision of this Agreement; and
(d) If Borrower shall sell or transfer, or attempt to sell or
transfer, the Collateral or any interest therein, except in connection with the
replacement of such items in the ordinary course of business, without the prior
written consent of Lenders.
6. Upon the occurrence of any event of default, the Lenders may (a)
declare all sums owing under the Notes to be immediately due and payable,
-2-
<PAGE> 3
without presentation, demand, or further action of any kind; (b) exercise all
the rights of a secured party under the Uniform Commercial Code of the State of
Pennsylvania and/or any other applicable law with respect to the Collateral,
including (without limitation) to require Borrower to assemble all or any of the
Collateral and make the same available to Lenders at a place reasonably mutually
convenient, to take immediate possession of the Collateral wherever found, with
or without legal process, and to sell or otherwise dispose of the Collateral. If
the proceeds of any sale or other lawful disposition by Lenders of the
Collateral subsequent to its retaking exceed the aggregate amount of the
outstanding balance of all monies owed under the Notes and the expenses of
Lenders in connection with the retaking and disposition of the Collateral, then
Borrower shall be entitled to such surplus. If all or any of the Collateral is
disposed of by private sale pursuant to any agreement whereby all or part of the
sale price is payable in installments, then the cash price (exclusive of credit
service charges, interest and any insurance premiums) shall be credited against
the indebtedness secured thereby. Neither failure nor delay on the part of
Lenders to exercise any of their rights hereunder, in whole or in part, shall
cause a waiver thereof in that or any other instance. The provisions of this
Agreement are cumulative and in addition to any other or additional rights
Lenders may have at law or in equity or under the terms of the Notes, the Stock
Purchase Agreement or any other document collateral thereto.
7. Borrower shall execute, deliver, file and refile any financing
statements, continuation statements, or other security agreements Lenders may
require from time to time to confirm the lien of this Agreement with respect to
the Collateral. Without limiting the foregoing, Borrower hereby irrevocably
appoints Lenders attorney-in-fact for Borrower to execute, deliver and file such
instruments for and on behalf of Borrower.
8. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, their respective successors and assigns.
9. This Agreement shall be governed by and construed in accordance
with the laws of the State of Pennsylvania. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid or unenforceable under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives, under seal, the day and year first
above written.
WITNESSES: LENDERS:
- ---------------------------------
- --------------------------------- ---------------------------------
Joseph Colyar
- ---------------------------------
- --------------------------------- ---------------------------------
Claude H. Haring
BORROWER:
Computer Hardware Service Company,
Inc., a Pennsylvania corporation
- ---------------------------------
- --------------------------------- ---------------------------------
Authorized Signatory
-4-
<PAGE> 1
EXHIBIT 10.56
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
EDUCATIONAL MEDICAL, INC.
AND
JOSEPH COLYAR
DATED AS OF FEBRUARY 14, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
a. "Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
b. "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
c. "Holder" or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
d. "Holder's Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
e. "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
f. "Registrable Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
g. "Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. No Required Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 14, 1998 (the
"Agreement"), by and between Educational Medical, Inc., a Delaware corporation
(the "Company"), and Joseph Colyar, an individual residing within the State of
Pennsylvania (the "Holder").
The Company, CHI Acquisition Corp., a Delaware corporation (the
"Buyer"), the Holder, Claude H. Haring and James Fritz have entered into a
Stock Purchase Agreement dated February 14, 1998 (the "Stock Purchase
Agreement") pursuant to which the Buyer shall purchase all of the issued and
outstanding shares of Common Stock of Computer Hardware Service Company, Inc.,
a Pennsylvania corporation, in consideration for the Purchase Price as more
particularly set forth in the Agreement, including, without limitation, a
certain number of shares of the Company's Common Stock (the "Holder's Shares").
The parties hereto desire to provide certain registration rights with
respect to the Holders' Shares.
Accordingly, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the meanings ascribed to them below:
a. "Commission": the Securities and Exchange
Commission.
b. "Exchange Act": the Securities Exchange Act of 1934,
as amended.
c. "Holder": As defined in the recitals above.
d. "Holder's Shares": As defined in the recitals above.
e. "Person": any natural person, corporation,
partnership, firm, association, trust, government, governmental agency or other
entity, whether acting in an individual, fiduciary or other capacity.
f. "Registrable Securities": the Holder's Shares (and
any shares issued upon any subdivision, combination or reclassification of such
shares or any stock dividend in respect of any of the foregoing shares). As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have been declared effective under the Securities
Act and such securities shall have been disposed of in accordance with such
registration statement, or (ii) such securities shall have been sold or become
salable (other than in a privately negotiated sale) pursuant
<PAGE> 4
to Rule 144 (or any successor provision) under the Securities Act and in
compliance with the requirements of paragraphs (c), (e), (f) and (g) of Rule
144 (notwithstanding the provisions of paragraph (k) of such Rule).
g. "Securities Act": the Securities Act of 1933, as
amended.
2. Registration Rights.
a. As soon as practicable subsequent to the consummation
of the transaction contemplated by the Stock Purchase Agreement, the Company
shall file a registration statement under the Securities Act covering all of
the Registrable Securities and use its best efforts to (x) effect such
registration under the Securities Act (including, without limitation, by means
of a shelf registration pursuant to Rule 415 under the Securities Act if the
Company is then eligible to use such a registration) of the Registrable
Securities, and (y) if requested by the Holder, obtain acceleration of the
effective date of the registration statement relating to such registration.
b. If (i) the Board of Directors of the Company, in its
good faith judgment, determines that any registration of Registrable Securities
should not be made or continued because it would materially interfere with any
material financing, acquisition, corporate reorganization or merger or other
transaction involving the Company or any of its subsidiaries (a "Valid Business
Reason"), and (ii) the Valid Business Reason has not resulted from actions
taken by the Company, the Company may cause such registration statement to be
withdrawn and its effectiveness terminated or may postpone amending or
supplementing such registration statement; and the Company shall give written
notice of its determination to postpone or withdraw a registration statement
and of the fact that the Valid Business Reason for such postponement or
withdrawal no longer exists, in each case, promptly after the occurrence
thereof.
If the Company shall give any notice of postponement or withdrawal of
any registration statement, the Company shall not, during the period of
postponement or withdrawal, register any Common Stock, other than pursuant to a
registration statement on Form S-4 or S-8 (or an equivalent registration form
then in effect). Each Holder of Registrable Securities agrees that, upon
receipt of any notice from the Company that the Company has determined to
withdraw any registration statement pursuant to clause 2b. above, such Holder
will discontinue its disposition of Registrable Securities pursuant to such
registration statement and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file
copies, then in such Holder's possession of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such
notice. If the Company shall have withdrawn or prematurely terminated a
registration statement filed under Section 2.a, (whether pursuant to clause 2b.
above or as a result of any stop order, injunction or other order or
requirement of the Commission or any other governmental agency or court), the
Company shall not be considered to have effected an effective registration for
the
2
<PAGE> 5
purposes of this Agreement until the Company shall have filed a new
registration statement covering the Registrable Securities covered by the
withdrawn registration statement and such registration statement shall have
been declared effective and shall not have been withdrawn. If the Company shall
give any notice of withdrawal or postponement of a registration statement, the
Company shall, at such time as the Valid Business Reason that caused such
withdrawal or postponement no longer exists (but in no event later than two
months alter the date of the postponement), use its best efforts to effect the
registration under the Securities Act of the Registrable Securities covered by
the withdrawn or postponed registration statement in accordance with this
Section (unless the Holder shall have consented otherwise).
c. The Company, may elect to include in any registration
statement and offering made pursuant to Section 1(a), authorized but unissued
shares of Common Stock or shares of Common Stock held by the Company as
treasury shares or any other shares of Common Stock as to which it has granted
registration rights.
3 Registration Procedures. With respect to the Company's
obligation provided for in Section of this Agreement, the Company shall, as
expeditiously as possible but no later than Thirty (30) days from the date
first above written:
a. prepare and file with the Commission a registration
statement on an appropriate registration form of the Commission for the
disposition of such Registrable Securities in accordance with the intended
method of disposition thereof, and such registration statement shall comply as
to form in all material respects with the requirements of the applicable form
and include all financial statements required by the Commission to be filed
therewith, and the Company shall use its best efforts to cause such
registration statement to become and remain effective.
b. prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for such period as any seller of Registrable Securities pursuant to
such registration statement shall request and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of all
Registrable Securities covered by such registration statement;
c. furnish, without charge, to each seller of such
Registrable Securities and each underwriter, if any, of the securities covered
by such registration statement such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits), and the prospectus included in such registration statement
(including each preliminary prospectus) in conformity with the requirements of
the Securities Act, and other documents, as such seller and underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such seller (the Company hereby
consenting to the use in accordance with all applicable law of each such
registration
3
<PAGE> 6
statement (or amendment or post-effective amendment thereto) and each such
prospectus (or preliminary prospectus or supplement thereto) by each such
seller of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
registration statement or prospectus);
d. use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or "blue sky" laws of such jurisdictions as any sellers of
Registrable Securities shall reasonably request, and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
sellers or underwriter, if any, to consummate the disposition of the
Registrable Securities in such jurisdictions, except that in no event shall the
Company be required to qualify to do business as a foreign corporation in any
jurisdiction where it would not, but for the requirements of this clause d, be
required to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction;
e. promptly notify each Holder selling Registrable
Securities covered by such registration statement: (i) when the registration
statement, any pre-effective amendment, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the registration
statement has been filed and, with respect to the registration statement or any
post effective amendment, when the same has become effective; (ii) of any
request by the Commission or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any Registrable Securities for sale under the securities or blue sky laws of
any jurisdiction or the initiation of any proceeding for such purpose; (v) of
the existence of any fact of which the Company becomes aware which results in
the registration statement, the prospectus related thereto or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make any statement therein not misleading; and (vi) if at any time
the representations and warranties contemplated below cease to be true and
correct in all material respects; and, if the notification relates to an event
described in clause (v), the Company shall promptly prepare and furnish to each
such seller and each underwriter, if any, a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein in the light
of the circumstances under which they were made not misleading;
f. comply with all applicable rules and regulations of
the Commission
4
<PAGE> 7
g. cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any) and,
without limiting the generality of the foregoing, take all actions that may be
required by the Company as the issuer of such Registrable Securities in order
to facilitate the registration of at least two market makers as such with
respect to such shares with the National Association of Securities Dealers,
Inc. (the "NASD");
h. provide and cause to be maintained a transfer agent
and registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
i. deliver promptly to each Holder copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement, other than those portions of any such
correspondence and memoranda which contain information subject to
attorney-client privilege with respect to the Company, and, upon receipt of
such confidentiality agreements as the Company may reasonably request, make
reasonably available for inspection by any seller of such Registrable
Securities covered by such registration statement, and by any attorney,
accountant or other agent retained by any such Holder all pertinent financial
and other records, pertinent corporate documents and properties of the Company,
and cause all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, attorney, accountant or
agent in connection with such registration statement;
j. use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement;
k. provide a CUSIP number for all Registrable
Securities, not later than the effective date of the registration statement;
and
l. take all such other commercially reasonable actions
as are necessary or advisable in order to expedite or facilitate the
disposition of such Registrable Securities.
The Company may require as a condition precedent to the Company's
obligations under this Agreement that each seller of Registrable Securities as
to which any registration is being effected furnish the Company such
information regarding such seller and the distribution of such securities as
the Company may from time to time reasonably request provided that such
information shall be used only in connection with such registration.
5
<PAGE> 8
The Holder agrees that upon receipt of any notice from the Company of
the happening of any event of the kind described in clause (v) of paragraph (e)
of this Section 3 the Holder will discontinue his disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by paragraph (e) of this Section 3 and, if so directed
by the Company, will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in Holder's possession of the
prospectus covering such Registrable Securities that was in effect at the time
of receipt of such notice. In the event the Company shall give any such notice,
the applicable period mentioned in paragraph (b) of this Section 3 shall be
extended by the number of days during such period from and including the date
of the giving of such notice to and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
paragraph (e) of this Section 3
If any such registration statement or comparable statement under "blue
sky" laws refers to Holder by name or otherwise as the Holder of any securities
of the Company, then Holder shall have the right to require (i) the insertion
therein of language, in form and substance satisfactory to Holder and the
Company, to the effect that the holding by Holder of such securities is not to
be construed as a recommendation by Holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
Holder will assist in meeting any future financial requirements of the Company,
or (ii) in the event that such reference to Holder by name or otherwise is not
in the judgment of the Company, as advised by counsel, required by the
Securities Act or any similar federal statute or any state "blue sky" or
securities law then in force, the deletion of the reference to Holder.
4. Registration Expenses.
a. "Expenses" shall mean any and all fees and expenses
incident to the Company's performance of or compliance with Section 3,
including, without limitation: (i) Commission, stock exchange or NASD
registration and filing fees and all listing fees and fees with respect to the
inclusion of securities in NASDAQ, (ii) fees and expenses of compliance with
state securities or "blue sky" laws and in connection with the preparation of a
"blue sky" survey, including, without limitation, reasonable fees and expenses
of blue sky counsel, (iii) printing expenses, (iv) messenger and delivery
expenses, and (v) fees and disbursements of counsel for the Company. All such
Expenses shall be borne by the Company.
b. Notwithstanding the foregoing, (x) the provisions of
this Section 4 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (y) the Company shall be responsible for all its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties).
6
<PAGE> 9
5. No Required Sale. Nothing in this Agreement shall be deemed to
create an independent obligation on the part of the Holder to sell any
Registrable Securities pursuant to any effective registration statement.
6. Indemnification.
a. In the event of any registration of the Registrable
Securities of the Company under the Securities Act pursuant to this Agreement,
the Company will, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by law, the seller of any Registrable Securities covered by
such registration statement, its directors, officers, fiduciaries, employees
and stockholders or general and limited partners (and the directors, officers,
employees and stockholders thereof, each other individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or any
department or agency thereof (each, a "Person") who participates as an
underwriter, if any, in the offering or sale of such securities, each officer,
director, employee, stockholder or partner of such underwriter, and each other
Person, if any, who controls such seller or any such underwriter within the
meaning of the Securities Act, against any and all losses, claims, damages or
liabilities, joint or several, actions or proceedings (whether commenced or
threatened) in respect thereof ("Claims") and expenses (including reasonable
fees of counsel and any amounts paid in any settlement effected with the
Company's consent, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities
Act or otherwise, insofar as such Claims or expenses arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such securities were
registered under the Securities Act or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary, final
or summary prospectus or any amendment or supplement thereto, together with the
documents incorporated by reference therein, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (iii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action required of or inaction by the
Company in connection with any such registration, and the Company will
reimburse any such indemnified party for any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such Claim as such expenses are incurred; provided, that the
Company shall not be liable to any such indemnified party in any such case to
the extent such Claim or expense arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact made in such registration statement or amendment
thereof or supplement thereto or in any such prospectus or any preliminary,
final or summary prospectus in reliance upon and in conformity with written
information
7
<PAGE> 10
furnished to the Company by or on behalf of such indemnified party specifically
for use therein. Such indemnity and reimbursement of expenses shall remain in
full force and effect regardless of any investigation made by or on behalf of
such indemnified party and shall survive the transfer of such securities by
such seller.
b. Each Holder of Registrable Securities that are included in the
securities as to which any registration is being effected shall, severally and
not jointly, indemnify and hold harmless (in the same manner and to the same
extent as set forth in paragraph (a) of this Section to the extent permitted by
law the Company, its officers and directors, each Person controlling the
Company within the meaning of the Securities Act. and all other prospective
sellers and their directors, officers, general and limited partners and
respective controlling Persons with respect to any untrue statement or alleged
untrue statement of any material fact in, or omission or alleged omission of
any material fact from, such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company or its representatives by or on behalf of such Holder or underwriter,
if any, specifically for use therein and reimburse such indemnified party for
any legal or other expenses reasonably incurred in connection with
investigating or defending any such Claim as such expenses are incurred,
provided, however, that the aggregate amount which any such Holder shall be
required to pay pursuant to this Agreement shall in no case be greater than the
amount of the net proceeds received by such person upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such Holder.
c. Indemnification similar to that specified in the preceding
paragraphs (a) and (b) (with appropriate modifications) shall be given by the
Company and each seller of Registrable Securities with respect to any required
registration or other qualification of securities under any state securities
and "blue sky" laws.
d. Any person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section but the failure of any indemnified party to
provide such notice shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section except to the extent the
indemnifying party is materially prejudiced thereby and shall not relieve the
indemnifying party from any liability which it may have to any indemnified
party otherwise than under this Section. In case any action or proceeding is
brought against an indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, unless in the reasonable opinion of outside counsel to
the indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
there of jointly with any other
8
<PAGE> 11
indemnifying party similarly notified, to the extent that it chooses, with
counsel reasonably satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party that it so chooses, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, that (i) if the
indemnifying party fails to take reasonable steps necessary to defend
diligently the action or proceeding within 20 days after receiving notice from
such indemnified party that the indemnified party believes it has failed to do
so; or (ii) if such indemnified party who is a defendant in any action or
proceeding which is also brought against the indemnifying party reasonably
shall have concluded that there may be one or more legal defenses available to
such indemnified party which are not available to the indemnifying party; or
(iii) if representation of both parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct, then, in any
such case, the indemnified party shall have the right to assume or continue its
own defense as set forth above (but with no more than one firm of counsel for
all indemnified parties in each jurisdiction, except to the extent any
indemnified party or parties reasonably shall have concluded that there may be
legal defenses available to such party or parties which are not available to
the other indemnified parties or to the extent representation of all
indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any expenses therefor. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (A) includes an unconditional release of the indemnified party from
all liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by
or on behalf of any indemnified party.
e. If for any reason the previous sections is unavailable or is
insufficient to hold harmless an indemnified party under the previous Sections
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any Claim in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. If,
however, the allocation provided in the second preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party in such
9
<PAGE> 12
proportion as is appropriate to reflect not only such relative faults but also
the relative benefits of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section were to be determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the preceding sentences of this Section. The amount paid or payable in
respect of any Claim shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such Claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding anything in this Section to the contrary,
no indemnifying party (other than the Company) shall be required pursuant to
this Section to contribute any amount in excess of the net proceeds received by
such indemnifying party from the sale of Registrable Securities in the offering
to which the losses, claims, damages or liabilities of the indemnified parties
relate, less the amount of any indemnification payment made pursuant to this
Sections.
f. The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
g. The indemnification and contribution required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
7. General.
a. Adjustments Affecting Registrable Securities. The
Company agrees that it shall not effect or permit to occur any combination or
subdivision of shares which would adversely affect the ability of the Holder of
any Registrable Securities to include such Registrable Securities in any
registration contemplated by this Agreement or the marketability of such
Registrable Securities in any such registration.
b. Rule 144. The Company covenants that it will timely
file the reports required to be filed by it under the Securities Act or the
Exchange Act (including, but not limited to, the reports under Sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under
the Securities Act), and will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by
10
<PAGE> 13
(i) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (ii) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
c. Nominees for Beneficial Owners. If Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its option, be treated as the Holder of such
Registrable Securities for purposes of any request or other action by the
Holder of Registrable Securities pursuant to this Agreement (or any
determination of any number or percentage of shares constituting Registrable
Securities held by the Holder of Registrable Securities contemplated by this
Agreement); provided that the Company shall have received assurances reasonably
satisfactory to it of such beneficial ownership.
d. Amendments and Waivers. This Agreement may be
amended, modified, supplemented or waived only upon the written agreement of
the party against whom enforcement of such amendment, modification, supplement
or waiver is sought.
e. Notices. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing and delivered personally, by telecopy (with confirmation sent within
three business days by overnight courier) or by overnight courier, addressed to
such party at the address set forth below:
<TABLE>
<S> <C>
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA, 30076
Attn: President
With a copy to: Greenberg Traurig
777 South Flagler Drive
Suite 310 - East
West Palm Beach, FL 33401
Attn: Morris C. Brown, Esq.
If to Holder: Joseph Colyar
--------------------
--------------------
With a copy to:
--------------------
--------------------
--------------------
--------------------
</TABLE>
11
<PAGE> 14
The Holder, by written notice given to the Company in
accordance with this Section 4.5 may change the address to which such notice or
other communications is to be sent to Holder. All such notices and
communications shall be deemed to have been received on the date of delivery
thereof if delivered by hand, on the fifth day after the mailing thereof, if
mailed, on the next day after the sending thereof if by overnight courier, when
answered back if telexed and when receipt is acknowledged, if telecopied.
8. Miscellaneous.
a. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and the respective
successors and assigns of the parties hereto, whether so expressed or not. No
Person other than the Holder shall be entitled to any benefits under this
Agreement, except as otherwise expressly provided herein. This Agreement and
the rights of the parties hereunder may be assigned by any of the parties
hereto to any transferee of Registrable Securities.
b. This Agreement (with the documents referred to herein
or delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
c. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware without
giving effect to the conflicts of law principles thereof.
d. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
section references are to this Agreement unless otherwise expressly provided.
e. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
f. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
g. It is hereby agreed and acknowledged that it will be
impossible to measure in money the damages that would be suffered if the
parties fail to comply with any of the obligations herein imposed on them and
that in the event of any such failure, an aggrieved person will be irreparably
damaged and will not have an adequate remedy
12
<PAGE> 15
at law. Any such person shall, therefore, be entitled to injunctive relief
including specific performance, to enforce such obligations, without the
posting of any bond and if any action should be brought in equity to enforce
any of the provisions of this Agreement, none of the parties hereto shall raise
the defense that there is an adequate remedy at law.
h. Each party hereto shall do and perform or cause to be
done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments, and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
9. No Inconsistent Agreements. Without the prior written consent
of each of the parties to this Agreement, neither the Company nor the Holder
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities which is inconsistent with the rights granted in this
Agreement or otherwise conflicts with the provisions hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
EDUCATIONAL MEDICAL, INC.
By: /s/ Gary D. Keeber
-----------------------
Authorized Signatory
/s/ Joseph Colyar
---------------------------
JOSEPH COLYAR
13
<PAGE> 16
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
EDUCATIONAL MEDICAL, INC.
AND
CLAUDE H. HARING
DATED AS OF FEBRUARY 14, 1998
<PAGE> 17
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
a. "Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
b. "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
c. "Holder" or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
d. "Holder's Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
e. "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
f. "Registrable Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
g. "Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. No Required Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 18
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 14, 1998 (the
"Agreement"), by and between Educational Medical, Inc., a Delaware corporation
(the "Company"), and Claude H. Haring, an individual residing within the State
of Pennsylvania (the "Holder").
The Company, CHI Acquisition Corp., a Delaware corporation (the
"Buyer"), the Holder, Joseph Colyar and James Fritz have entered into a Stock
Purchase Agreement dated February 14, 1998 (the "Stock Purchase Agreement")
pursuant to which the Buyer shall purchase all of the issued and outstanding
shares of Common Stock of Computer Hardware Service Company, Inc., a
Pennsylvania corporation, in consideration for the Purchase Price as more
particularly set forth in the Agreement, including, without limitation, a
certain number of shares of the Company's Common Stock (the "Holder's Shares").
The parties hereto desire to provide certain registration rights with
respect to the Holders' Shares.
Accordingly, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the meanings ascribed to them below:
a. "Commission": the Securities and Exchange
Commission.
b. "Exchange Act": the Securities Exchange Act of 1934,
as amended.
c. "Holder": As defined in the recitals above.
d. "Holder's Shares": As defined in the recitals above.
e. "Person": any natural person, corporation,
partnership, firm, association, trust, government, governmental agency or other
entity, whether acting in an individual, fiduciary or other capacity.
f. "Registrable Securities": the Holder's Shares (and
any shares issued upon any subdivision, combination or reclassification of such
shares or any stock dividend in respect of any of the foregoing shares). As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have been declared effective under the Securities
Act and such securities shall have been disposed of in accordance with such
registration statement, or (ii) such securities shall have been sold or become
salable (other than in a privately negotiated sale) pursuant to Rule 144 (or
any successor provision) under the Securities Act and in compliance
<PAGE> 19
with the requirements of paragraphs (c), (e), (f) and (g) of Rule 144
(notwithstanding the provisions of paragraph (k) of such Rule).
g. "Securities Act": the Securities Act of 1933, as
amended.
2. Registration Rights.
a. As soon as practicable subsequent to the consummation
of the transaction contemplated by the Stock Purchase Agreement, the Company
shall file a registration statement under the Securities Act covering all of
the Registrable Securities and use its best efforts to (x) effect such
registration under the Securities Act (including, without limitation, by means
of a shelf registration pursuant to Rule 415 under the Securities Act if the
Company is then eligible to use such a registration) of the Registrable
Securities, and (y) if requested by the Holder, obtain acceleration of the
effective date of the registration statement relating to such registration.
b. If (i) the Board of Directors of the Company, in its
good faith judgment, determines that any registration of Registrable Securities
should not be made or continued because it would materially interfere with any
material financing, acquisition, corporate reorganization or merger or other
transaction involving the Company or any of its subsidiaries (a "Valid Business
Reason"), and (ii) the Valid Business Reason has not resulted from actions
taken by the Company, the Company may cause such registration statement to be
withdrawn and its effectiveness terminated or may postpone amending or
supplementing such registration statement; and the Company shall give written
notice of its determination to postpone or withdraw a registration statement
and of the fact that the Valid Business Reason for such postponement or
withdrawal no longer exists, in each case, promptly after the occurrence
thereof.
If the Company shall give any notice of postponement or withdrawal of
any registration statement, the Company shall not, during the period of
postponement or withdrawal, register any Common Stock, other than pursuant to a
registration statement on Form S-4 or S-8 (or an equivalent registration form
then in effect). Each Holder of Registrable Securities agrees that, upon
receipt of any notice from the Company that the Company has determined to
withdraw any registration statement pursuant to clause 2b. above, such Holder
will discontinue its disposition of Registrable Securities pursuant to such
registration statement and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file
copies, then in such Holder's possession of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such
notice. If the Company shall have withdrawn or prematurely terminated a
registration statement filed under Section 2.a, (whether pursuant to clause 2b.
above or as a result of any stop order, injunction or other order or
requirement of the Commission or any other governmental agency or court), the
Company shall not be considered to have effected an effective registration for
the purposes of this Agreement until the Company shall have filed a new
registration
2
<PAGE> 20
statement covering the Registrable Securities covered by the withdrawn
registration statement and such registration statement shall have been declared
effective and shall not have been withdrawn. If the Company shall give any
notice of withdrawal or postponement of a registration statement, the Company
shall, at such time as the Valid Business Reason that caused such withdrawal or
postponement no longer exists (but in no event later than two months alter the
date of the postponement), use its best efforts to effect the registration
under the Securities Act of the Registrable Securities covered by the withdrawn
or postponed registration statement in accordance with this Section (unless the
Holder shall have consented otherwise).
c. The Company, may elect to include in any registration
statement and offering made pursuant to Section 1(a), authorized but unissued
shares of Common Stock or shares of Common Stock held by the Company as
treasury shares or any other shares of Common Stock as to which it has granted
registration rights.
3 Registration Procedures. With respect to the Company's
obligation provided for in Section of this Agreement, the Company shall, as
expeditiously as possible but no later than Thirty (30) days from the date
first above written:
a. prepare and file with the Commission a registration
statement on an appropriate registration form of the Commission for the
disposition of such Registrable Securities in accordance with the intended
method of disposition thereof, and such registration statement shall comply as
to form in all material respects with the requirements of the applicable form
and include all financial statements required by the Commission to be filed
therewith, and the Company shall use its best efforts to cause such
registration statement to become and remain effective.
b. prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for such period as any seller of Registrable Securities pursuant to
such registration statement shall request and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of all
Registrable Securities covered by such registration statement;
c. furnish, without charge, to each seller of such
Registrable Securities and each underwriter, if any, of the securities covered
by such registration statement such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits), and the prospectus included in such registration statement
(including each preliminary prospectus) in conformity with the requirements of
the Securities Act, and other documents, as such seller and underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such seller (the Company hereby
consenting to the use in accordance with all applicable law of each such
registration statement (or amendment or post-effective amendment thereto) and
each such
3
<PAGE> 21
prospectus (or preliminary prospectus or supplement thereto) by each such
seller of Registrable Securities and the underwriters, if any, in connection
with the offering and sale of the Registrable Securities covered by such
registration statement or prospectus);
d. use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or "blue sky" laws of such jurisdictions as any sellers of
Registrable Securities shall reasonably request, and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
sellers or underwriter, if any, to consummate the disposition of the
Registrable Securities in such jurisdictions, except that in no event shall the
Company be required to qualify to do business as a foreign corporation in any
jurisdiction where it would not, but for the requirements of this clause d, be
required to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction;
e. promptly notify each Holder selling Registrable
Securities covered by such registration statement: (i) when the registration
statement, any pre-effective amendment, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the registration
statement has been filed and, with respect to the registration statement or any
post effective amendment, when the same has become effective; (ii) of any
request by the Commission or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any Registrable Securities for sale under the securities or blue sky laws of
any jurisdiction or the initiation of any proceeding for such purpose; (v) of
the existence of any fact of which the Company becomes aware which results in
the registration statement, the prospectus related thereto or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make any statement therein not misleading; and (vi) if at any time
the representations and warranties contemplated below cease to be true and
correct in all material respects; and, if the notification relates to an event
described in clause (v), the Company shall promptly prepare and furnish to each
such seller and each underwriter, if any, a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein in the light
of the circumstances under which they were made not misleading;
f. comply with all applicable rules and regulations of
the Commission
4
<PAGE> 22
g. cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any) and,
without limiting the generality of the foregoing, take all actions that may be
required by the Company as the issuer of such Registrable Securities in order
to facilitate the registration of at least two market makers as such with
respect to such shares with the National Association of Securities Dealers,
Inc. (the "NASD");
h. provide and cause to be maintained a transfer agent
and registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
i. deliver promptly to each Holder copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement, other than those portions of any such
correspondence and memoranda which contain information subject to
attorney-client privilege with respect to the Company, and, upon receipt of
such confidentiality agreements as the Company may reasonably request, make
reasonably available for inspection by any seller of such Registrable
Securities covered by such registration statement, and by any attorney,
accountant or other agent retained by any such Holder all pertinent financial
and other records, pertinent corporate documents and properties of the Company,
and cause all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, attorney, accountant or
agent in connection with such registration statement;
j. use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement;
k. provide a CUSIP number for all Registrable
Securities, not later than the effective date of the registration statement;
and
l. take all such other commercially reasonable actions
as are necessary or advisable in order to expedite or facilitate the
disposition of such Registrable Securities.
The Company may require as a condition precedent to the Company's
obligations under this Agreement that each seller of Registrable Securities as
to which any registration is being effected furnish the Company such
information regarding such seller and the distribution of such securities as
the Company may from time to time reasonably request provided that such
information shall be used only in connection with such registration.
The Holder agrees that upon receipt of any notice from the Company of
the happening of any event of the kind described in clause (v) of paragraph (e)
of this
5
<PAGE> 23
Section 3 the Holder will discontinue his disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (e) of this Section 3 and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in Holder's possession of the prospectus
covering such Registrable Securities that was in effect at the time of receipt
of such notice. In the event the Company shall give any such notice, the
applicable period mentioned in paragraph (b) of this Section 3 shall be
extended by the number of days during such period from and including the date
of the giving of such notice to and including the date when each seller of any
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
paragraph (e) of this Section 3
If any such registration statement or comparable statement under "blue
sky" laws refers to Holder by name or otherwise as the Holder of any securities
of the Company, then Holder shall have the right to require (i) the insertion
therein of language, in form and substance satisfactory to Holder and the
Company, to the effect that the holding by Holder of such securities is not to
be construed as a recommendation by Holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
Holder will assist in meeting any future financial requirements of the Company,
or (ii) in the event that such reference to Holder by name or otherwise is not
in the judgment of the Company, as advised by counsel, required by the
Securities Act or any similar federal statute or any state "blue sky" or
securities law then in force, the deletion of the reference to Holder.
4. Registration Expenses.
a. "Expenses" shall mean any and all fees and expenses
incident to the Company's performance of or compliance with Section 3,
including, without limitation: (i) Commission, stock exchange or NASD
registration and filing fees and all listing fees and fees with respect to the
inclusion of securities in NASDAQ, (ii) fees and expenses of compliance with
state securities or "blue sky" laws and in connection with the preparation of a
"blue sky" survey, including, without limitation, reasonable fees and expenses
of blue sky counsel, (iii) printing expenses, (iv) messenger and delivery
expenses, and (v) fees and disbursements of counsel for the Company. All such
Expenses shall be borne by the Company.
b. Notwithstanding the foregoing, (x) the provisions of
this Section 4 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (y) the Company shall be responsible for all its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties).
6
<PAGE> 24
5. No Required Sale. Nothing in this Agreement shall be deemed to
create an independent obligation on the part of the Holder to sell any
Registrable Securities pursuant to any effective registration statement.
6. Indemnification.
a. In the event of any registration of the Registrable
Securities of the Company under the Securities Act pursuant to this Agreement,
the Company will, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by law, the seller of any Registrable Securities covered by
such registration statement, its directors, officers, fiduciaries, employees
and stockholders or general and limited partners (and the directors, officers,
employees and stockholders thereof, each other individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or any
department or agency thereof (each, a "Person") who participates as an
underwriter, if any, in the offering or sale of such securities, each officer,
director, employee, stockholder or partner of such underwriter, and each other
Person, if any, who controls such seller or any such underwriter within the
meaning of the Securities Act, against any and all losses, claims, damages or
liabilities, joint or several, actions or proceedings (whether commenced or
threatened) in respect thereof ("Claims") and expenses (including reasonable
fees of counsel and any amounts paid in any settlement effected with the
Company's consent, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities
Act or otherwise, insofar as such Claims or expenses arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such securities were
registered under the Securities Act or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary, final
or summary prospectus or any amendment or supplement thereto, together with the
documents incorporated by reference therein, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (iii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action required of or inaction by the
Company in connection with any such registration, and the Company will
reimburse any such indemnified party for any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such Claim as such expenses are incurred; provided, that the
Company shall not be liable to any such indemnified party in any such case to
the extent such Claim or expense arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact made in such registration statement or amendment
thereof or supplement thereto or in any such prospectus or any preliminary,
final or summary prospectus in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such indemnified party
specifically for use
7
<PAGE> 25
therein. Such indemnity and reimbursement of expenses shall remain in full
force and effect regardless of any investigation made by or on behalf of such
indemnified party and shall survive the transfer of such securities by such
seller.
b. Each Holder of Registrable Securities that are included in the
securities as to which any registration is being effected shall, severally and
not jointly, indemnify and hold harmless (in the same manner and to the same
extent as set forth in paragraph (a) of this Section to the extent permitted by
law the Company, its officers and directors, each Person controlling the
Company within the meaning of the Securities Act. and all other prospective
sellers and their directors, officers, general and limited partners and
respective controlling Persons with respect to any untrue statement or alleged
untrue statement of any material fact in, or omission or alleged omission of
any material fact from, such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company or its representatives by or on behalf of such Holder or underwriter,
if any, specifically for use therein and reimburse such indemnified party for
any legal or other expenses reasonably incurred in connection with
investigating or defending any such Claim as such expenses are incurred,
provided, however, that the aggregate amount which any such Holder shall be
required to pay pursuant to this Agreement shall in no case be greater than the
amount of the net proceeds received by such person upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such Holder.
c. Indemnification similar to that specified in the preceding
paragraphs (a) and (b) (with appropriate modifications) shall be given by the
Company and each seller of Registrable Securities with respect to any required
registration or other qualification of securities under any state securities
and "blue sky" laws.
d. Any person entitled to indemnification under this Agreement
shall notify promptly the indemnifying party in writing of the commencement of
any action or proceeding with respect to which a claim for indemnification may
be made pursuant to this Section but the failure of any indemnified party to
provide such notice shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section except to the extent the
indemnifying party is materially prejudiced thereby and shall not relieve the
indemnifying party from any liability which it may have to any indemnified
party otherwise than under this Section. In case any action or proceeding is
brought against an indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, unless in the reasonable opinion of outside counsel to
the indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
there of jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel
8
<PAGE> 26
reasonably satisfactory to such indemnified party (who shall not, except with
the consent of the indemnified party, be counsel to the indemnifying party),
and after notice from the indemnifying party to such indemnified party that it
so chooses, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that (i) if the indemnifying party fails to
take reasonable steps necessary to defend diligently the action or proceeding
within 20 days after receiving notice from such indemnified party that the
indemnified party believes it has failed to do so; or (ii) if such indemnified
party who is a defendant in any action or proceeding which is also brought
against the indemnifying party reasonably shall have concluded that there may
be one or more legal defenses available to such indemnified party which are not
available to the indemnifying party; or (iii) if representation of both parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct, then, in any such case, the indemnified party shall have
the right to assume or continue its own defense as set forth above (but with no
more than one firm of counsel for all indemnified parties in each jurisdiction,
except to the extent any indemnified party or parties reasonably shall have
concluded that there may be legal defenses available to such party or parties
which are not available to the other indemnified parties or to the extent
representation of all indemnified parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct) and the
indemnifying party shall be liable for any expenses therefor. No indemnifying
party shall, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (A) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (B) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
e. If for any reason the previous sections is unavailable or is
insufficient to hold harmless an indemnified party under the previous Sections
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any Claim in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. If,
however, the allocation provided in the second preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative faults but also the relative
9
<PAGE> 27
benefits of the indemnifying party and the indemnified party as well as any
other relevant equitable considerations. The parties hereto agree that it would
not be just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
preceding sentences of this Section. The amount paid or payable in respect of
any Claim shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such Claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding anything in this Section to the contrary, no
indemnifying party (other than the Company) shall be required pursuant to this
Section to contribute any amount in excess of the net proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, claims, damages or liabilities of the indemnified parties
relate, less the amount of any indemnification payment made pursuant to this
Sections.
f. The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
g. The indemnification and contribution required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
7. General.
a. Adjustments Affecting Registrable Securities. The
Company agrees that it shall not effect or permit to occur any combination or
subdivision of shares which would adversely affect the ability of the Holder of
any Registrable Securities to include such Registrable Securities in any
registration contemplated by this Agreement or the marketability of such
Registrable Securities in any such registration.
b. Rule 144. The Company covenants that it will timely
file the reports required to be filed by it under the Securities Act or the
Exchange Act (including, but not limited to, the reports under Sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under
the Securities Act), and will take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time,
10
<PAGE> 28
or (ii) any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder of Registrable Securities, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
c. Nominees for Beneficial Owners. If Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its option, be treated as the Holder of such
Registrable Securities for purposes of any request or other action by the
Holder of Registrable Securities pursuant to this Agreement (or any
determination of any number or percentage of shares constituting Registrable
Securities held by the Holder of Registrable Securities contemplated by this
Agreement); provided that the Company shall have received assurances reasonably
satisfactory to it of such beneficial ownership.
d. Amendments and Waivers. This Agreement may be
amended, modified, supplemented or waived only upon the written agreement of
the party against whom enforcement of such amendment, modification, supplement
or waiver is sought.
e. Notices. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing and delivered personally, by telecopy (with confirmation sent within
three business days by overnight courier) or by overnight courier, addressed to
such party at the address set forth below:
<TABLE>
<S> <C>
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA, 30076
Attn: President
With a copy to: Greenberg Traurig
777 South Flagler Drive
Suite 310 - East
West Palm Beach, FL 33401
Attn: Morris C. Brown, Esq.
If to Holder: Claude H. Haring
--------------------
--------------------
With a copy to:
--------------------
--------------------
--------------------
--------------------
</TABLE>
The Holder, by written notice given to the Company in
accordance with this Section 4.5 may change the address to which such notice or
other communications
11
<PAGE> 29
is to be sent to Holder. All such notices and communications shall be deemed to
have been received on the date of delivery thereof if delivered by hand, on the
fifth day after the mailing thereof, if mailed, on the next day after the
sending thereof if by overnight courier, when answered back if telexed and when
receipt is acknowledged, if telecopied.
8. Miscellaneous.
a. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and the respective
successors and assigns of the parties hereto, whether so expressed or not. No
Person other than the Holder shall be entitled to any benefits under this
Agreement, except as otherwise expressly provided herein. This Agreement and
the rights of the parties hereunder may be assigned by any of the parties
hereto to any transferee of Registrable Securities.
b. This Agreement (with the documents referred to herein
or delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
c. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware without
giving effect to the conflicts of law principles thereof.
d. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
section references are to this Agreement unless otherwise expressly provided.
e. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
f. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
g. It is hereby agreed and acknowledged that it will be
impossible to measure in money the damages that would be suffered if the
parties fail to comply with any of the obligations herein imposed on them and
that in the event of any such failure, an aggrieved person will be irreparably
damaged and will not have an adequate remedy at law. Any such person shall,
therefore, be entitled to injunctive relief including specific performance, to
enforce such obligations, without the posting of any bond and if any
12
<PAGE> 30
action should be brought in equity to enforce any of the provisions of this
Agreement, none of the parties hereto shall raise the defense that there is an
adequate remedy at law.
h. Each party hereto shall do and perform or cause to be
done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments, and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
9. No Inconsistent Agreements. Without the prior written consent
of each of the parties to this Agreement, neither the Company nor the Holder
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities which is inconsistent with the rights granted in this
Agreement or otherwise conflicts with the provisions hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
EDUCATIONAL MEDICAL, INC.
By: /s/ Gary D. Keeber
----------------------------
Authorized Signatory
/s/ Claude H. Haring
--------------------------------
CLAUDE H. HARING
13
<PAGE> 1
EXHIBIT 10.57
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer unto __________________________________________________________
______________________________ (_________) shares of the common stock of
Computer Hardware Service Company, Inc. represented by Certificate No. ___ and
does hereby irrevocably constitute and appoint as attorney to transfer the
Shares on the books of the Corporation with full power of substitution in the
premises.
Dated: .
------------------
---------------------------------
Joseph F. Colyar or Claude Haring
<PAGE> 1
EXHIBIT 10.58
SELLER SUBORDINATION AGREEMENT
THIS SELLER SUBORDINATION AGREEMENT (this "Agreement"), made and entered
into by and among JOSEPH COLYAR AND CLAUDE H. HARING (collectively,
"Subordinator"), EDUCATIONAL MEDICAL, INC., a Delaware corporation ("EMI"), CHI
ACQUISITION CORP., a Delaware corporation ("CHI"), and BANK OF AMERICA, FSB
("Lender").
WITNESSETH
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of February 14,
1998, by and among EMI, CHI, as purchaser, Computer Hardware Service Company,
Inc ("Acquired Subsidiary"), and Subordinator and James Fritz, as sellers
(herein the "Stock Purchase Agreement"), effective this date, Subordinator has
sold to CHI, and CHI has purchased from Subordinator, all of the issued and
outstanding capital stock of the Acquired Subsidiary in exchange for cash and
the "Subordinated Notes," as that term is defined and described more
particularly below, and certain other consideration; and
WHEREAS, pursuant to the Stock Purchase Agreement, EMI is jointly and
severally liable for all obligations of CHI to Subordinator under the
Subordinated Notes; and
WHEREAS, concurrently with the consummation of such acquisition the
Acquired Subsidiary has been merged with and into CHI; and
WHEREAS, Lender and EMI, together with certain subsidiaries of EMI (EMI
and such subsidiaries, together with CHI and such other subsidiaries of EMI from
time to time may be added as co-borrowers to the "Loan Agreement" described
below, are herein called, individually and collectively, the "Borrower") are
parties to a certain Loan and Security Agreement, dated as of February 25, 1997
(as the same may be amended from time to time, together with any and all
documents, instruments, certificates and agreements now or hereafter delivered
in connection therewith to evidence or secure the payment of the Senior
Liabilities, collectively called therein the "Loan Agreement"), pursuant to
which Lender has agreed to make certain loans, advances and other financial
accommodations to or for the benefit of Borrower subject to Borrower's
continuing compliance with certain terms and condition therein contained; and
WHEREAS, at the request of EMI and CHI, Subordinator wishes to enter into
this Agreement in favor of Lender; and
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants herein exchanged, and for other good and valuable consideration, the
receipt and sufficiency whereof are hereby acknowledged, the parties hereto, by
and
<PAGE> 2
through their respective duly authorized officers, agents or legal
representatives, intending in each case to be legally bound, do hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Bankruptcy Proceeding" shall mean any dissolution, winding
up, liquidation, readjustment, reorganization or other similar proceedings
relating to Borrower or to its creditors, as such, or to its property; whether
voluntary or involuntary, partial or complete, and whether in bankruptcy,
insolvency or receivership, or upon an assignment for the benefit of creditors,
or any other marshaling of the assets and liabilities of Borrower, or any forced
sale of all or substantially all of the assets of Borrower, or otherwise.
(b) "Borrower Property" shall mean any and all property of
Borrower, or rights, title or interests of Borrower in property, howsoever
arising, acquired or obtained, whether now or hereafter existing, whether
tangible or intangible, whether real or personal, and wherever located.
(c) "Business Day" shall mean any day of the year on which
banks are not required to close in Atlanta, Georgia, and on which Lender is
otherwise not closed for business.
(d) "Lender Collateral" shall mean, collectively, any and all
Borrower Property in which, now or hereafter, a Lien is granted to, or obtained
by, Lender, as security for the payment and performance of any Senior
Liabilities, including, particularly, but without limitation, all "Collateral"
(as such term is defined in the Loan Agreement).
(e) "Liabilities" shall mean all debts, liabilities and
obligations of Borrower, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, joint or several, as maker, endorser,
surety, guarantor or otherwise, and whether now or hereafter existing or due or
to become due.
(f) "Lien" shall mean, collectively, any lien, security,
interest, security title, encumbrance, mortgage, pledge, hypothecation,
assignment or claim in or to any Borrower Property, whether now or hereafter
existing and howsoever granted, acquired or obtained by either Subordinator or
Lender, and whether arising by contact, by judicial decree, by statute or
otherwise.
(g) "Senior Liabilities" shall mean all liabilities of Borrower
to Lender arising under, pursuant to or in connection with the Loan Agreement.
Without limitation of the foregoing, the term "Senior Liabilities," as used
herein, shall expressly include (i) any and all "Obligations" of Borrower to
Lender (as that term, "Obligations," is defined in the Loan Agreement), (ii) any
interest accruing on any of the Senior Liabilities after the
2
<PAGE> 3
commencement of any Bankruptcy Proceedings, notwithstanding any provisions or
rule of law which might restrict rights of Lender, as against Borrower or anyone
else, to collect such interest and (iii) any premiums, fees and expenses
chargeable to, or reimbursable by, Borrower under or pursuant to the Loan
Agreement, including, without limitation, reasonable attorneys' fees and other
costs of collection and enforcement; all notwithstanding any right or power of
Borrower or any one else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such claim or defense shall
affect or impair the agreements and obligations of Subordinator hereunder. The
term "Senior Liabilities" shall also include any Liabilities incurred in
connection with the refinancing of the Liabilities under the Loan Agreement.
(h) "Subordinated Liabilities" shall mean all those Liabilities
of Borrower to Subordinator, aggregating Eight Million Seven Hundred Fifty
Thousand Dollars ($8,750,000) in original principal amount, representing the
amount of purchase money indebtedness of EMI and CHI to Subordinator incurred
effective this date by EMI and CHI, jointly and severally, pursuant to the Stock
Purchase Agreement, together with all interest thereon, whether now or hereafter
accruing, and all costs, fees and expenses charged or chargeable to EMI and CHI
by Subordinator in connection therewith.
(i) "Subordinated Notes" shall mean collectively the promissory
note in original principal amount of Five Million Seven Hundred Fifty Thousand
Dollars ($5,750,000), and the promissory note in the original principal amount
of Three Million Dollars ($3,000,000), each issued by CHI to Subordinator to
evidence the principal amount of the Subordinated Liabilities as to which EMI is
jointly and severally liable pursuant to the Stock Purchase Agreement. True and
correct copies of such promissory notes as in effect on the date hereof, are
attached hereto as EXHIBIT "A."
2. Consent and Agreement.
(a) Subject to the terms and conditions of this Agreement,
Lender consents to the incurrence by EMI and CHI of the Subordinated
Liabilities.
(b) Subordinator agrees that hereafter, without the prior
written consent of Lender, Subordinator will not create, take, consent to or
acquiesce in any Lien on any Borrower Property to secure the payment or
performance of any debt, liability or obligation of EMI or CHI to Subordinator,
except that (i) Subordinator may take a pledge of the stock of CHI as security
for such obligations (the "CHI Stock Pledge") and (ii) subject to the
subordination provisions contained in this Agreement, Subordinator may take a
lien on the assets of CHI as security for such obligations.
3. Debt Subordination.
(a) The payment of all Subordinated Liabilities shall be
subordinated to the payment in full of all Senior Liabilities. Without
limitation except as provided in
3
<PAGE> 4
clause (b) of this Section 3, no payments may be made on any Subordinated
Liabilities unless and until all Senior Liabilities have been paid and satisfied
in full and the Loan Agreement has been terminated.
(b) Notwithstanding the provisions of the foregoing subsection
(a), CHI shall be entitled to pay, and Subordinator shall be entitled to
receive, regularly scheduled payments of principal and accrued interest in
respect of the Subordinated Liabilities, as and when expressly set forth in the
Subordinated Note to be due and payable (and without giving effect, however, to
any provision thereof, including, for example, but not by way of limitation, any
mandatory prepayment event or condition, which would have the effect of
increasing the amount or frequency of any such payment); provided, however,
that, from and after the date on which Subordinator receives written notice from
Lender that an "Event of Default" under the Loan Agreement (as that term is
defined therein; herein, an "Event of Default") has occurred and is continuing,
no such payment shall be made or received unless and until Subordinator receives
written notice from Lender that such Event of Default has been cured or waived
or that any such payment otherwise may be made notwithstanding the existence and
continuation of such Event of Default.
(c) Any payments of principal or accrued interest on the
Subordinated Liabilities which are not paid or received as a result of the
operation and effect of this Section 3 shall be added to the final installment
of principal due and payable on the Subordinated Note and be payable (subject to
the foregoing terms and limitations) at maturity.
(d) In no event shall Subordinator be entitled at any time
during which this Agreement shall be effective to set off against any of the
Subordinated Liabilities the amount of any sum owing by Subordinator to EMI or
CHI, including, for example, but not by way of limitation, any sum now or
hereafter owing pursuant to any indemnity or similar provision under the Stock
Purchase Agreement.
4. Priority of Security Interests. Any Lien which heretofore or
hereafter may have been (or may be) granted to Subordinator by Borrower, or
retained or reserved by Subordinator in or on Borrower Property (excluding the
stock of CHI pledged to Subordinator pursuant to the CHI Stock Pledge), shall be
and remain junior, inferior and subordinate to any Lien heretofore or hereafter
granted to or retained or reserved by Lender in or on Lender Collateral, and any
Lien of Lender in or on Lender Collateral shall be superior to and have priority
over any and all Liens of Subordinator therein or thereon, irrespective of (a)
the time or order of attachment, or the time or order of perfection of Liens,
(b) the time of filing or recording financial statements, mortgages or other
agreements or documents, (c) the time of giving or failure to give notice of
acquisition of purchase money or other Liens, (d) the taking of possession of
any Borrower Property by Lender or Subordinator, (e) the order in which any
loan, advance or extension of credit included in the Senior Liabilities or the
Subordinated Liabilities is made, or (f) any other matter whatsoever. The
subordination and
4
<PAGE> 5
postponement of priority, operation and effect of Subordinator's Liens in the
Lender Collateral provided for herein shall have the same force and effect as
though Lender's Liens in or on Lender Collateral attached and were perfected
prior to the time Subordinator's Liens attached thereto or thereon and were
perfected, and shall be effective even though Lender's Liens may not have been
perfected. Nothing contained in this Section 4 is intended or shall be deemed or
construed to waive the provisions of Section 2(b) above or in any event permit
the grant by Borrower of any Lien on any Borrower Property to Subordinator
(which is, presently, expressly prohibited under the Loan Agreement), except as
and to the extent consented to by Lender in such Section 2(b).
5. Deferral of Remedies. Subordinator agrees that it will not make
any claim with respect to, foreclose upon, take possession of, sell, lease or
otherwise dispose of, or in any other manner realize or seek to realize upon the
whole or any part of any Borrower Property, whether pursuant to Article 9, Part
5 of the Uniform Commercial Code, by foreclosure, by setoff, by self-help
repossession, by deed in lieu of foreclosure, by lawsuit, other judicial action,
administrative proceeding, arbitration or otherwise, or exercise any other
remedies with respect to any Borrower Property, unless and until all of the
Senior Liabilities have been fully paid and satisfied, and this Agreement shall
have terminated; and that, as between Subordinator and Lender, Lender, and only
Lender, shall have the sole and exclusive right to exercise all such remedies
and claims, including the right to sell, transfer, dispose of or otherwise
realize upon any such Borrower Property (if and to the extent then constituting
Lender Collateral); provided, however, that, nothing contained in this Section 5
shall prohibit Subordinator from filing a proof of claim in any case involving
EMI or CHI, as debtor, under Title 11 of the United States Code, as amended,
subject always to the provisions of this Agreement; and, provided further, that
if, pursuant to the operation and effect of Section 3 above, Subordinator has
been barred for a period of one hundred eighty (180) days from receiving any
payment then due and owing in respect of the Subordinated Liabilities, then
Subordinator may at any time after the passage of such one hundred eighty (180)
day period, but prior to the resumption of payments being permitted to be made
and received thereon, institute a lawsuit or other judicial action or an
administrative or arbitration proceeding to enforce its right to collect any and
all of such past due sums from CHI and realize or seek to realize upon any
property of CHI and the stock of CHI pledged to it pursuant to the CHI Stock
Pledge pursuant to any judgment obtained in connection therewith in the manner,
to the extent and at the time permitted by applicable law, but at all times
otherwise subject to all terms and conditions of this Agreement.
6. Priority on Distribution. In the event that there should ever
occur (a) any Bankruptcy Proceeding or (b) any realization by Lender with
respect to the Lender Collateral upon the exercise by Lender of any of its
rights and remedies under the Loan Agreement or under applicable law, the Senior
Liabilities shall first be paid in full before CHI, or EMI shall be entitled to
make or pay or Subordinator shall be entitled to receive and to retain any
payment or distribution in respect of the Subordinated
5
<PAGE> 6
Liabilities, and, in order to implement the foregoing, unless and until all of
the Senior Liabilities shall have been fully paid and satisfied and this
Agreement shall have terminated, (i) all of the Borrower Property (other than
the stock of CHI pledged to Subordinator pursuant to the CHI Stock Pledge) and
any proceeds thereof so distributed, applied or realized upon shall be
distributed or paid to (or retained by) Lender for application to the Senior
Liabilities to the extent of Lender's Lien thereon, and none of such proceeds
shall be distributed or paid to Subordinator for application to the Subordinated
Liabilities, (ii) all payments and distributions of any kind or character in
respect of the Subordinated Liabilities to which Subordinator would have been
entitled if the Subordinated Liabilities were not subordinated pursuant to this
Agreement shall be made directly to Lender, (iii) Subordinator shall promptly
file a claim or claims, in the form required in such proceedings, or the full
outstanding amount of the Subordinated Liabilities owing to it, and shall cause
such claim or claims to be approved and all payments and other distributions in
respect thereof to be made directly to Lender, and (iv) Subordinator hereby
irrevocably agrees that Lender may, at its election, in the name of Subordinator
or otherwise, upon the failure, refusal or inability of Subordinator to do so
itself after demand by Lender, demand, sue for, collect, receive and receipt for
any and all such payments or distributions, and file, prove, and vote or consent
in any such proceedings with respect to, any and all claims of Subordinator
relating to the Subordinated Liabilities owing to it.
7. Payments and Other Distributions Received in Trust. In the event
that Subordinator receives any payment or other distribution of any kind or
character from EMI or CHI or from any other source whatsoever in respect of any
of the Subordinated Liabilities, other than as expressly permitted to be paid
and received by the terms of this Agreement, such payments or other distribution
shall be received in trust for Lender and promptly turned over by Subordinator
to Lender. Subordinator will cause to be clearly inserted in the Subordinated
Note and in any other promissory note or other instrument which at any time
evidences any of the Subordinated Liabilities a statement to the effect that the
payment thereof is subordinated in accordance with the terms of this Agreement.
Subordinator will execute such further documents or instruments and take such
further action as Lender may reasonably request from time to time to carry out
and enforce the provisions of this Agreement.
8. Payments on Subordinated Liabilities Received by Lender. All
payments and distributions received by Lender in respect of the Subordinated
Liabilities pursuant to this Agreement, to the extent received in or converted
into cash, may be applied by Lender first to the payment of any and all expenses
(including reasonable attorneys' fees and legal expenses) paid or incurred by
Lender in enforcing this Agreement or in endeavoring to collect or realize upon
any of the Subordinated Liabilities or any security therefor, and any balance
thereof shall be applied by Lender in such order of application as Lender may
from time to time elect in accordance with the terms of the Loan Agreement,
toward the payment of the Senior Liabilities remaining unpaid; and,
notwithstanding any such payments or distributions received by Lender in respect
of the Subordinated Liabilities and so applied by Lender toward the
6
<PAGE> 7
payment of the Senior Liabilities, Subordinator shall be subrogated to the then
existing rights of Lender, if any, in respect of the Senior Liabilities only at
such time as this Agreement shall have been terminated and Lender shall have
received payment of the full amount of the Senior Liabilities.
9. Waivers.
(a) The Subordinator hereby waives: (i) notice of acceptance by
Lender of this Agreement; (ii) notice of the existence or creation or
non-payment of all or any of the Senior Liabilities; and (iii) all diligence in
collection or protection of or realization upon the Senior Liabilities or any
thereof or any security therefor.
(b) Lender shall have the right at any and all times to
determine the order in which (i) recourse is sought against Borrower or any
other obligor with respect to the Senior Liabilities, or (ii) any or all of the
collateral security for the Senior Liabilities (including, particularly, the
Lender Collateral) in which a Lien has been granted to or obtained by Lender
shall be enforced; and Subordinator hereby waives any and all rights to require
that Lender pursue or exhaust any rights or remedies with respect to Borrower or
any Borrower Property prior to exercising its rights and remedies with respect
to the Lender Collateral or in any other manner to require the marshaling of
assets or security in connection with the exercise by Lender of any of the
remedies provided for in the Loan Agreement or any other such document,
instrument or agreement.
(c) Lender shall have no liability to Subordinate and
Subordinator hereby waives any claim, right, action or cause of action which it
may now or hereafter have against Lender arising out of, any and all actions
which Lender takes or omits to take with respect to the Senior Liabilities, or
any Lender Collateral including, without limitation, any actions with respect to
the creation, perfection or continuation of liens or security interest with
respect to the Lender Collateral; any foreclosure upon, taking of possession of,
or any sale, lease or other disposition of the Lender Collateral; any release of
any of the collateral securing the Senior Liabilities; any custody, valuation,
protection, preservation, use or depreciation of any of the Lender Collateral;
any realizing upon or failure to realize upon, the Lender Collateral or any
other collateral securing the Senior Liabilities; or any collection of the
Senior Liabilities, including, without limitation, any and all claims, rights,
actions or causes of action that Subordinator might have against Lender under
Sections 9-207 and 9-507 of the Uniform Commercial Code in the absence of this
provision.
10. Prohibitions on Certain Actions by Subordinator. The Subordinator
will not without the prior written consent of Lender: (a) modify or amend any
instrument presently or hereafter evidencing or securing the Subordinated
Liabilities or acquiesce in any amendment or modification thereof which would
(i) increase the interest rate payable on any of the Subordinated Liabilities,
(ii) change the dates on which any payment of principal or interest or other
payments are due on the Subordinated
7
<PAGE> 8
Liabilities (except for extensions of such dates), (iii) change any event of
default or add any covenant with respect to the Subordinated Liabilities, (iv)
change nay payment provisions with respect to the Subordinated Liabilities, (v)
change any subordination provisions with respect to the Subordinated Liabilities
or (vi) change or amend any other term if such change or amendment would
materially increase the obligations of EMI or CHI or confer additional rights on
Subordinator in a manner adverse to EMI or CHI or Lender; (b) cancel, waive,
forgive, transfer or assign (except in accordance with the provisions hereof),
or attempt to enforce or collect, or subordinate to any Liabilities other than
the Senior Liabilities, any Subordinated Liabilities (except as expressly
permitted herein) or any rights in respect thereof; (c) take any collateral
security for any Subordinated Liabilities; or (d) commence, or join with any
other creditor in commencing, (i) any bankruptcy, reorganization or insolvency
proceedings with respect to Borrower, or (ii) any proceeding to enforce any of
its rights under any of the Subordinated Liabilities or otherwise with respect
to any Subordinated Liabilities; or (e) retain or accept the primary or
secondary obligation of any party in respect of the Subordinated Liabilities.
11. Permitted Actions by Lender. Lender may, at any time or from time
to time, without the necessity of giving notice to, or obtaining the consent of,
Subordinator, take any or all of the following actions: (a) retain or obtain a
security interest in any property of Borrower or any person to secure any of the
Senior Liabilities; (b) retain or obtain the primary or secondary obligation of
any other person or persons with respect to any of the Senior Liabilities; (c)
extend, renew, alter or exchange any of the Senior Liabilities; (d) increase,
combine or restate any of the Senior Liabilities; (e) release or compromise any
obligation with respect to any of the Senior Liabilities; (f) release its
security interest in, or surrender, release or permit any substitution or
exchange for, all or any part of any property securing any of the Senior
Liabilities; and (g) modify or amend, grant waivers with respect to or forbear
from exercising any term, covenant or condition of the Loan Agreement.
12. Assignment; Refinancing.
(a) Lender also may, at any time or from time to time, without
the necessity of giving notice to or obtaining the consent of Subordinator,
assign or transfer any or all of the Senior Liabilities owned by Lender
including, without limitation, to any refinancing lender; and, notwithstanding
any such assignment or transfer or any subsequent assignment or transfer
thereof, such Senior Liabilities shall be and remain Senior Liabilities for all
purposes of this Agreement, and every immediate and successive assignee or
transferee of any of the Senior Liabilities or of any interest therein shall, to
the extent of the interest of such assignee or transferee in the Senior
Liabilities, be entitled to the benefits of this Agreement to the same extent as
if such assignee or transferee were Lender.
(b) In the event that the Senior Liabilities are refinanced in
full, whether pursuant to an assignment as described in the preceding paragraph
(a) or otherwise,
8
<PAGE> 9
Subordinator agrees at the request of the refinancing lender to enter into a
subordination agreement with Borrower and such refinancing lender on terms
substantially similar to this Agreement, and in any event satisfactory to the
refinancing lender. In furtherance of the foregoing, Subordinator hereby
irrevocably appoints Lender as its attorney-in-fact, with full authority in the
place and stead of Subordinator and in the name of Subordinator or otherwise, to
execute and deliver any such subordination agreement if Subordinator fails to
either execute and deliver to the subject refinancing lender such subordination
agreement within five (5) Business Days after a refinancing lender's request
therefor.
13. Failure of EMI, CHI or Subordinator to Act. Lender shall not be
prejudiced in its rights under this Agreement by any act or failure to act on
the part of EMI, CHI or Subordinator, or any noncompliance by EMI, CHI or
Subordinator with any agreement or obligation, regardless of any knowledge
thereof which Lender may have or with which Lender may be charged; and no action
of Lender permitted hereunder shall in any way affect or impair the rights of
Lender and the obligations of EMI, CHI and Subordinator under this Agreement.
14. Delay No Bar. No delay on the part of Lender in the exercise of
any right or remedy hereunder shall operate as a waiver thereof, and no single
or partial exercise by Lender of any such right or remedy shall preclude other
or further exercise thereof or the exercise of any other right or remedy by
Lender; nor shall any modification or waiver of any of the provisions of this
Agreement be binding upon Lender except as expressly set forth in a writing duly
signed and delivered on behalf of Lender.
15. Ownership of Subordinated Liabilities; Assignment by Subordinator.
Subordinator represents and warrants that as of the date hereof it is the owner
of all of the Subordinated Liabilities. Subordinator hereby agrees that it will
not hereafter assign or transfer the Subordinated Liabilities, or any of them,
to any Person unless such Person has agreed in a writing, in form and substance
satisfactory to Lender, to be bound by all of the provisions of this Agreement.
16. Successors and Assigns. This Agreement shall be binding upon
Lender and Subordinator and upon their respective successors and assigns. There
shall be no third party beneficiaries of this Agreement, other than any lender
refinancing the Liabilities of Borrower to Lender under the Loan Agreement.
17. Governing Law. This Agreement shall be construed in accordance
with and governed by the internal laws of the State of Georgia, without regard
to conflicts of law principles. Wherever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without
9
<PAGE> 10
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
18. Jurisdiction. Each party hereby consents to the jurisdiction of
any state or federal court located within the County of Fulton, State of Georgia
and irrevocably agrees that, subject to Lender's election, all actions or
proceedings arising out of or relating to this Agreement shall be litigated in
such courts. Subordinator accepted for itself and in connection with its
properties, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts and waives an defense or forum non conveniens, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement. Nothing herein shall limit the right of Lender to bring proceedings
against Subordinator or EMI or CHI in the courts of any other jurisdiction.
Lender, Subordinator and EMI or CHI further waive any right to trial by jury in
any proceeding brought hereunder.
19. EMI's and CHI's Covenants. EMI and CHI hereby agree to be bound by
the terms and provisions hereof, to make no payments contrary to the terms and
provisions thereof, and to do every other act and thing necessary or appropriate
to carry out such terms and provisions. In the event of any violation of any of
the terms and provisions of this Agreement, then, at the election of Lender, any
and all Obligations shall forthwith become due and payable and any and all
agreements of Lender to make loans, advances or other financial accommodations
to Borrower pursuant to the Loan Agreement shall forthwith terminate.
20. Notices. Unless otherwise specifically provided herein, all
notices shall be in writing addressed to the respective party as set forth on
the signature page (s) hereof and may be personally served, telecopied or sent
by overnight courier service or United States mail and shall be deemed to have
been given: (a) if delivered in person, when delivered; (b) if delivered by
telecopy, on the date of transmission if transmitted on a business day before
4:00 p.m. (Atlanta time) or, if not, on the next succeeding business day; (c) if
delivered by overnight courier, two days after delivery to such courier properly
addressed; or (d) if by U.S. Mail, five (5) Business Days after depositing in
the United States mail, with postage prepaid and properly addressed or to such
other address as the party addressed shall have previously designated by written
notice to the serving party, given in accordance with this Section.
21. Continuing Effect. This Agreement shall in all respects be a
continuing agreement and shall remain in full force and effect until all Senior
Liabilities have been paid and satisfied in full and the Loan Agreement has been
terminated.
22. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes and replaces any agreement, written or oral, heretofore existing
among or between the parties in respect thereof.
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<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been made and delivered as of the
14th day of February, 1998 by each of the undersigned.
"EMI"
EDUCATIONAL MEDICAL, INC. (SEAL)
By:
------------------------
Name:
------------------
Title:
------------------
Attest:
------------------------
Name:
------------------
Title:
------------------
Address for Notices:
-------------------------------
-------------------------------
-------------------------------
"CHI"
CHI ACQUISITION CORP. (SEAL)
By:
------------------------
Name:
------------------
Title:
------------------
Attest:
------------------------
Name:
------------------
Title:
------------------
Address for Notices:
-------------------------------
-------------------------------
-------------------------------
11
<PAGE> 12
"SUBORDINATOR"
-------------------------------
JOSEPH COLYAR
Address for Notices:
-------------------------------
-------------------------------
-------------------------------
"SUBORDINATOR"
-------------------------------
CLAUDE H. HARING
Address for Notices:
-------------------------------
-------------------------------
-------------------------------
"LENDER"
BANK OF AMERICA, F.S.B. (SEAL)
By:
------------------------
Name:
------------------
Title:
------------------
Attest:
------------------------
Name:
------------------
Title:
------------------
Address for Notices:
-------------------------------
-------------------------------
-------------------------------
12
<PAGE> 13
EXHIBIT "A"
SUBORDINATED NOTES
<PAGE> 1
EXHIBIT 10.59
STOCK PURCHASE AGREEMENT
Agreement dated as of March 13, 1998 among EDUCATIONAL MEDICAL, INC., a
Delaware corporation ("EMI"), NEW HAMPSHIRE ACQUISITION CORP., a Delaware
corporation wholly owned by EMI (the "Buyer"), HESSER, INC., a New Hampshire
corporation (the "Corporation"), THE LINWOOD W. GALEUCIA TRUST OF 1997, a
revocable trust organized under the laws of the State of New Hampshire, RICHARD
D. GALEUCIA, an individual residing within the State of New Hampshire
(collectively, the "Shareholders") and HARDWOOD PROPERTIES LIMITED PARTNERSHIP,
a New Hampshire limited partnership (the "Partnership").
PRELIMINARY STATEMENT
The Corporation is the owner of a post secondary educational
institution with locations in Manchester, Nashua, Salem and Portsmouth New
Hampshire (collectively, the "Schools"). The Shareholders own all of the
outstanding and issued capital stock (the "Stock") of the Corporation. Subject
to the terms and conditions contained in this Agreement, the Buyer wants to buy
the Stock, and the Shareholders want to sell the Stock to the Buyer.
The Partnership is the owner of the land and building located at 3
Sundial Avenue, Manchester, New Hampshire as more particularly described in
EXHIBIT 1 attached hereto together with all easements, permits, development
rights, leases and appurtenances thereto and improvements thereon (the
"Property"). Subject to the terms and conditions contained in this Agreement,
the Buyer wants to buy the Property, and the Partnership wants to sell the
Property to the Buyer.
This Agreement contains the terms pursuant to which (i) the
Shareholders have agreed to sell to Buyer all of the Stock and (ii) the
Partnership has agreed to sell to Buyer all of the Property. In addition, the
Shareholders have agreed not to compete with EMI and its schools pursuant to the
terms of this Agreement. EMI has entered into this Agreement to reflect that it
is jointly and severally liable with the Buyer with regard to the obligations of
the Buyer provided for in it.
IN CONSIDERATION OF THE COVENANTS CONTAINED IN THIS AGREEMENT, AND THE
OTHER CONSIDERATION PROVIDED FOR IN IT, THE PARTIES, EACH INTENDING TO BE
LEGALLY BOUND, AGREE AS FOLLOWS:
1. THE PURCHASE PRICE; CONVEYANCE OF THE STOCK AND THE PROPERTY;
CERTAIN DEFINITIONS; EFFECTIVE DATE OF TRANSACTION.
(a) The Purchase Price. The aggregate purchase price for the
Stock and the Property is $15,000,000 (the "Purchase Price"). The Purchase Price
shall be allocated $ 11,500,000 to the Shareholders (the "Stock Purchase Price")
and $3,500,000 to the Partnership (the "Property Purchase Price").
<PAGE> 2
(b) Conveyance of the Stock and the Property; Exclusive Right
to Purchase the Stock and the Property. On March 15, 1998 (the "Closing Date"),
or such other date as the parties may specify prior to April 15, 1998 (the
"Termination Date"), the Shareholders shall convey to Buyer all of their Stock
and the Partnership shall convey to Buyer all of the Property (the "Closing").
The Parties to this Agreement agree that EMI and the Buyer shall have the
exclusive right to consummate the transactions contemplated herein prior to the
Termination Date and that the Corporation and/or Shareholders and the
Partnership shall not negotiate with any other potential buyer during such
exclusivity period.
(c) Cash Payments by the Buyer. On the Closing Date the Buyer
shall pay to the Shareholders an aggregate sum equal to $2,000,000 (the "Initial
Payment"), by wire transfer or otherwise in immediately available funds which
amount shall be allocated to the Stock Purchase Price.
(d) Delivery of Second Payment Note. On the Closing Date the
Buyer shall deliver to the Shareholders and the Partnership:
(1) its Promissory Note for $11,000,000 (the "Second
Payment Note") in the form attached to this Agreement as EXHIBIT 2, payable with
interest payable at the rate of 2% per annum, all such principal and interest
becoming payable on the last business day within the first 30 calendar days
following the date on which the Prerequisite Student Aid Approvals are obtained.
Payment of the Second Payment Note shall first be allocated to the Property
Purchase Price and paid to the Partnership and the remaining allocated to the
Stock Purchase Price and paid to the Shareholders. The Second Payment Note shall
be secured by a letter of credit (the "Letter of Credit") in the same face
amount as such note. The Letter of Credit shall be issued by Bank of America,
N.A. "Prerequisite Student Aid Approvals" mean approvals by the United States
Department of Education and all other applicable private and governmental
agencies and organizations of the change in control resulting from the change in
ownership of the Schools resulting from the sale of the Schools pursuant to this
Stock Purchase Agreement which are a prerequisite to receipt of federal and
state aid by the Schools' students, and
(2) $2,000,000 of Common Stock of EMI (the "EMI Purchase
Stock") based upon the closing price (the "Closing Price") of EMI common stock
on the trading day immediately prior to the Closing Date as reported in the Wall
Street Journal. The specific number of shares of the EMI Purchase Stock shall be
calculated by dividing $2,000,000 by the Closing Price (which was 9 7/8 as March
12, 1998). All of the EMI Purchase Stock shall be allocated to the Stock
Purchase Price and issued to the Shareholders.
2. REPRESENTATIONS OF THE SHAREHOLDERS AND THE PARTNERSHIP.
Each of the Shareholders and, with respect to the representations contained in
subsection 2(x), the Partnership, jointly and severally represent and warrant
to Buyer as follows.
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<PAGE> 3
(a) No Misstatements. The representations of the Shareholders and
information supplied by the Shareholders and/or the Corporation and the
Partnership contained in this Agreement, the Exhibits attached to it and the
documents incorporated into it by reference do not contain any untrue
statement of a material fact or omit to state any fact necessary to make such
representations or information not materially misleading.
(b) Validity of Actions. The Corporation (i) is duly organized, validly
existing and in good standing under the laws of its organization, (ii) has all
requisite corporate and other appropriate authorization to operate the Schools
in the manner in which it is currently operated, (iii) is qualified to do
business in all jurisdictions in which such qualification is necessary for the
operation of the Schools, other than those jurisdictions where the failure to
so qualify would not have a material adverse effect upon the Schools' assets
or operations, and (iv) has full power and authority to enter into this
Agreement and to carry out all acts contemplated by it. This Agreement has
been duly executed and delivered on behalf of the Shareholders and/or the
Corporation and the Partnership, has received all necessary corporate
authorization and is a legal, valid and binding obligation of the Corporation,
the Shareholders and the Partnership, enforceable against each of them in
accordance with its terms. The Partnership is duly organized, validly existing
and in good standing under the laws of its organization and has all requisite
corporate and other appropriate authorization to own and operate the Property
in the manner in which it is currently operated. Entering into this Stock
Purchase Agreement and the consummation of the transactions contemplated by it
will not (i) violate any provision of the Articles of Incorporation or Bylaws
of the Corporation or the Partnership Agreement of the Partnership or, (ii)
conflict with or result in any breach of in any material respect of any of the
provisions of any material agreement to which the Corporation, the
Shareholders or the Partnership are a party or by which any of them or any of
their respective assets are bound, or (iii) cause a breach of any applicable
law, governmental regulation, order, or other decree of any court or
governmental agency. The Articles of Incorporation and Bylaws of the
Corporation and the Partnership Agreement of the Partnership, as presently in
effect, are attached to the Disclosure Memorandum delivered to EMI and the
Buyer simultaneously with the execution and delivery of this Stock Purchase
Agreement (the "Disclosure Memorandum") as SCHEDULE 2(B).
(c) Corporation's Financial Statements
(1) Attached as SCHEDULE 2(C)(1)(I) to the Disclosure
Memorandum are the Corporation's audited balance sheets at December 31, 1997,
1996 and 1995, and statements of income and expense and cash flows for the years
then ending (the "Corporation's Financial Statements"). The balance sheet
included in the Corporation's 1997 Financial Statements is called the
"Corporations Most Recent Balance Sheet." Attached as Schedule 2(C)(1)(II) to
the Disclosure Memorandum are the Corporation's corporate tax returns for the
years of 1996 and 1995.
-3-
<PAGE> 4
(2) The Corporation's Financial Statements: (i) accurately
represent the transactions appearing on the books and records of the
Corporation, and (ii) fairly present in all material respects the Corporation's
financial condition and its results of operations at the times and for the
periods presented, including normal adjustments consistent with year end
adjustments to reflect properly accruals through the end of the period. The
Corporation's Audited Financial Statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles consistently
applied ("GAAP"), except as otherwise disclosed in the reports accompanying them
or in the notes attached to them.
(3) To the best of the Shareholders knowledge, there have
been no material adverse changes in the financial condition or in the
operations, properties or assets of the Corporation since the date of the
Corporation's Most Recent Balance Sheets.
(d) Liabilities of the Corporation. The Corporation has no
liabilities, contingent or otherwise, including, without limitation, liabilities
for state or Federal income, withholding, sales, or other taxes, except to the
extent reflected, reserved against, or provided for, in the Corporation's Most
Recent Balance Sheet, except for taxes, trade payables and other obligations
incurred after the date of the Corporation's Most Recent Balance Sheet in
amounts consistent in all material respects, with those incurred in prior
periods in the ordinary course of business, including without limitation
liabilities for unearned tuition.
(e) Assets of the Corporation. The Corporation has good title
to all of its assets (the "Assets"). Except as otherwise disclosed in the
Corporation's Financial Statements or the related notes accompanying them or in
the Exhibits to this Agreement or the Disclosure Memorandum, all of the Assets
are owned free and clear of any adverse claims, security interests, or other
encumbrances or restrictions, except liens for current taxes not yet due and
payable, landlords' liens as provided for in the relevant leases or by
applicable law, or liens or similar security interests granted as part of
personal property financing agreements made in the ordinary course of business
and which in the aggregate are not material. The Assets constitute all of the
assets necessary for the operation of the Schools as currently conducted.
(f) Facility and Facility Operations.
(1) Included as SCHEDULE 2(F)(1) to the Disclosure
Memorandum are copies of the leases (the "Schools Facility Leases") pursuant to
which the Schools' Facilities (the "School Facilities") are leased. The Schools'
operations are conducted solely at the School Facilities and all of the tangible
Assets used in connection with such operations are located at the School
Facilities. All of the improvements located at the School Facilities are in good
operating condition and repair, subject only to ordinary wear and tear. There is
no pending or, to the knowledge of Shareholders, threatened condemnation
proceeding with respect to the School Facilities.
-4-
<PAGE> 5
(2) Attached as SCHEDULE 2(F)(2) to the Disclosure
Memorandum is a schedule of all of the furnishings, fixtures and equipment with
values in excess of the baseline used in determining such inventory, located on,
or used in connection with, the operation of the School Facilities as of the
date indicated on such inventory, subject to immaterial omissions occurring in
the ordinary course of compiling such inventory.
(3) Except for (i) environmental law compliance
(which is addressed in Section 2(f)(4) below) and (ii) accreditation,
recruitment, admissions, student loan and funding matters compliance (which are
addressed in Sections 2(h) and 2(i) below) as to which no representation or
warranty is made in this Section 2(f), all activities at, and the physical
condition of, the School Facilities are in compliance with all legal and
regulatory requirements applicable to the Corporation, the conduct of its
business, and the use of each Schools Facility, and the Corporation has not
received any actual notice to the contrary. The Corporation has paid for and
obtained all licenses, permits, and other authorizations material to the conduct
of its business at the School Facilities (the "Permits"). All Permits currently
in effect and pertaining to the School Facilities or the Corporation's
activities at the School Facilities are listed on SCHEDULE 2(F)(3) of the
Disclosure Memorandum. The representations contained in this subsection 3 shall
not apply to incidental instances of non-compliance occurring in the ordinary
course of business without the actual knowledge of the Corporation, which are
immaterial to the operation of the Schools and capable of being cured without
significantly disrupting the Schools' operations.
(4) To the best of the knowledge of Shareholders or
the Partnership, as the case may be, there are no Hazardous Substances (1) in,
on or under
- ----------------------------
(1) The term "Hazardous Substance" shall include without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or
"solid waste" in CERCLA, RCRA, and the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and in the
regulations promulgated pursuant to said laws;
(ii) Those substances defined as "hazardous wastes" in any
applicable state statute and in the regulations promulgated pursuant to
any applicable state statute;
(iii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by
the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or which
are classified as hazardous or toxic under federal, state, or local
laws or regulations; and
(v) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C) polychlorinated biphenyl, (D) designated as a
"hazardous substance" pursuant to Section 311
-5-
<PAGE> 6
the School Facilities except for those which are used by the Corporation in
compliance, in all material respects, with applicable law, and the Corporation
is not now engaged in any litigation, proceedings or investigations, nor knows
of any pending or threatened litigation, proceedings or investigations regarding
the presence of Hazardous Substances in, on or under the School Facilities.
(g) Equipment Leases and Financing Agreements. All of the
leases and financing agreements to which the Corporation is a party and which
relate to the operations of the Schools are described in SCHEDULE 2(G) of the
Disclosure Memorandum (the "Financing and Related Agreements"). Copies of the
Financing and Related Agreements are attached to such Schedule or have been
provided to the Buyer. Except as reflected in such Disclosure Memorandum, there
have been no modifications to any of the Financing and Related Agreements; the
Corporation is not in default in any material respect with respect to them; and
none of the interests of the Corporation in any of them is subject to any
restriction except as stated in the applicable document or as provided by
applicable law.
(h) Accreditation and Compliance with Title IV Requirements.
Attached as SCHEDULE 2(H) to the Disclosure Memorandum is a list of all Federal,
state or other licenses and approvals, including without limitation all
accreditations and certifications, granted to the Corporation with respect to
the conduct of its educational or training business at the Schools (the
"Accreditations and Certifications"), and the governmental body or agency or
other entity granting such Accreditation or Certification. Included in such
Disclosure Memorandum are copies of all such Accreditations and Certifications.
The Corporations Physical Therapy Assistant and Occupational Therapy Assistant
Programs are in candidate status and not accredited.
(1) Except for the Permits and the Accreditations and
Certifications, no license or approval is material to the conduct of the
Corporation's operation of the Schools as they are now being conducted, and the
Corporation has received no notice that any other license or approval is
necessary for the continued operation of the Schools or that any such license or
approval will not be renewed.
(2) The Corporation's operation of the Schools is and has
been conducted in all material respects in accordance with all relevant
standards imposed by applicable accrediting agencies, or agencies administering
state government student aid programs in which the Corporation, or any students
attending any of the Schools, participate, or other applicable laws or
regulations.
(3) Each of the Schools is an institution certified by the
United States Department of Education (the "Department of Education"). The
Corporation is a party to, and is and at all times has been in general
compliance with, a valid program participation agreement with the Department of
Education with respect to the
- -----------------------
of the Clean Water Act, 33 U.S.C. ss.ss.1251 et seq. or listed pursuant
to Section 307 of the Clean Water Act, (E) flammable explosive, or (F)
radioactive materials.
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<PAGE> 7
operations being conducted by the Schools, and no instance of non-compliance has
occurred which will materially and adversely affect the financial condition of
the Corporation. Except as disclosed IN SCHEDULE 2(H)(3), the Corporation has
not received any notice, not previously complied with, with respect to any
alleged material violation of the rules or regulations of the Department of
Education or any applicable accrediting agency in respect of the Schools or the
terms of any program participation agreement to which it is or was a party. If
any such notices have been received and generally complied with, the Corporation
has disclosed its receipt and disposition to Buyer in Schedule 2(h)(3). The
Corporation is and at all times has been, in general compliance with all of the
provisions of the Higher Education Act of 1965 ("HEA") and the regulations
promulgated by the Department of Education thereunder (the "DOE Regulations")
necessary to establish and maintain its eligibility to participate in the Title
IV funding programs provided for therein ("Title IV Funding Programs"),
including without limitation, the demonstration of financial and administrative
responsibility as provided for in the DOE Regulations, and no instance of
non-compliance has occurred which will materially and adversely affect the
financial condition of the Corporation. The Corporation has submitted audited
financial statements to the Department of Education for the fiscal years ended
December 1996 and December 1995 relating to its financial responsibility to
participate in Title IV Funding Programs as provided for in the DOE Regulations
(the "DOE Financial Statements") and was in general compliance with all DOE
Regulations relating to financial and administrative responsibility as of the
date of this Agreement, and no instance of non-compliance has occurred which
will materially and adversely affect the financial condition of the Corporation.
The Corporation has submitted audits of the Title IV Financial Aid Programs to
the DOE for purposes of demonstrating compliance with the DOE Regulations
regarding the administration of funds received pursuant to Title IV Funding
Programs for the applicable years ended June 30, 1996 and June 30, 1995 (the
"Title IV Financial Aid Audits"). Except as set forth in SCHEDULE 2(H)(3) to the
Disclosure Memorandum, the DOE Financial Statements and Title IV Financial Aid
Audits are true and correct in all material respects.
(4) To the best of the Shareholders knowledge, there is no
investigation or review of student financial aid programs (including without
limitation Title IV Programs) in which the Schools or its students participate,
or any review of any of the Schools' Accreditations or Certifications whether by
a party to any relevant agreement, the issuer of such Accreditation or
Certification or otherwise.
(i) Recruitment; Admissions Procedures; Attendance; Reports.
Attached as SCHEDULE 2(I) to the Disclosure Memorandum are all policy manuals
and other statements of procedures or instruction relating to recruitment of the
Schools' students, including procedures for assisting in the application by
prospective students for direct or indirect state or Federal financial
assistance; admissions procedures, including any descriptions of procedures for
insuring compliance with state or Federal or other appropriate standards or
tests of eligibility; procedures for encouraging and verifying attendance,
minimum required attendance policies, and other relevant criteria relating to
course completion and certification (collectively referred to as the "Policy
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<PAGE> 8
Guidelines"), which have previously been delivered to the Buyer by the
Corporation. The Schools' operations have been conducted in all material
respects in accordance with the Policy Guidelines.
To the best of the Shareholder's knowledge, the Corporation has
submitted all reports, audits, and other information, whether periodic in nature
or pursuant to specific requests ("Compliance Reports"), to all agencies or
other entities with which such filings are required relating to the Schools'
compliance with (i) applicable accreditation standards governing its activities
or (ii) laws or regulations governing programs pursuant to which the Schools or
students attending the Schools receive funding, including, without limitation,
the Perkins Loan Program, the Federal Family Education Loan Programs, the Pell
Grant program and the Supplemental Educational Opportunity Grant Program, the
Federal Direct Student Loan Program or the Federal Work Study Program, all of
which are provided for pursuant to Title IV of the HEA, and no instance of
non-compliance has occurred which will materially and adversely affect the
financial condition of the Corporation.
Complete and accurate records in all material respects for all present
and past students attending the Schools have been maintained consistent with the
operations of a school business. All forms and records have been prepared,
completed, maintained and filed in all material respects in accordance with all
federal and state laws and regulations applicable to the operations of the
Schools, and are true and correct in all material respects. All financial aid
grants and loans, disbursements and record keeping relating to them have been
completed in compliance in all material respects with all federal and state
requirements, and there are no material deficiencies in respect thereto. To the
best of the Shareholder's knowledge, no student at the Schools has been funded
prior to the date for which such student was eligible for funding and such
student's records have been processed in all material respects in accordance
with all applicable federal, state and relevant third party funding source
requirements. All appropriate reports and surveys have been accurately prepared,
taken and filed prior to delinquency.
(j) Default. Attached as SCHEDULE 2(J) to the Disclosure
Memorandum is a list indicating the cohort default rate, as calculated by the
Department of Education, of all students attending the Schools receiving
assistance pursuant to the Stafford Loan and Supplemental Loans for Students
programs (or their applicable predecessor programs) for the federal fiscal years
ended September 1993, 1994, 1995 and 1996. To the best of the knowledge of
Shareholders and the Corporation, such schedule is materially accurate in all
respects.
(k) Trademarks, etc. The Corporation does not use any
tradenames, trademarks, service marks, or copyrights. To the Shareholder's best
knowledge, the Corporation's operations of the Schools may be conducted without
license by others for the use of any tradename, trademark, service mark or
copyright.
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<PAGE> 9
(l) Material Contracts. Attached as SCHEDULE 2(L) to the Disclosure
Memorandum is (I) a schedule identifying all material contracts relating to the
Schools' operations not otherwise specifically identified in the other Schedules
to the Disclosure Memorandum, including, without limitation, all agreements
relating to state or Federal funding of educational services provided by the
Corporation through grants, loans or direct payments either to the Corporation,
individual students or otherwise, and any agreements relating to the placement
of students following their completion of relevant educational programs provided
by the Schools other than agreements with students involving the teaching of
standard courses, for standard prices as set forth in the Schools' catalog or in
the enrollment agreement for such students (the "Contracts"); (ii) a summary of
all material provisions of the Contracts that are oral and not reduced to
written documents; and (iii) a copy of all written Contracts. Except as
disclosed in this SCHEDULE 2(L): (i) all of the Contracts remain unmodified and
in full force and effect, and (ii) the Corporation is not in default of any
material nature (nor, to the best knowledge of the Shareholders, does any state
of facts exist which, with the giving of notice, the passing of time, or
otherwise, would constitute a default of any material nature by the Corporation)
with respect to any of the Contracts. For purposes of this Subsection, a
contract or agreement shall not be regarded as material if it is inadvertently
omitted from the disclosure schedule and can be canceled by the Corporation on
no more than 30 days notice, or (x) has been entered into in the ordinary course
of business and is consistent with prior practices, (y) is an agreement entered
into on commercially reasonable terms between unrelated parties, and (z)
provides for annualized payments in an aggregate amount of less than $100,000.
(m) Maintenance and Employment Agreements. Attached to the
Disclosure Memorandum as SCHEDULE 2(M) is (i) a schedule of all written
agreements between the Corporation and independent contractors, employees and
agents who are employed or engaged in the management or operation of the Schools
or the School Facilities; (ii) the names of all parties entitled to payments
from the Corporation under any such agreements or arrangements; (iii) the
amounts payable by the Corporation under the terms of all such agreements and
arrangements, including without limitation, the terms of employment and
compensation, including vacation and other employee benefit provisions and the
cost of all employee benefits and payroll taxes; and (iv) a copy of all written
contracts for such services. There are no material oral agreements in effect for
any such services. Except as disclosed on such Schedule 2(l): (x) there are no
written agreements between any of such contractors, employees or agents and the
Corporation; (y) there is no party entitled to compensation or remuneration for
any such services arising from the operation of the Schools after the Closing;
and (z) the Corporation's agreements and arrangements providing for the services
described on such Schedule may be terminated by the Corporation at any time,
with or without cause, and without any obligation to pay any of said parties any
amounts whatsoever except as may be required by law (including, without
limitation, severance pay or accrued vacation pay or other benefits). For
purposes of this Subsection, a contract or agreement shall not be regarded as
material if it is inadvertently omitted from the disclosure schedule and can be
canceled by the Corporation on no more than 30 days notice, or (x) has been
entered into in the ordinary course of business and is consistent
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<PAGE> 10
with prior practices, and (y) is an agreement entered into on commercially
reasonable terms between unrelated parties.
(n) Employee Benefit Plans. The Corporation maintains employee
benefit plans as listed on SCHEDULE 2(N) of the Disclosure Memorandum (the
"Employee Benefit Plans") with respect to employees involved in the operation of
the Schools. Copies of such plans have been previously delivered to the Buyer.
Except as listed on such Schedule, the Corporation does not maintain any profit
sharing, pension or other employee benefit plan related to the Schools'
operations. The Corporation has no unfunded obligations pursuant to any
insurance, retirement, pension, profit sharing or deferred compensation plan or
program relating to the Schools' operations.
(o) Labor. There is no existing labor dispute affecting the
operation of the Schools. None of the Corporation's employees involved in the
operations of the Schools are covered by any union or collective bargaining
agreement.
(p) Insurance. A schedule of all of the major policies of
insurance maintained by the Corporation in connection with the operation of the
Schools is attached as SCHEDULE 2(P) to the Disclosure Memorandum. The insurance
coverage provided by such policies complies in all material respects, with all
agreements to which the Corporation is a party, and applicable legal
requirements to which it is subject. All such policies are currently in effect.
(q) Taxes. The Corporation has filed all Federal, state and
local tax returns which it is required to file and has no outstanding liability
for any Federal, state or local taxes or interest or penalties thereon, whether
disputed or not, except taxes not yet payable which have been provided for in
accordance with GAAP and are disclosed in the Corporation's Effective Most
Recent Balance Sheet or have subsequently accrued in the normal course of
business or taxes potentially payable with respect to currently active audits
relating to its taxable years ended December 31, 1993, 1994 and 1995 (the
Potential Federal Tax Audit Liabilities")
(r) Actions Pending. Except for a claim of approximately
$100,000 by a provider of teaching services relating to services rendered to
certain of the Corporation's students in 1997 (i) there are no actions, suits,
proceedings or claims pending or (to Shareholders' knowledge) threatened against
the Corporation or Shareholders which, if determined adversely to the
Corporation or Shareholders, would (A) have a material adverse effect on the
Assets, or the operation of the Schools, or (B) prevent or delay the
consummation of any of the transactions contemplated by this Agreement; (ii) the
Corporation or Shareholders, is not (to Shareholders' knowledge) the subject of
any pending or threatened investigation relating to any aspect of the
Corporation's operation of the Schools, by any Federal, state or local
governmental agency or authority; (iii) the Corporation, is not and has not been
(to Shareholders' knowledge) the subject of any formal or informal complaint,
investigation or inspection under the Equal Employment Opportunity Act or the
Occupational Safety and Health Act (or their state or local counterparts) or by
any other Federal, state or local authority.
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<PAGE> 11
(s) Accounts Receivable. Each of the accounts receivable of
the Corporation relating to the Schools' operations constitutes a valid claim in
its full amount against the debtor charged on the Corporation's books and has
arisen in the ordinary course of the Schools' operations. Except as provided in
this subsection 2(s), the Shareholders make no representations or warranty with
respect to such receivable, and Buyer and EMI accept such accounts receivable as
is.
(t) No Guaranties. None of the Corporation's obligations or
liabilities is guaranteed by any other person, firm or corporation, nor does the
Corporation guaranty the obligations or liabilities of any other person, firm or
corporation.
(u) Bank Accounts and Deposit Boxes. Attached to the
Disclosure Memorandum as SCHEDULE 2(U) are the names and addresses of all banks
or financial institutions in which the Corporation has an account, deposit or
safety deposit box with the names of all persons authorized to draw on these
accounts or deposits or to have access to the boxes, and an indication of which
accounts or deposits or boxes contain financial aid funds, in each case to the
extent such accounts are used in connection with the Schools' operations.
(v) Records. The books of account of the Corporation relating
to the Schools' operations are complete and correct in all material respects,
and there have been no transactions involving the Schools' operations which
properly should have been set forth therein and which have not been accurately
so set forth.
(w) Capital Stock and Subsidiaries. The Corporation's
authorized capital stock consists solely of 200 shares of common stock with no
par value of which 100 shares (previously defined in the Preliminary Statement
set forth above as the "Stock") are outstanding, validly issued and are
presently held beneficially and of record by the Shareholders as set forth on
EXHIBIT 3 attached to this Agreement, 200 shares of non-voting common stock, no
par value, none of which are outstanding, and 1000 shares of non-voting
preferred stock, no par value, none of which are outstanding. The Stock is fully
paid and non-assessable. All of the Stock is owned absolutely by the
Shareholders, free and clear of all liens, encumbrances and adverse claims.
There are no voting trusts, proxies, Shareholders agreements or similar
contracts or understandings in effect relating to the Stock. Except for this
Agreement, there are no outstanding rights, options, warrants, convertible
securities or agreements of any kind entitling any person to purchase or acquire
any shares of capital stock or any other securities or agreements of any kind
entitling any person or purchase or acquire any shares of capital stock or any
other securities of the Corporation, including, without limitation, rights to
acquire capital stock contingent upon the payment of money, passage of time or
other contingency. The Corporation is not a partner or a joint venturer in any
enterprise, and has no subsidiaries.
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<PAGE> 12
(x) Representations and Warranties in Connection with the
Property.
(i) The Partnership has good and marketable title to the
Property, free and clear of all mortgages, liens, encumbrances, security
interests, covenants, conditions, restrictions, rights-of-way, easements,
judgments or other matters except for the Declaration of Condominium or as shown
in the title policy delivered to the Buyer at the Closing. No agreement
concerning or restricting the sale of the Property is in effect and no person or
entity has any right or option to acquire the Property other than Buyer.
(ii) With the exception of the Corporation's rights of
use and occupancy now in effect, there are no rights of use or occupancy now in
effect or hereafter to come into effect with respect to the Property.
(iii) There are no impact fees or any other fees, costs or
assessments (other than current real estate taxes) due or which will in the
future become due to any governmental entity with respect to the Property. The
Partnership has no knowledge of any violation of any laws, zoning ordinances,
regulations, licenses or permits affecting the Property or its current use;
further, no notice from any governmental authority has been issued requiring or
calling attention to the need for any work, repairs, construction or alterations
or installations on or in connection with the Property because of violations of
housing, zoning, building, safety, environmental or fire laws or ordinances, or
otherwise, which have not been complied with.
(iv) No commitments have been made to any governmental
authority, utility company, school board, church or other religious body, or any
homeowners or homeowners' association, or to any other organization, group or
individual relating to the Property which would impose an obligation upon Buyer
or its successors or assigns to make any contributions or dedications or money
or land or to construct, install or maintain any improvements of a public or
private nature on or off the Property. No governmental authority has imposed any
requirement that any developer of the Property pay directly or indirectly any
special fees or contributions or incur any expenses or obligations in connection
with the development of the Property.
(v) The Property has full, free, direct and adequate
access to and from public highways and streets and the Partnership has no
knowledge of any facts or conditions which would result in the interruption or
termination of such access.
(vi) The Partnership has no knowledge of any patent or
latent defects or adverse facts that exist with respect to the physical
condition of the Property which has not been specifically disclosed in writing
to the Buyer including, without limitation, adverse soil conditions and there is
no threatened earth movement, termite infestation, termite damage or structural
defects affecting the Property.
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<PAGE> 13
(vii) The Property is presently zoned to a classification
(or has received a proper variance) which permits its current use as a
post-secondary educational institution facility.
(viii) To the best of the knowledge of the Shareholders
and the Partnership, the Property and all appurtenances thereto, including, but
not limited to, the heating, air conditioning, plumbing, sanitary sewer, roof,
fire prevention system, mechanical and electrical systems, are in good working
order.
(ix) The Partnership has not received any notice, nor
does it have any knowledge, of any special assessments affecting the Property
and no federal, state or local taxing authority has asserted any tax deficiency,
lien or assessment against the Property which has not been paid or for the
payment of which, adequate provision has not been made. The Partnership has no
knowledge of any pending or threatened litigation, claim, cause of action or
administrative proceeding concerning the Property.
(x) All taxes and assessments related to the Property,
other than those not due and payable until subsequent to the Closing Date have
been paid in full.
(xi) All assessments of the Condominium Association have
been paid in full through the Closing Date and to the best knowledge of the
Shareholders and the Partnership, no special assessments are being considered.
3. REPRESENTATIONS AND WARRANTIES OF EMI AND BUYER. Each of EMI
and Buyer represents to the Corporation, Shareholders and the Partnership as
follows:
(a) No Misstatements. The representations and the information
supplied by it contained in this Agreement, the Exhibits attached to it, and the
documents incorporated by reference into it, including, without limitation the
Addendum do not contain any untrue statement of a material fact or omit to state
any fact necessary to make such representations or information not materially
misleading.
(b) Validity of Actions. It is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the authority to carry on its business as currently conducted, and is qualified
to do business in all jurisdictions in which such qualification is necessary. It
has full power and authority to enter into this Agreement and to carry out all
acts contemplated by it. This Agreement and each of the documents provided for
in it to be delivered as part of this transaction, have been duly executed and
have or will be delivered pursuant to all appropriate corporate authorization on
its behalf and is, or will be, its legal, valid and binding obligation and is
enforceable against it in accordance with its terms. The execution and delivery
of this Agreement, and each of the documents to be executed and delivered by EMI
and the
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<PAGE> 14
Buyer pursuant to its terms, and the consummation of the transactions
contemplated by them will not violate any provision of their respective
Certificates of Incorporation or Bylaws or, violate, conflict with or result in
any breach of any of the terms, provisions of or conditions of, or constitute a
default or cause acceleration of any indebtedness under, any indenture,
agreement or instrument to which it is a party or by which it or its assets may
be bound, or, cause a breach of any applicable law or governmental regulation,
or any applicable order, judgment, writ, award, injunction or decree of any
court or governmental instrumentality.
(c) Capitalization.
(1) EMI. The authorized capital stock of EMI consists
of: (i) 15,000,000 shares of EMI Common Stock, par value $0.01 per share, of
which as of the date of this Agreement, there were 7,524,332 shares issued and
outstanding; and (ii) 5,000,000 shares of Preferred Stock, par value $.01 per
share ("EMI Preferred Stock") of which as of the date of this Agreement there
were no shares issued and outstanding. All outstanding shares of EMI Common
Stock have been validly issued by EMI and are fully paid, non-assessable and
free of preemptive rights. There are no subscriptions, options, warrants, calls,
rights, contracts, commitments, understandings or arrangements relating to the
issuance, sale or transfer by EMI of any shares of its Capital Stock, including
any right of conversion or exchange under any outstanding security or other
instrument, except as disclosed in EMI's Registration Statement on Form S-1 (No.
333-09777), or in its Quarterly Reports on Form 10-Q or its current reports on
Form 8-K, (all as may have been amended from time to time) filed pursuant to the
provisions of the Securities Act of 1933 and/or the Securities Exchange Act of
1934 with the Securities and Exchange Commission.
(2) The Buyer. As of the date of this Agreement, the
authorized capital stock of the Buyer consists of 1000 shares of Common Stock
all of which are issued and outstanding. All outstanding shares of the Buyer
have been validly issued and are fully paid, non-assessable and free of
preemptive rights, and all of such shares are owned, beneficially and of record,
by EMI.
(d) Actions Pending. There are no actions, suits, proceedings
or claims pending or to the knowledge of EMI or the Buyer, threatened against
either of them which, if determined adversely to either of them would (A) have a
material adverse effect on their operations, or (B) prevent or delay the
consummation of any of the transactions contemplated by this Agreement. Neither
EMI nor Buyer is the subject of any pending or (to its knowledge) threatened
investigation relating to any aspect of its operations.
(e) EMI's Financial Statements
(1) Attached as SCHEDULE 3(D) to the Disclosure
Memorandum are (A) EMI's audited balance sheets at March 31, 1995, 1996, and
1997, and statements of income and expense and cash flows for the years then
ending (EMI's
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<PAGE> 15
Audited Financial Statements") and (B) EMI's unaudited balance sheets at
September 30, 1997, and statements of income and expense and cash flows for the
periods then ending ("EMI's Interim Financial Statements" collectively with
EMI's Audited Financial Statements, "EMI's Financial Statements").
(2) EMI's Financial Statements: (i) have been prepared
on the accrual basis in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except as otherwise disclosed in the reports
accompanying them or in the notes attached to them, and (ii) fairly present
EMI's financial condition and its results of operations at the times and for the
periods presented.
(3) There have been no material adverse changes in the
financial conditions or in the operations, business, prospects, properties or
assets of EMI sincce the date of EMI's Interim Financial Statements.
(f) Buyer's financial Condition. The Buyer is a newly formed
Corporation. It has no material liabilities except as provided for in this
Agreement, and no assets except the joint and several agreements of EMI to
perform in accordance with the terms of this Agreement.
4. COVENANTS OF THE PARTIES.
(a) Conduct of the Business Prior to the Closing. Pending
consummation of the transactions contemplated in this Agreement or prior to
termination of this Agreement, the Corporation, Shareholders and the Partnership
agree, without prior written consent of Buyer, given in a letter which
specifically refers to this Section of the Agreement:
(1) not to (i) perform any act or omit to take any act
that would make any of representations made in Section 2 above, inaccurate in
any material respect or materially misleading as of the Closing Date, or (ii)
allow the Corporation to make any payment or distribution with respect to the
Schools or their operations except for the payment of liabilities provided for
in the Corporation's Financial Statements or incurred in the ordinary course of
business;
(2) to conduct the business of the Schools in the
ordinary and regular course, maintain the School Facilities, protect the
Schools' Accreditation Certifications and Permits, and keep their books of
account, records and files in substantially the same manner as at present.
(3) to make all tuition refunds with respect to the
Schools' operations within the time frames provided for in the Regulations and
any applicable state or accrediting agency regulations, and to pay all accounts
payable as they become due.
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<PAGE> 16
(4) not transfer the Property or create any easements,
liens, mortgages, encumbrances or other interest that would affect the Property
or the Partnership's ability to comply with the terms of this Stock Purchase
Agreement.
(5) continue to maintain an repair the Property in at
least the manner in which the Property has heretofore been maintained and
repaired.
(6) promptly disclose in writing to the Buyer any change
in any facts or circumstances which would make any of the representations made
in Section 2 above, inaccurate, incomplete, or misleading to the detriment of
Buyer.
(b) Notice. Pending the consummation of the transactions
contemplated in this Agreement or prior to termination of this Agreement, each
party agrees that it will promptly advise the others of the occurrence of any
condition or event which would make any of its representations contained in this
Agreement inaccurate, incorrect, or materially misleading.
(c) Access. Prior to the Closing, the Corporation shall
afford to the Buyer (and its officers, attorneys, accountants and other
authorized representatives), upon reasonable notice, free and full access during
usual business hours to its relevant offices, personnel, books and records and
other data, financial or otherwise, so that Buyer may have full opportunity to
make such investigation as it shall desire of the Assets and the business and
operations of the Schools by the Corporation, provided that such investigation
shall not unreasonably interfere with the Corporation's operations. The scope of
the investigation will include, but not be limited to, a verification of the
Corporation's Financial Statements and a review of the Corporation's control
procedures, regulatory compliance relating to the Schools, the Schools Facility,
and material contracts and litigation relating to the Schools. Duly authorized
representatives of the Buyer shall also be entitled to discuss with officers of
the Corporation, its counsel, employees and independent public accountants, all
of its books, records and other corporate documents, contracts, pricing and
service policies, commitments and future prospects to the extent such materials
and matters relate to the operation of the Schools. Representatives of the
Corporation will furnish to Buyer and such other persons, copies of all
materials relating to the business affairs, operations, Facility, Assets and
liabilities of the Corporation relating to the Schools which may be reasonably
requested from time to time and will cause representatives and employees of the
Corporation to assist Buyer in its investigation of the matters relative to the
Schools. All information obtained by Buyer, EMI or any of their officers,
directors, employees, lender, investors, agents and other representatives (the
"Buyer's Representatives") in connection with the transactions contemplated by
this Agreement or in the course of their investigations of the Schools, whether
obtained before or after the date of this Agreement (the "Evaluation Material")
shall be used only in connection with this Agreement and the subsequent
operation of the Schools, and each of Buyer and EMI shall assure that all
Evaluation Material will be otherwise kept strictly confidential by each of them
and the Buyer's Representatives.
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<PAGE> 17
(d) Additional Documents. At the request of any party, each
party will execute and deliver any additional documents and perform in good
faith such acts as reasonably may be required in order to consummate the
transactions contemplated by this Agreement and to perfect the conveyance and
transfer of any property or rights to be conveyed or transferred or perfect the
assumption of any liabilities assumed under the terms of this Agreement.
(e) Compliance with Conditions to Closing. Subsequent to the
execution and delivery of this Agreement and prior to the Closing, each of the
parties to this Agreement will execute such documents and take such other
actions as reasonably may be appropriate to fulfill the conditions to Closing
provided for in Section 5 of this Agreement.
5. CONDITIONS TO CLOSING BY THE RESPECTIVE PARTIES. The obligation
of EMI and Buyer, on the one hand, and the Corporation and Shareholders on the
other hand, to consummate the transactions contemplated by this Agreement shall
be subject to compliance with or satisfaction of the following conditions by
the other, to the extent applicable:
(a) Bring Down. The representations and warranties set forth
in this Agreement shall be true and correct in all material respects on and at
the Closing Date as if then made by the relevant party (except for those
representations and warranties made as of a given date, which shall continue to
be true and correct as of such given date).
(b) Compliance. Each party shall have complied with all of the
covenants and agreements in this Agreement on its or their part, respectively,
to be complied with as of or prior to the Closing Date.
(c) No Material Adverse Changes. Since the date of the Most
Recent Balance Sheet, there shall not have occurred any material adverse change
in the condition or operations (financial or otherwise) of the Schools, the
School Facilities, or the Assets. Since December 31, 1997 there shall not have
occurred any material adverse change (financial or otherwise) of EMI.
(d) Buyer Certificates. There shall be delivered to the
Shareholders and the Partnership:
(1) a certificate executed by the President and Secretary
of each of Buyer and EMI, dated the Closing Date, certifying that the conditions
to be fulfilled by each of them set forth in this Section 5 have been fulfilled;
(2) a certificate of incumbency for each of the Buyer and
EMI executed by its President or any Vice President and by the Secretary or any
Assistant Secretary of such entity, listing the officers of such entity
authorized to execute (to the extent applicable) the Agreement and the other
documents, certificates, schedules and
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<PAGE> 18
instruments to be delivered on behalf of such entity, and their respective
offices, and containing the genuine signature of each such person set forth
opposite his name; and
(3) good standing certificates and certified charter
documents of each of them of recent date, from the Secretary of the State of the
jurisdiction of incorporation of such entity and a copy of their respective
By-Laws certified by an officer thereof.
The certificates described in subsections (1), (2) and (3) above are hereafter
referred to collectively as the "Buyer's Certificates."
(e) Corporation Certificates. There shall be delivered to the
Buyer and EMI:
(1) certificates executed by the President and Secretary of
the Corporation, the Shareholders and the Partnership, dated the Closing Date,
certifying that the conditions to be fulfilled by it as set forth in this
Section 5 have been fulfilled;
(2) a certificate of incumbency for the Corporation executed
by its President or any Vice President and by the Secretary or any Assistant
Secretary of the Corporation, listing the officers of such entity authorized to
execute (to the extent applicable) the Agreement and the other documents,
certificates, schedules and instruments to be delivered on behalf of such
entity, and their respective offices, and containing the genuine signature of
each such person set forth opposite his name; and
(3) good standing certificates and certified charter
documents of the Corporation and organizational documentation of the Partnership
dated of recent date, from the Secretary of the State of the jurisdiction of
incorporation of such entity and a copy of their respective By-Laws certified by
an officer thereof.
The certificates described in subsections (1), (2) and (3), above, are hereafter
referred to collectively as the "Stockholder, Partnership and Corporate
Certificates."
(f) No Suits. No action or proceeding shall have been instituted
in any court or before any Federal, state or local governmental agency against
any party seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or which could have a material adverse effect on
any of the parties, which shall not have been dismissed or withdrawn prior to
the Closing Date.
(g) Documents. All documents required to be delivered to Buyer
or the Corporation or the Shareholders pursuant to this Agreement at or prior to
Closing shall have been so delivered.
(h) Authority. There shall be in full force and effect on the
Closing Date resolutions (or in the case of the Partnership other appropriate
authorization) of the Boards of Directors of the Buyer, EMI, the Corporation and
the general partner(s) of
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the Partnership approving this Agreement, the other documents executed and
delivered by each of them in connection with this Agreement and the transactions
contemplated in it. At or prior to the Closing, each party will deliver to the
other a copy of the resolutions of its Board of Directors, and in the case of
the Corporation, the resolutions or consent of the Shareholders, together with
any and all required resolutions or consent of the Shareholders thereof and in
the case of the Partnership appropriate authorization by the general partner(s),
and, if applicable, the limited partner(s), approving the execution and delivery
of this Agreement and the other documents to be delivered pursuant to this
Agreement and the consummation of all of the transactions contemplated hereby,
duly certified by an appropriate officer.
(i) Opinions of Counsel. Each party shall receive the opinion
of counsel to the other party reasonably satisfactory in form and content to the
party receiving such opinion.
(j) Current Insurance Coverage. Payments will have been made
as of the Closing Date with respect to all of the Corporation's insurance
policies and all insurance coverage concerning the Assets and the Schools'
operations shall be continued in force through at least 10 days subsequent to
the Closing Date, unless canceled subsequent to the Closing Date by Buyer.
(k) Bankruptcy, Dissolution, etc. No petition or other
commencement of proceedings in bankruptcy or proceedings for dissolution,
termination, liquidation or an arrangement, reorganization or readjustment of
any party's debts under any state or Federal law enacted for the relief of
debtors or otherwise, whether instituted by or against a party, has been
effected or commenced by or against any party.
(l) Leases. The respective landlords of the leases under which
the School Facilities are leased shall have consented, if necessary, to the
assumption of such leases by the Buyer (or the change of control with respect to
the Corporation).
6. CLOSING AND POST CLOSING AGREEMENTS.
(a) Closing Date and Place. The closing of the transactions
provided for in this Agreement shall take place at the time provided for in
Section 1(b) of this Agreement at such place as the parties may agree, and shall
be effective as provided therein.
(b) Deliveries by Buyer to the Shareholders and the
Partnership. At the Closing, Buyer and EMI shall deliver to the Shareholders and
the Partnership:
(1) The Initial Payment;
(2) The Second Payment Note;
(3) Certificates Representing the EMI Purchase Stock;
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<PAGE> 20
(4) The Buyer's Certificates;
(5) A registration rights agreement (the
"Registration Rights Agreement") in a form
satisfactory to the parties;
(6) Employment Agreements (the "Employment
Agreements) between the Corporation and Richard D.
Galeucia and Linwood W. Galeucia, respectively, in
form satisfactory to the parties; and
(7) A non-competition agreement (the "Non-Competition
Agreement") between the Buyer and Madeleine Galleucia
in form satisfactory to the parties.
(c) Deliveries by the Shareholders and the Partnership to
Buyer. At the Closing, Shareholders shall deliver to Buyer:
(1) The original certificates representing the Stock;
(2) Appropriate Stock Powers (the "Stock
Powers") to accomplish the transfer of the
Stock provided for in this Agreement;
(3) The Corporation's Certificates;
(4) A General Warranty Deed in recordable form.
(d) Filing of Tax Returns and Other Reports; Tax
Responsibility. The Shareholders shall timely file all federal and state income
tax and other tax returns or reports relating to the transactions provided for
in this Agreement and relating to all periods during which the Shareholders
owned the Stock, and shall be responsible for all unpaid federal tax liabilities
incurred by the Corporation and the related expenses for such period, including
without limitation the Federal Potential Federal Tax Audit Liabilities and any
refunds with respect thereto will be paid to the Shareholders upon receipt. To
the extent required by law or regulation the Shareholders shall file all reports
with the Department of Education or any other applicable state of federal
regulatory or accrediting agency relating to such periods including without
limitation the Financial Aid Audits for the federal fiscal year ended June 30,
1997 and March 31, 1998 to be filed by the Schools with the Department of
Education pursuant to applicable regulations.
(e) Access to Records. Following the effective Closing
Date, Buyer and EMI shall give to the Shareholders reasonable access to (and the
right to make copies at the expense of the Corporation) all financial and other
records of the Schools which reflect or relate to the business, operations,
income, expenses and assets of the Schools existing on, accruing or prior to the
Closing Date, and to preserve such records
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for a period of time reasonably necessary to insure their availability for
purposes of state and federal regulatory compliance or production or review in
the case of an audit, investigation or inquiry. Access to such records shall be
conducted by the Shareholders in such manner as not to interfere unreasonably
with the operations of the business following the Closing Date.
(f) Acid Test; Repayment of Uncollected Accounts Receivable.
Within 30 days of the Closing Date, the Shareholders shall provide the Buyer
with an audited balance sheet (the "Closing Balance Sheet") which shall be
subject to the same representations and warranties provided for in Section 2(c)
of this Agreement, which indicates as of the Closing Date the ratio (the
"Ratio") of the Corporation's (i) current assets ("Eligible Assets") to (ii)
current liabilities in accordance with the DOE Regulations governing financial
responsibility. In the event that the Ratio on the Closing Balance Sheet exceeds
one (1) to one (1), the Buyer shall pay to the Shareholders within fifteen (5)
business days an amount equal to the excess Eligible Assets over current
liabilities (the "Excess Payment") provided that such amount shall not exceed
the amount of cash held by the Corporation as of the close of business on the
date of such Closing Balance Sheet. The bad debt reserve for accounts receivable
provided for in the Closing Balance Sheet shall be $1,196,224 or adjusted to
such amount for purposes of determining an amount of Excess Payment, and no
further adjustments shall be made with respect to such reserve.
(g) Filing of Application for Prerequisite Student Aid
Approvals. As soon as practicable after the Closing, Buyer and EMI shall cause
the filing of applications for the Prerequisite Student Aid Approvals and shall
use their best efforts to secure the receipt of such approvals in the shortest
possible time.
(h) Further Documents or Acts. The parties will also execute,
deliver, record (where appropriate) and/or perform at Closing and from time to
time thereafter, at the request of Buyer, EMI, or the Shareholders, all other
documents or acts required to consummate any of the transactions contemplated by
this Agreement or otherwise carry out the purposes of this Agreement, including
without limitation, any and all instruments or other documents of transfer,
conveyance, assignment and assumption as may be reasonably necessary to effect
of evidence the transfer of the Assets and the assumption of the Stated
Liabilities.
7. CONFIDENTIALITY AND JOINT NON-COMPETITION AGREEMENT.
(a) Shareholders acknowledge that, as a result of their
ownership of the Schools they each had access to and knowledge of confidential
or proprietary information developed by the Corporation and Shareholders with
respect to the Schools and its operations and of a special and unique nature and
value to the Buyer, including, but not limited to, the methods and systems used
in connection with the Schools' operations, the names and addresses of their
students and sources of referral, tuition charged and paid by with respect to
the Schools or their customers, curricula, related memoranda, research reports,
designs, records, student files, services, and operating
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<PAGE> 22
procedures, and other information, data, and documents now existing or later
acquired by the Corporation or Shareholders in connection with the Schools'
operations, regardless of whether any such information, data, or documents,
qualify as a "trade secret" under applicable Federal or state law (collectively
"Confidential Information"). Confidential Information does not include
information that (i) becomes generally available to the public other than as a
result of disclosures by the Corporation or Shareholders in violation of the
terms of this Agreement, or (ii) becomes available to the Corporation or
Shareholders on a non-confidential basis from a source that is not bound by a
confidentiality agreement with Buyer or EMI or each of their respective
directors, officers, employees, agents or representatives. As a material
inducement to Buyer to enter into this Agreement, the Shareholders covenant and
agree not at any time following the Closing Date directly or indirectly, to
divulge or disclose for any purpose whatsoever, any Confidential Information
which is in the possession of the Corporation or Shareholders as a result of
their ownership of the Schools, or otherwise as a result of the relationship
between the Corporation, Shareholders and the Schools' operations. In accordance
with the foregoing, the Shareholders agree at no time to retain or remove from
the School Facilities records of any kind or description whatsoever for any
purpose whatsoever unless authorized by Buyer. Notwithstanding the foregoing
provisions of this Section 7(a), Shareholders may disclose Confidential
Information (i) to their counsel, accountants and agents on a need-to-know basis
(provided that any such person shall be informed of the confidential nature of
such information and directed not to disclose or make public such Confidential
Information), (ii) to the extent required by applicable law, rules and
regulation, and (iii) in any action, suit or proceeding between the parties,
provided that in connection with disclosures permitted by clauses (ii) and (iii)
above, Shareholders shall provide Buyer with at least three (3) days notice of
such intent so that an appropriate protective order may be sought by Buyer if
desired.
(b) As a material inducement to Buyer to enter into this
Agreement, the Shareholders covenant and agree for a period of seven (7) years
after the Closing of the transactions provided for in this Agreement not to (i)
engage in the operation of a post secondary school facility (the "Prohibited
Activities") anywhere within the State of New Hampshire or within 50 miles (the
"Area") of the location of any school owned or operated by EMI or any
postsecondary educational school which EMI subsequently operates during such
period with respect to which EMI either gives written notice to the Buyer or
includes on its Internet Homepage or any successor generally available
information service prior to the Shareholders' commencement of such activities;
(ii) become associated as manager, consultant, advisor, or stockholder owning
more that 5% of the outstanding stock of a company or participate in the
management or direction of a company or otherwise with any person, the
Corporation or entity engaging in Prohibited Activities anywhere within the
Area; (iii) call upon any of Buyer's, EMI's or any of EMI's subsidiary schools'
students, teachers or referral sources for the purpose of promoting any
Prohibited Activities for any person, person, the Corporation or entity within
the Area; or (iv) divert, solicit or take away any of Buyer's, EMI's or any of
EMI's subsidiary school's teachers or other personnel for the purpose of
engaging in any Prohibited Activities regardless of the location of such
activities.
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<PAGE> 23
(c) In the event of a breach or threatened breach by the
Shareholders of any of the provisions of this Section 7, Buyer, in addition to
and not in limitation of any other rights, remedies, or damages available to
Buyer at law or in equity, shall be entitled to a permanent injunction in order
to prevent or to restrain any such breach by Shareholders, or by Shareholders'
partners, agents, representatives, servants, employers, employees and/or any and
all persons directly or indirectly acting for or with them.
(d) Shareholders jointly and severally agree that, if they
shall violate any of the covenants or agreements provided for in this Section 7,
Buyer shall be entitled to an accounting and repayment of all profits,
compensation, commissions, remuneration, or benefits which Shareholders
directly, or indirectly, have realized and/or may realize as a result of,
growing out of, or in connection with any such violation; such remedy shall be
in addition to and not in limitation of any injunctive relief or other rights or
remedies to which Buyer may be entitled to at law or in equity or under this
Agreement.
(e) Shareholders have carefully read and considered the
provisions of this Section 7, and agree that the restrictions set forth above
(including without limitation the time period and geographical areas of
restriction) are fair and reasonable and are reasonably required for the
protection of the interest of the Buyer and EMI. In the event that,
notwithstanding the foregoing, any of the provisions of this Section 7 are held
invalid or unenforceable, the remaining provisions shall continue to be valid
and enforceable. In the event that any provision of this Section 7 relating to
time period and/or areas of restriction are declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period or areas of restriction shall be
deemed to become, and thereafter be, the maximum time period and/or area which
such court deems reasonable and enforceable.
8. INDEMNIFICATION.
(a) Except with respect to claims based on the Indemnity
Limitation Exception provided for in subsection (d) of this Section,
Shareholders, and, with respect to the representations contained in subsection
2(x) of this Agreement and the performance of all of its other obligations as
provided for in this Agreement, the Partnership, agree for a period of two (2)
years from the date of this Agreement to defend, indemnify and hold harmless the
Buyer and EMI and their directors, officers, employees and agents from and
against any loss, liability, damage, settlement or expense (including without
limitation, attorneys' fees and disbursements) incurred by Buyer or EMI arising
from or related to the inaccuracy or breach of any of the representations,
warranties, covenants or agreements of Shareholders and the Partnership
contained in this Agreement or in any document incorporated by reference into
this Agreement.
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<PAGE> 24
(b) Buyer and EMI, jointly and severally, agree to defend,
indemnify and hold harmless Shareholders and the Partnership and their
respective agents from and against any loss, liability, damage, settlement or
expense (including without limitation attorneys' fees and disbursements)
incurred by Shareholders or the Partnership arising from or related to the
inaccuracy or breach of any of the representations, warranties, covenants or
agreements of Buyer or EMI contained in this Agreement or in any document
incorporated by reference into this Agreement.
(c) The party seeking indemnification pursuant to this Section
8 (the "Indemnified Party") shall give (or cause to be given) to the party or
parties from whom indemnification is sought hereunder (the "Indemnifying Party")
written notice of any claim or matter for which indemnity is (or will be) sought
under this Section 8. Such notice shall be given promptly after the Indemnified
Party receives actual notice or knowledge of the claim or matter that is subject
to indemnification. With respect to any claim asserted by a third party against
an Indemnified Party for which indemnity is sought hereunder, the relevant
Indemnifying Party shall have the right to employ counsel reasonably acceptable
to the relevant Indemnified Party to defend against such assertion and such
Indemnifying Party shall have the right to compromise or otherwise settle any
such action or claim only with the prior written consent of such relevant
Indemnified Party, which consent shall not be unreasonably withheld.
(d) Except in the case of a judicial determination of
intentional fraud by a New Hampshire Court of competent jurisdiction (the
"Indemnity Limitation Exception"), Shareholders and/or the Partnership shall not
in any instance have any liability, including without limitation instances of
non-compliance described in Sections 2(h) and/or 2( ) of this Agreement, with
respect to any claims of Buyer or EMI for money damages, whether pursuant to
this section or otherwise, until such time, if any, as the aggregate amount of
all such amounts otherwise subject to recovery by Buyer or EMI shall exceed, in
the aggregate, $25,000, and then only to the extent of such excess; and provided
further that the Shareholders and/or the Partnership shall not be obligated to
pay such damages (other than the Indemnity Limitation Exception) to the extent
the total amount otherwise subject to recovery by Buyer or EMI from the
Shareholder and/or the Partnership exceeds $2,500,000.
9. EVENTS OF DEFAULT. If any one or more of the following events
occurs then, subject to the expiration of any specified grace period and the
giving of any prior notice required under this Section 9, such event shall
constitute an Event of Default by the party responsible for such event or
against whom it should be charged.
(a) Warranties or Representations. Any warranty or
representation by or on behalf of any party contained in this Agreement (or in
any document between the parties furnished in compliance with this Agreement at
Closing) is false or misleading in any material respect.
(b) Agreements. Any party fails to take any action required of
it to comply with its obligations contained in this Agreement, or takes any
action prohibited
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<PAGE> 25
or inconsistent with its obligations under this Agreement, and such failure to
act or action is not cured prior to ten (10) days after written notice thereof
is given to the defaulting party.
(c) Refusal to Close. A party refuses to consummate the
transactions provided for (and subject to the terms and conditions specified) in
this Agreement by 5 p.m., Eastern Daylight Time on the Termination Date, except
if the failure to close is based upon the failure of the other party to meet a
condition to Closing provided for in Section 5 of this Agreement.
(d) Failure of Closing Condition. Any party is unable to
comply with the conditions of Closing provided for in Section 5 of this
Agreement, other than as a result of an Event of Default as described in
Sections 9(a), (b), or (c) above.
10. TERMINATION AND RIGHTS AND REMEDIES ON DEFAULT.
(a) Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned prior to the Closing: (i) by the
mutual consent of Buyer, EMI, the Corporation and Shareholders; (ii) by Buyer
and EMI, if any condition to their obligations to close set forth in Section 5
hereof becomes impossible of performance or has not been satisfied in full (in
each case other than as a result of a breach of such party's obligations under
this Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; (iii) by the Corporation and
Shareholders if any condition to their obligations to close set forth in Section
5 hereof becomes impossible of performance or has not been satisfied in full (in
each case other than as a result of a breach of such party's obligations under
this Agreement) or previously waived by the other parties to this Agreement in
writing at or prior to the Termination Date; or (iv) by any party (other than a
party that is in breach of its obligations under this Agreement) if the Closing
shall not have occurred on or before the Termination Date. If this Agreement is
terminated pursuant to clause (i) of this Section 10, all obligations of the
parties hereunder shall terminate without any further liability or obligation of
either party to the other, except that the provisions of Section 11, and the
confidentiality provisions of Section 4(c) of this Agreement shall survive and
continue in full force and effect notwithstanding such termination. Except as
limited by the preceding sentence, the exercise by any party of the right to
terminate this Agreement shall not terminate or limit any remedy that such party
may have in this Section 10 as a result of an Event of Default.
(b) Rights and Remedies on Default. Upon and after an Event of
Default by any party, the other party shall have the following rights and
remedies:
(1) Default by Buyer. In the event that Buyer is
obligated to and fails to close by the Termination Date, and the Corporation or
Shareholders are not in default of their obligations under this Agreement, this
Agreement shall terminate and the Corporation and Shareholders shall have the
right to seek money damages as their
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sole remedy. The Corporation and Shareholders hereby agree that neither of them
shall be entitled to seek or file suit for specific performance of this
Agreement.
(2) Default by the Corporation or Shareholders. If,
on the Termination Date, there exists an Event of Default as described in
Section 9 of this Agreement, chargeable against the Corporation or the
Shareholders, Buyer may either (i) waive such default and close, in which event
Buyer shall have the right to seek specific performance of this Agreement,
including, without limitation, the acquisition of the Shares and the
performance by the Corporation and Shareholders of the covenants provided for
in this Agreement, or (ii) refuse to close, and, except in the case of an Event
of Default described in Section 9(d) above, seek money damages from the
Corporation or Shareholders, including, without limitation, indemnification
pursuant to Section 8 of this Agreement. An election by Buyer to proceed in
accordance with subclause (i) of the preceding sentence shall constitute the
acknowledgment by Buyer and the Corporation or Shareholders that Buyer cannot
be adequately compensated by money damages for the failure to perform by the
Corporation or Shareholders, that such damages are indeterminate, and that a
court of competent jurisdiction may enter an order pursuant to which the
Corporation and Shareholders are obligated to specifically perform their
obligations to Buyer pursuant to the terms of this Agreement.
(3) Default Subsequent to Closing. If any party
breaches this Agreement subsequent to Closing, or if a default occurs pursuant
to Sections 9(a) or 9(b) of this Agreement, the nondefaulting party(ies) shall
have the right to seek money damages from the defaulting party(ies), pursuant to
Section 7 or 8 of this Agreement. In addition, if, (i) as a result of any action
taken or not taken by the Corporation or Shareholders in violation of any
applicable law or regulation which (ii) has not been disclosed to the Buyer in
this Agreement, and which (iii) the occurrence or non occurrence of which was
known or reasonably should have been known to the Corporation or Shareholders,
the Prerequisite Student Aid Approvals are not received prior to 12 months from
the date of the Closing, or, if received or offered, can only be obtained on
conditions imposing substantial financial burdens on the Buyer in addition to
those which would otherwise be imposed in connection which such approval, the
Buyer may elect to rescind the transactions provided for in this Agreement and,
upon such election, the parties will take such action as may be reasonably
required to restore the other party to its respective positions as they existed
prior to the Closing provided for in this Agreement.
(4) Nature of Remedies Cumulative. Except as otherwise
provided in this Agreement, all rights and remedies granted in this Agreement or
available under applicable law shall be deemed concurrent and cumulative and not
alternative or exclusive remedies, to the full extent permitted by law and this
Agreement, and any party may proceed with any number of remedies at the same
time or in any order. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy, and any party, upon the
occurrence of an event of default by another party under this Agreement, may
proceed at any time, under any agreement, in any order and with any available
remedy.
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<PAGE> 27
11. FINDERS FEES. With the exception of The Bigelow Company which will
receive an accomplishment fee paid by the Shareholders at the Closing, each of
the parties represents and warrants to the other that such party has not
employed any finder or broker in connection with transactions contemplated by
this Agreement. Each party agrees to indemnify and hold harmless the others from
and against any claim, damages, liabilities, and expenses (including without
limitation, attorneys' fees and disbursements) arising from any claim or demand
asserted by any person or entity other than the Bigelow Company on the basis of
its employment as a finder or broker by the respective party.
12. ARBITRATION. Any disputes between any of the parties to it with
respect to the agreements contained in it, or as modified in the future, are to
be settled by binding arbitration conducted pursuant to the commercial
arbitration rules of the American Arbitration Association, except for instances
in which an Indemnity Limitation Exception is alleged as a bar to the
limitations provided for in Section 8(d). In any such arbitration the scope and
timing of any discovery shall be determined by the arbitrators. Such arbitration
is to be the sole remedy for the settlement of such disputes. All of the parties
agree that money damages are inadequate to compensate for a breach of the
confidentiality and non-competition provisions of this Agreement and contained
in this Agreement. The Shareholders agree that upon application by EMI and/or
Acquisition, any court of competent jurisdiction, upon a showing sufficient to
justify the entry of a temporary injunction, may enjoin any activity allegedly
in breach of such agreement pending the outcome of binding arbitration or enter
a similar order of like force and effect, or may enforce the final determination
of such arbitrators by the issuance of such an injunction or similar order.
With respect to the provisions of Section 7 (Confidentiality and
Non-Competition), the Corporation and Shareholders agree that damages, by
themselves, are an inadequate remedy at law, that a material breach of the
provisions of such Section would cause irreparable injury to the aggrieved
party, and that the provisions of Section 7 may be specifically enforced by
injunction or similar remedy in any court of competent jurisdiction without
affecting any claim for damages, provided that any such injunction shall either
be preliminary in nature, enjoining such activity pending the outcome of
arbitration as provided for in Section 12 of this Agreement, or be in assistance
of the final determination of the arbitrators as provided for in such Section.
The Corporation and Shareholders agree that such injunction may be issued
without the necessity of bond.
13. NOTICES. All notices or other communications required or permitted
under the terms of this Agreement shall be made in writing and shall be deemed
given (i) upon hand delivery, (ii) when sent by commercial overnight courier
with written verification of receipt, or (iii) three days after deposit of same
in the Certified Mail, Return Receipt Requested, first class postage and
registration fees prepaid and correctly addressed to the parties at the
following addresses:
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<TABLE>
<S> <C>
If to Buyer: New Hampshire Acquisition Corp.
1327 North Meadow Parkway, Suite 132
Roswell, GA 30076
Attn: President
With a copy to: Greenberg Traurig Hoffman Rosen Lipoff & Quentel
777 South Flagler Drive, Suite 300 - East Tower
West Palm Beach, Florida 33401
Attn: Morris C. Brown, Esq.
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway, Suite 132
Roswell, Georgia, 30076
Attn: President
With a copy to: Greenberg Traurig Hoffman Rosen Lipoff & Quentel
777 South Flagler Drive, Suite 300 - East Tower
West Palm Beach, Florida 33401
Attn: Morris C. Brown, Esq.
If to the Corporation: Hesser, Inc.
c/o Hesser College
3 Sundial Avenue
Manchester, NH 03103
With a copy to: William H. Kelley, Esq.
282 River Road
P.O. Box 3280
Manchester, NH 03105-3280
If to Shareholders: The Linwood W. Galeucia Trust of 1997
c/o Linwood W. Galeucia
Hesser College
3 Sundial Avenue
Manchester, NH 03103
Richard D. Galeucia
c/o Hesser College
3 Sundial Avenue
Manchester, NH 03103
With a copy to: William H. Kelley, Esq.
282 River Road
P.O. Box 3280
Manchester, NH 03105-3280
</TABLE>
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<PAGE> 29
<TABLE>
<S> <C>
If to the Partnership: Hardwood Properties Limited Partnership
c/o Linwood W. Galeucia
Hesser College
3 Sundial Avenue
Manchester, NH 03103
With a copy to: William H. Kelley, Esq.
282 River Road
P.O. Box 3280
Manchester, NH 03105-3280
</TABLE>
or to such other address as any of the parties hereto may designate by notice
to the others.
14. MISCELLANEOUS.
(a) Successors. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned prior to Closing without
the prior written consent of the other parties hereto.
(b) Expenses. Except as otherwise provided in this Agreement,
Buyer, the Corporation and Shareholders shall be responsible for any and all of
the respective fees, costs and expenses incurred by each, in connection with the
negotiation, preparation or performance of this Agreement.
(c) Entire Agreement. This Agreement incorporates by this
reference all Exhibits hereto and all documents executed and/or delivered at
Closing. This Agreement and the documents so incorporated into it contain the
parties' entire understanding and agreement with respect to the subject matter
hereof; and any and all conflicting or inconsistent discussions, agreements,
promises, representations and statements, if any, between the parties or their
representatives that are not incorporated in this Agreement shall be null and
void and are merged into this Agreement.
(d) Amendments Only in Writing. No amendment, modification,
waiver or discharge of this Agreement or any provision of this Agreement shall
be effective against any party, unless such party shall have consented thereto
in writing.
(e) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
(f) Cooperation. Each of the parties to this Agreement, when
requested by another party, shall give all reasonable and necessary cooperation
with respect to any reasonable matters relating to the transactions contemplated
by this Agreement.
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(g) Governing Law; Venue. This Agreement shall be governed by
and construed in accordance with the laws of the State of New Hampshire,
exclusive of its choice of law provisions, and the parties agree that any
dispute hereunder shall be resolved by reference to court or tribunal in
Hillsborough County, New Hampshire, in accordance with terms of the Agreement,
and each hereby irrevocably consents to such jurisdiction.
(h) Headings. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.
(i) Gender; Number. All references to gender or number in this
Agreement shall be deemed interchangeably to have a masculine, feminine, neuter,
singular or plural meaning, as the sense of the context requires.
(j) Severability. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
(k) Survival. Except as otherwise expressly provided in this
Agreement, the liabilities and obligations of each party with respect to any and
all of its representations, warranties, covenants and agreements set forth in
this Agreement and/or in any document incorporated into it shall not be merged
into, affected or impaired by the Closing under this Agreement. All of the
representations, warranties, covenants and agreements set forth in this
Agreement shall survive the Closing for the period of two years thereafter, so
that (except as otherwise provided below) any claim under this Agreement must be
asserted by notice given to the party claimed to be liable on or before the
second anniversary of the Closing Date. Notwithstanding the foregoing, the time
limitation shall not apply to: (i) the covenants related to confidentiality and
non-competition contained in Section 7 above or (ii) fraud, including without
limitation intentional fraud upon which a claim for an Indemnity Limitation
Exception is based. All obligations and liabilities described in clauses (i) and
(ii) of the previous sentence shall survive the Closing for the period in which
a claim can be asserted with respect thereto under applicable law.
(l) No Third Party Beneficiaries. This Agreement has been
entered into solely for the benefit of the parties that have executed it, and
not to confer any benefit or enforceable right upon any other party or entity.
Accordingly, no party or entity that has not executed this Agreement shall have
any right to enforce any of the provisions of it.
-30-
<PAGE> 31
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by an officer duly authorized to do so, all as of the day and year
first above written.
NEW HAMPSHIRE ACQUISITION HESSER, INC. ("CORPORATION")
CORP. ("BUYER")
By: By:
-------------------------------- ---------------------------------
Authorized Signatory Authorized Signatory
EDUCATIONAL MEDICAL, INC. ("EMI") SHAREHOLDERS
THE LINWOOD W. GALEUCIA
REVOCABLE TRUST OF 1997
By: By:
------------------------------ -------------------------------
Authorized Signatory ---------------, Trustee
------------------------------------
Richard D. Galeucia,
HARDWOOD PROPERTIES LIMITED
PARTNERSHIP ("PARTNERSHIP")
By:
------------------------------
Authorized Signatory
-31-
<PAGE> 32
EXHIBITS
1. Legal Description of the Property
2. The Second Payment Note
3. List of Shareholders
4. Registration Rights Agreement
5. Form of Employment Agreement
6. Form of Non-Competition Agreement
7. The Stock Power
-32-
<PAGE> 1
EXHIBIT 10.60
LEGAL DESCRIPTION
Hesser College
3 Sundial Avenue
Manchester, New Hampshire
A certain condominium unit in Sundial Avenue Condominium Manchester,
County of Hillsborough and State of New Hampshire, more particularly bounded and
described as follows:
South Wing Unit, Unit 1, Sundial Avenue Condominium, defined and
identified in the Declaration of Condominium of Northern Manchester Trust, dated
November 16, 1989 and recorded in the Hillsborough County Registry of Deeds,
Volume 5153, Page 1028, and also shown on certain plans entitled: "Site Plan,
Sundial Avenue Condominium, Sundial Avenue, Manchester, New Hampshire," prepared
for Northern Manchester Trust, dated November 9, 1989 by Cuoco & Cormier, Inc.,
recorded in said Registry with floor plans as Plans #24017.
<PAGE> 1
EXHIBIT 10.61
NON-NEGOTIABLE
SECOND PAYMENT PROMISSORY NOTE
U.S. $________________ March 13, 1998
FOR VALUE RECEIVED, each of the undersigned, jointly and severally,
(each individually called a "Maker" and collectively called the "Makers") hereby
unconditionally promises to pay to the order of ________________, (hereinafter
referred to as "Seller"), or permitted assigns ("Holder") at 3 Sundial Avenue,
Manchester, New Hampshire 03103, or at such other place or to such other party
as Holder may from time to time designate in writing, the principal sum of
_______________and 00/100 Dollars (U.S. $_______________) in lawful currency of
the United States along with interest computed at the rate of 2% per annum based
on the actual number of days and amount of principal outstanding..
This Note evidences obligations of the Makers to the Holder provided
for in the Stock Purchase Agreement among Educational Medical, Inc., New
Hampshire Acquisition Corp., Hesser, Inc., and Seller dated March 13, 1998, and
providing for the purchase by New Hampshire Acquisition Corp. of all of the
outstanding and issued Capital Stock of Hesser, Inc. and the Property (the
"Agreement"). The terms of the Agreement are incorporated into this Note, and
this Note is the Second Payment Promissory Note referred to in the Agreement
representing a portion of the Purchase Price for the Stock and the Property as
defined in the Agreement. Unless otherwise defined herein, all capitalized terms
used in this Note shall have the same meaning as set forth in the Agreement.
In the event that the Makers assert a claim for monetary damages or
indemnification against the Seller pursuant to the provisions of the Agreement
(a "Claim"), the Makers shall have the right to offset (an "Offset") the amount
of the Claim against the Second Payment Promissory Note. In connection with any
Offset, the Makers must deliver to the Seller written notice at or prior to the
time the related payment would otherwise be due describing the basis for such
Offset with reasonable detail and such payment shall be timely made into either
(1) the escrow account of William H. Kelley, or (2) a New Hampshire Court of Law
of appropriate jurisdiction, in either case at the discretion of the Maker. The
Seller may contest the right to such Offset as provided in the Agreement.
This Note and all interest due thereon shall be paid in full on (1) the
last business day within the first thirty (30) calendar days following the date
on which the Prerequisite Student Aid Approvals are obtained by the Makers; or
(2) within 15 days following notice to the Maker from the Holder that a payment
has not been made in accordance with the terms of this Note, which notice
specifically declares the entire amount owed to Holder and provided for in this
Note immediately due and payable, (the earlier of the dates referred to in the
preceding two clauses is called the "Maturity Date"). All
1
<PAGE> 2
amounts owing pursuant to this Note and not paid upon the Maturity Date shall
bear interest at the highest rate of interest permitted by law until paid.
Maker for itself, its heirs, legal representatives, successors and
assigns, waives presentment for payment, demand, notice of dishonor or
non-payment, notice of default, notice of protest, and protest of this Note, and
waives any right to be released by reason of any extension of time or change in
terms of payment or any change, alteration or release of any security given for
the payment hereof. Maker hereby consents to any number of extensions of time,
and any and all renewals, waivers, and modifications of this Note or any
combination of the foregoing that may be made or granted by Holder.
Maker agrees to pay immediately upon demand all reasonable costs and
expenses of Holder, including attorneys' fees, (i) if after default this Note be
placed in the hands of an attorney or attorneys for collection, or (ii) if
Holder finds it necessary or desirable upon default to secure the services or
advice of one or more attorneys with regard to collection of this Note against
Maker, or for the protection of its rights under this Note, or any instrument
relating to property securing the Note. The term "attorneys' fees" shall include
attorneys' fees incurred by Holder whether or not suit is brought and if suit is
brought, the term shall include attorneys' fees at trial and on appeal, and
shall include attorneys' fees incurred in connection with consultations,
arbitration, bankruptcy, conservatorship, receivership or any other proceeding.
This Note shall be interpreted, construed, governed and enforced in
accordance with the laws of the State of New Hampshire, and any suit, action or
proceeding arising out of or relating to this Note shall be commenced and
maintained in the court of appropriate jurisdiction in Hillsborough County, New
Hampshire or the appropriate United States District Court for the State of New
Hampshire and each party waives objection to such jurisdiction and venue.
EACH OF HOLDER AND MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER IT OR ITS SUCCESSORS, PERSONAL
REPRESENTATIVES OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE
LOAN EVIDENCED BY THIS NOTE AND ANY AGREEMENTS CONTEMPLATED THEREBY TO BE
EXECUTED IN CONJUNCTION THEREWITH, OR IN CONJUNCTION WITH ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE
PARTIES.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note in Manchester, New Hampshire, the date first above written.
EDUCATIONAL MEDICAL, INC.
a Delaware corporation
By:
-----------------------------
Authorized Signatory
NEW HAMPSHIRE ACQUISITION CORP.
a Delaware corporation
By:
-----------------------------
Authorized Signatory
3
<PAGE> 1
EXHIBIT 10.62
EXHIBIT 3
LIST OF SHAREHOLDERS OF HESSER, INC.
<TABLE>
<S> <C>
Richard D. Galeucia 50 Shares/Common Stock
The Linwood W. Galeucia Revocable
Trust of 1997 50 Shares/Common Stock
</TABLE>
<PAGE> 1
EXHIBIT 10.63
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
EDUCATIONAL MEDICAL, INC.
AND
THE LINWOOD W. GALEUCIA REVOCABLE TRUST OF 1997
AND
RICHARD D. GALEUCIA
DATED AS OF MARCH 13, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Certain Definitions............................................................................................1
a. "Commission".............................................................................................1
b. "Exchange Act"...........................................................................................1
c. "Holders" or.............................................................................................1
d. "Holders' Shares"........................................................................................1
e. "Person".................................................................................................1
f. "Registrable Securities".................................................................................1
g. "Securities Act".........................................................................................2
2. Registration Rights............................................................................................2
3. Registration Procedures........................................................................................3
4. Registration Expenses..........................................................................................6
5. No Required Sale...............................................................................................7
6. Indemnification................................................................................................7
7. General.......................................................................................................10
8. Miscellaneous.................................................................................................12
9. No Inconsistent Agreements....................................................................................13
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March __, 1998 (the
"Agreement"), by and between Educational Medical, Inc., a Delaware corporation
(the "Company"), and The Linwood W. Galeucia, a revocable trust organized under
the laws of the State of New Hampshire, and Richard D. Galeucia, an individual
residing within the State of New Hampshire, (collectively, the "Holders").
The Company, New Hampshire Acquisition Corp., a Delaware corporation
(the "Buyer") and the Holders, have entered into a Stock Purchase Agreement
dated March 13, 1998 (the "Stock Purchase Agreement") pursuant to which the
Buyer shall purchase all of the issued and outstanding shares of Common Stock of
Hesser, Inc., and certain Real Estate owned by Hardwood Properties Limited
Partnership, in consideration for the Purchase Price as more particularly set
forth in the Agreement, including, without limitation, a certain number of
shares of the Company's Common Stock (the "Holders' Shares").
The parties hereto desire to provide certain registration rights with
respect to the Holders' Shares.
Accordingly, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the meanings ascribed to them below:
a. "Commission": the Securities and Exchange Commission.
b. "Exchange Act": the Securities Exchange Act of 1934, as
amended.
c. "Holders": As defined in the recitals above.
d. "Holders' Shares": As defined in the recitals above.
e. "Person": any natural person, corporation, partnership,
firm, association, trust, government, governmental agency or other entity,
whether acting in an individual, fiduciary or other capacity.
f. "Registrable Securities": the Holders' Shares (and any
shares issued upon any subdivision, combination or reclassification of such
shares or any stock dividend in respect of any of the foregoing shares). As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have been declared effective under the Securities
Act and such securities shall have been disposed of in accordance with such
registration statement, or (ii) such securities shall have been sold or become
salable (other than in a privately negotiated sale) pursuant
<PAGE> 4
to Rule 144 (or any successor provision) under the Securities Act and in
compliance with the requirements of paragraphs (c), (e), (f) and (g) of Rule 144
(notwithstanding the provisions of paragraph (k) of such Rule).
g. "Securities Act": the Securities Act of 1933, as
amended.
2. Registration Rights.
a. Within sixty (60) days following the consummation of the
transaction contemplated by the Stock Purchase Agreement, the Company shall file
a registration statement under the Securities Act covering all of the
Registrable Securities and use its best efforts to (x) effect such registration
under the Securities Act (including, without limitation, by means of a shelf
registration pursuant to Rule 415 under the Securities Act if the Company is
then eligible to use such a registration) of the Registrable Securities, and (y)
if requested by the Holders, obtain acceleration of the effective date of the
registration statement relating to such registration.
b. If (i) the Board of Directors of the Company, in its good
faith judgment, determines that any registration of Registrable Securities
should not be made or continued because it would materially interfere with any
material financing, acquisition, corporate reorganization or merger or other
transaction involving the Company or any of its subsidiaries (a "Valid Business
Reason"), and (ii) the Valid Business Reason has not resulted from actions taken
by the Company, the Company may cause such registration statement to be
withdrawn and its effectiveness terminated or may postpone amending or
supplementing such registration statement; and the Company shall give written
notice of its determination to postpone or withdraw a registration statement and
of the fact that the Valid Business Reason for such postponement or withdrawal
no longer exists, in each case, promptly after the occurrence thereof.
If the Company shall give any notice of postponement or withdrawal of
any registration statement, the Company shall not, during the period of
postponement or withdrawal, register any Common Stock, other than pursuant to a
registration statement on Form S-4 or S-8 (or an equivalent registration form
then in effect). Each Holders of Registrable Securities agrees that, upon
receipt of any notice from the Company that the Company has determined to
withdraw any registration statement pursuant to clause 2b. above, such Holders
will discontinue its disposition of Registrable Securities pursuant to such
registration statement and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holders' possession of the prospectus covering such Registrable
Securities that was in effect at the time of receipt of such notice. If the
Company shall have withdrawn or prematurely terminated a registration statement
filed under Section 2.a, (whether pursuant to clause 2b. above or as a result of
any stop order, injunction or other order or requirement of the Commission or
any other governmental agency or court), the Company shall not be considered to
have effected an effective registration for the purposes of this Agreement until
the Company shall have filed a new registration
2
<PAGE> 5
statement covering the Registrable Securities covered by the withdrawn
registration statement and such registration statement shall have been declared
effective and shall not have been withdrawn. If the Company shall give any
notice of withdrawal or postponement of a registration statement, the Company
shall, at such time as the Valid Business Reason that caused such withdrawal or
postponement no longer exists (but in no event later than two months alter the
date of the postponement), use its best efforts to effect the registration under
the Securities Act of the Registrable Securities covered by the withdrawn or
postponed registration statement in accordance with this Section (unless the
Holders shall have consented otherwise).
c. The Company, may elect to include in any registration statement
and offering made pursuant to Section 1(a), authorized but unissued shares of
Common Stock or shares of Common Stock held by the Company as treasury shares or
any other shares of Common Stock as to which it has granted registration rights.
3. Registration Procedures. With respect to the Company's obligation
provided for in Section of this Agreement, the Company shall, as expeditiously
as possible but no later than sixty (60) days from the date first above written:
a. prepare and file with the Commission a registration statement
on an appropriate registration form of the Commission for the disposition of
such Registrable Securities in accordance with the intended method of
disposition thereof, and such registration statement shall comply as to form in
all material respects with the requirements of the applicable form and include
all financial statements required by the Commission to be filed therewith, and
the Company shall use its best efforts to cause such registration statement to
become and remain effective.
b. prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period as any seller of Registrable Securities pursuant to such
registration statement shall request and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all Registrable
Securities covered by such registration statement;
c. furnish, without charge, to each seller of such Registrable
Securities and each underwriter, if any, of the securities covered by such
registration statement such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits), and
the prospectus included in such registration statement (including each
preliminary prospectus) in conformity with the requirements of the Securities
Act, and other documents, as such seller and underwriter may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Securities owned by such seller (the Company hereby consenting to the use in
accordance with all applicable law of each such registration statement (or
amendment or post-effective amendment thereto) and each such prospectus (or
preliminary prospectus or supplement thereto) by each such seller of
3
<PAGE> 6
Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by such registration
statement or prospectus);
d. use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or "blue sky" laws of such jurisdictions as any sellers of
Registrable Securities shall reasonably request, and do any and all other acts
and things which may be reasonably necessary or advisable to enable such sellers
or underwriter, if any, to consummate the disposition of the Registrable
Securities in such jurisdictions, except that in no event shall the Company be
required to qualify to do business as a foreign corporation in any jurisdiction
where it would not, but for the requirements of this clause d, be required to be
so qualified, to subject itself to taxation in any such jurisdiction or to
consent to general service of process in any such jurisdiction;
e. promptly notify each Holders selling Registrable
Securities covered by such registration statement: (i) when the registration
statement, any pre-effective amendment, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the registration
statement has been filed and, with respect to the registration statement or any
post effective amendment, when the same has become effective; (ii) of any
request by the Commission or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any Registrable Securities for sale under the securities or blue sky laws of
any jurisdiction or the initiation of any proceeding for such purpose; (v) of
the existence of any fact of which the Company becomes aware which results in
the registration statement, the prospectus related thereto or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make any statement therein not misleading; and (vi) if at any time
the representations and warranties contemplated below cease to be true and
correct in all material respects; and, if the notification relates to an event
described in clause (v), the Company shall promptly prepare and furnish to each
such seller and each underwriter, if any, a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein in the light of
the circumstances under which they were made not misleading;
f. comply with all applicable rules and regulations of the
Commission
g. cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities
4
<PAGE> 7
issued by the Company are then listed (if any) and, without limiting the
generality of the foregoing, take all actions that may be required by the
Company as the issuer of such Registrable Securities in order to facilitate the
registration of at least two market makers as such with respect to such shares
with the National Association of Securities Dealers, Inc. (the "NASD");
h. provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
i. deliver promptly to each Holders copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement, other than those portions of any such
correspondence and memoranda which contain information subject to
attorney-client privilege with respect to the Company, and, upon receipt of such
confidentiality agreements as the Company may reasonably request, make
reasonably available for inspection by any seller of such Registrable Securities
covered by such registration statement, and by any attorney, accountant or other
agent retained by any such Holders all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause all of
the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, attorney, accountant or agent in
connection with such registration statement;
j. use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement;
k. provide a CUSIP number for all Registrable Securities,
not later than the effective date of the registration statement; and
l. take all such other commercially reasonable actions as
are necessary or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.
The Company may require as a condition precedent to the Company's
obligations under this Agreement that each seller of Registrable Securities as
to which any registration is being effected furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request provided that such information shall be
used only in connection with such registration.
The Holders agrees that upon receipt of any notice from the Company of
the happening of any event of the kind described in clause (v) of paragraph (e)
of this Section 3 the Holders will discontinue his disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until Holders' receipt of the copies of the supplemented or amended
prospectus contemplated by paragraph
5
<PAGE> 8
(e) of this Section 3 and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in Holders' possession of the prospectus covering such Registrable
Securities that was in effect at the time of receipt of such notice. In the
event the Company shall give any such notice, the applicable period mentioned in
paragraph (b) of this Section 3 shall be extended by the number of days during
such period from and including the date of the giving of such notice to and
including the date when each seller of any Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (e) of this Section 3
If any such registration statement or comparable statement under "blue
sky" laws refers to Holders by name or otherwise as the Holders of any
securities of the Company, then Holders shall have the right to require (i) the
insertion therein of language, in form and substance satisfactory to Holders and
the Company, to the effect that the holding by Holders of such securities is not
to be construed as a recommendation by Holders of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
Holders will assist in meeting any future financial requirements of the Company,
or (ii) in the event that such reference to Holders by name or otherwise is not
in the judgment of the Company, as advised by counsel, required by the
Securities Act or any similar federal statute or any state "blue sky" or
securities law then in force, the deletion of the reference to Holders.
4. Registration Expenses.
a. "Expenses" shall mean any and all fees and expenses incident
to the Company's performance of or compliance with Section 3, including, without
limitation: (i) Commission, stock exchange or NASD registration and filing fees
and all listing fees and fees with respect to the inclusion of securities in
NASDAQ, (ii) fees and expenses of compliance with state securities or "blue sky"
laws and in connection with the preparation of a "blue sky" survey, including,
without limitation, reasonable fees and expenses of blue sky counsel, (iii)
printing expenses, (iv) messenger and delivery expenses, and (v) fees and
disbursements of counsel for the Company. All such Expenses shall be borne by
the Company.
b. Notwithstanding the foregoing, (x) the provisions of this
Section 4 shall be deemed amended to the extent necessary to cause these expense
provisions to comply with "blue sky" laws of each state in which the offering is
made and (y) the Company shall be responsible for all its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties).
5. No Required Sale. Nothing in this Agreement shall be deemed to
create an independent obligation on the part of the Holders to sell any
Registrable Securities pursuant to any effective registration statement.
6. Indemnification.
6
<PAGE> 9
a. In the event of any registration of the Registrable Securities
of the Company under the Securities Act pursuant to this Agreement, the Company
will, and hereby does, indemnify and hold harmless, to the fullest extent
permitted by law, the seller of any Registrable Securities covered by such
registration statement, its directors, officers, fiduciaries, employees and
stockholders or general and limited partners (and the directors, officers,
employees and stockholders thereof, each other individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or any
department or agency thereof (each, a "Person") who participates as an
underwriter, if any, in the offering or sale of such securities, each officer,
director, employee, stockholders or partner of such underwriter, and each other
Person, if any, who controls such seller or any such underwriter within the
meaning of the Securities Act, against any and all losses, claims, damages or
liabilities, joint or several, actions or proceedings (whether commenced or
threatened) in respect thereof ("Claims") and expenses (including reasonable
fees of counsel and any amounts paid in any settlement effected with the
Company's consent, which consent shall not be unreasonably withheld or delayed)
to which each such indemnified party may become subject under the Securities Act
or otherwise, insofar as such Claims or expenses arise out of or are based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such securities were
registered under the Securities Act or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary, final or summary
prospectus or any amendment or supplement thereto, together with the documents
incorporated by reference therein, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating to
action required of or inaction by the Company in connection with any such
registration, and the Company will reimburse any such indemnified party for any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such Claim as such expenses are
incurred; provided, that the Company shall not be liable to any such indemnified
party in any such case to the extent such Claim or expense arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission of a material fact made in such registration
statement or amendment thereof or supplement thereto or in any such prospectus
or any preliminary, final or summary prospectus in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such indemnified party specifically for use therein. Such indemnity and
reimbursement of expenses shall remain in full force and effect regardless of
any investigation made by or on behalf of such indemnified party and shall
survive the transfer of such securities by such seller.
b. Each Holders of Registrable Securities that are included in the
securities as to which any registration is being effected shall, severally and
not jointly, indemnify
7
<PAGE> 10
and hold harmless (in the same manner and to the same extent as set forth in
paragraph (a) of this Section to the extent permitted by law the Company, its
officers and directors, each Person controlling the Company within the meaning
of the Securities Act. and all other prospective sellers and their directors,
officers, general and limited partners and respective controlling Persons with
respect to any untrue statement or alleged untrue statement of any material fact
in, or omission or alleged omission of any material fact from, such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company or its representatives by or on
behalf of such Holders or underwriter, if any, specifically for use therein and
reimburse such indemnified party for any legal or other expenses reasonably
incurred in connection with investigating or defending any such Claim as such
expenses are incurred, provided, however, that the aggregate amount which any
such Holders shall be required to pay pursuant to this Agreement shall in no
case be greater than the amount of the net proceeds received by such person upon
the sale of the Registrable Securities pursuant to the registration statement
giving rise to such claim. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such indemnified party
and shall survive the transfer of such securities by such Holders.
c. Indemnification similar to that specified in the preceding
paragraphs (a) and (b) (with appropriate modifications) shall be given by the
Company and each seller of Registrable Securities with respect to any required
registration or other qualification of securities under any state securities and
"blue sky" laws.
d. Any person entitled to indemnification under this Agreement shall
notify promptly the indemnifying party in writing of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Section but the failure of any indemnified party to
provide such notice shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section except to the extent the
indemnifying party is materially prejudiced thereby and shall not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than under this Section. In case any action or proceeding is brought
against an indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, unless in the reasonable opinion of outside counsel to the
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
there of jointly with any other indemnifying party similarly notified, to the
extent that it chooses, with counsel reasonably satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the indemnifying party
to such indemnified party that it so chooses, the indemnifying party shall not
be liable to such indemnified party for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, that (i)
8
<PAGE> 11
if the indemnifying party fails to take reasonable steps necessary to defend
diligently the action or proceeding within 20 days after receiving notice from
such indemnified party that the indemnified party believes it has failed to do
so; or (ii) if such indemnified party who is a defendant in any action or
proceeding which is also brought against the indemnifying party reasonably shall
have concluded that there may be one or more legal defenses available to such
indemnified party which are not available to the indemnifying party; or (iii) if
representation of both parties by the same counsel is otherwise inappropriate
under applicable standards of professional conduct, then, in any such case, the
indemnified party shall have the right to assume or continue its own defense as
set forth above (but with no more than one firm of counsel for all indemnified
parties in each jurisdiction, except to the extent any indemnified party or
parties reasonably shall have concluded that there may be legal defenses
available to such party or parties which are not available to the other
indemnified parties or to the extent representation of all indemnified parties
by the same counsel is otherwise inappropriate under applicable standards of
professional conduct) and the indemnifying party shall be liable for any
expenses therefor. No indemnifying party shall, without the written consent of
the indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (A) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (B) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
e. If for any reason the previous sections is unavailable or is
insufficient to hold harmless an indemnified party under the previous Sections
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any Claim in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and the indemnified party, on the other hand, with respect to such
offering of securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. If, however, the
allocation provided in the second preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The parties hereto agree that it would not be just and
equitable if contributions pursuant to this Section were to be determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the preceding sentences of this
Section. The amount paid or payable in respect of any Claim shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with
9
<PAGE> 12
investigating or defending any such Claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding anything in this Section to the
contrary, no indemnifying party (other than the Company) shall be required
pursuant to this Section to contribute any amount in excess of the net proceeds
received by such indemnifying party from the sale of Registrable Securities in
the offering to which the losses, claims, damages or liabilities of the
indemnified parties relate, less the amount of any indemnification payment made
pursuant to this Sections.
f. The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.
g. The indemnification and contribution required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
7. General.
a. Adjustments Affecting Registrable Securities. The Company
agrees that it shall not effect or permit to occur any combination or
subdivision of shares which would adversely affect the ability of the Holders of
any Registrable Securities to include such Registrable Securities in any
registration contemplated by this Agreement or the marketability of such
Registrable Securities in any such registration.
b. Rule 144. The Company represents that the Holders will be
able to sell the Registrable Securities under the applicable provisions of Rule
144 of the Securities Act, as currently in effect, subsequent to April 15, 1999,
subject to applicable volume limitations. The Company covenants that it will
timely file the reports required to be filed by it under the Securities Act or
the Exchange Act (including, but not limited to, the reports under Sections 13
and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144
under the Securities Act), and will take such further action as any Holders of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holders of Registrable Securities, the
Company will deliver to such Holders a written statement as to whether it has
complied with such requirements.
10
<PAGE> 13
c. Nominees for Beneficial Owners. If Registrable Securities
are held by a nominee for the beneficial owner thereof, the beneficial owner
thereof may, at its option, be treated as the Holders of such Registrable
Securities for purposes of any request or other action by the Holders of
Registrable Securities pursuant to this Agreement (or any determination of any
number or percentage of shares constituting Registrable Securities held by the
Holders of Registrable Securities contemplated by this Agreement); provided that
the Company shall have received assurances reasonably satisfactory to it of such
beneficial ownership.
d. Amendments and Waivers. This Agreement may be amended,
modified, supplemented or waived only upon the written agreement of the party
against whom enforcement of such amendment, modification, supplement or waiver
is sought.
e. Notices. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
delivered personally, by telecopy (with confirmation sent within three business
days by overnight courier) or by overnight courier, addressed to such party at
the address set forth below:
<TABLE>
<S> <C>
If to EMI: Educational Medical, Inc.
1327 Northmeadow Parkway
Suite 132
Roswell, GA, 30076
Attn: President
With a copy to: Greenberg Traurig
777 South Flagler Drive
Suite 300 - East
West Palm Beach, FL 33401
Attn: Morris C. Brown, Esq.
If to Holders: The Linwood W. Galeucia Revocable
Trust of 1997
Attention: Linwood W. Galeucia
c/o Hesser College
3 Sundial Avenue
Manchester, NH 03103
With a copy to: William H. Kelley, Esq.
282 River Road
P.O. Box 3280
Manchester, NH 03105-3280
Richard D. Galeucia
c/o Hesser College
3 Sundial Avenue
Manchester, NH 03103
</TABLE>
11
<PAGE> 14
<TABLE>
<S> <C>
With a copy to: William H. Kelley, Esq. Lawfirm
282 River Road
P.O. Box 3280
Manchester, NH 03105-3280
</TABLE>
The Holders, by written notice given to the Company in
accordance with this Section 4.5 may change the address to which such notice or
other communications is to be sent to Holders. All such notices and
communications shall be deemed to have been received on the date of delivery
thereof if delivered by hand, on the fifth day after the mailing thereof, if
mailed, on the next day after the sending thereof if by overnight courier, when
answered back if telexed and when receipt is acknowledged, if telecopied.
8. Miscellaneous.
a. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and the respective
successors and assigns of the parties hereto, whether so expressed or not. No
Person other than the Holders shall be entitled to any benefits under this
Agreement, except as otherwise expressly provided herein. This Agreement and the
rights of the parties hereunder may be assigned by any of the parties hereto to
any transferee of Registrable Securities.
b. This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
c. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware without giving
effect to the conflicts of law principles thereof.
d. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
section references are to this Agreement unless otherwise expressly provided.
e. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
f. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
12
<PAGE> 15
g. It is hereby agreed and acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved person will be irreparably damaged
and will not have an adequate remedy at law. Any such person shall, therefore,
be entitled to injunctive relief including specific performance, to enforce such
obligations, without the posting of any bond and if any action should be brought
in equity to enforce any of the provisions of this Agreement, none of the
parties hereto shall raise the defense that there is an adequate remedy at law.
h. Each party hereto shall do and perform or cause to be
done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments, and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
9. No Inconsistent Agreements. Without the prior written consent
of each of the parties to this Agreement, neither the Company nor the Holders
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities which is inconsistent with the rights granted in this
Agreement or otherwise conflicts with the provisions hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
EDUCATIONAL MEDICAL, INC.
By:
------------------------------
Authorized Signatory
THE LINWOOD W. GALEUCIA REVOCABLE
TRUST OF 1997
----------------------------------
By: Linwood W. Galeucia, Trustee
----------------------------------
RICHARD D. GALEUCIA
13
<PAGE> 1
EXHIBIT 10.64
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") made to be effective as of
the 13th day of March, 1998, by and between Hesser, Inc., a New Hampshire
corporation (the "Employer"), and _____________________ (the "Employee").
BACKGROUND
A. The Employer is engaged in the business of operating post secondary
schools under the trade name "Hesser College;" and
B. The Employer desires to employ the Employee and the Employee is
willing to be employed by the Employer, pursuant to the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. TERM; DUTIES. Employer hereby hires and employs Employee as its
_______________________ and Employee hereby accepts and agrees to such
employment for an initial term of one (1) year from the date first above written
(such initial term as it may be extended from time to time in writing shall
hereinafter be referred to as the "Employment Term"). Employee shall perform
those duties as may be required by the Employer's Board of Directors and shall
at all times during the term of this Agreement be subject to the general
supervision, advise, and direction of Employer and the Employer's supervisory
personnel. Employee shall also perform such other additional or substituted
related or unrelated services and duties as may be assigned to Employee from
time to time by Employer. Employee understands that Employee is serving in this
position at the pleasure of the Board of Directors of Employer and can be
reassigned to another position with Employer at any time by the Board of
Directors. Subsequent to the Employment Term, in consideration for the
continuation of Employee's Benefits as set forth in Section 7 hereof, Employee
agrees to act as a consultant to the Employer and perform such incidental
consulting services as may from time to time reasonably be requested by the
Employer, provided that if Employee is requested to render consulting services
in excess of such incidental services he shall be compensated for such services
at a mutually agreed upon rate.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform faithfully,
industriously, and to the best of Employee's ability, experience and talents,
all of the duties that may be required by this Agreement. Such duties shall be
performed at the Employer's place of business located in Hillsborough County,
New Hampshire, and at such other places as the needs, business, or opportunities
of the Employer may require from time to time...
3. SALARY. As compensation for the services provided by Employee
under this Agreement, Employer will pay Employee an annual salary equal to
$_______ payable in accordance with Employer's payroll policies. Upon
termination of this Agreement, payments under this paragraph shall cease;
provided, however, that the Employee shall be entitled to payments for periods
or partial period that occurred prior to the date of termination and for which
the Employee has not yet been paid. This annual salary shall be reviewed on an
annual
<PAGE> 2
basis, and, if appropriate, increased by the Board of Directors at its
sole and absolute discretion.
4. DEATH OR DISABILITY OF EMPLOYEE. If Employee dies during the term
of this Agreement, Employee's estate shall be entitled to such payment of salary
as may be due and owing Employee as of the date of Employee's death, but due no
other compensation of any kind including, without limitation, payments in
connection with the remainder of the term of this Agreement from the date of
Employee's death. In the event Employee become disabled during the term of this
Agreement, subject to governmental statutes and regulations, the Employer may
terminate this Agreement at any time on ninety (90) days' notice to Employee.
For the purposes of this Agreement, the term "disability" shall mean a mental or
physical illness or condition that renders Employee incapable of performing all
of the essential functions of the services required of Employee under this
Agreement.
5. EXPENSES. The Employer will reimburse Employee for actual
"out-of-pocket" expenses in accordance with Employer's policies in effect from
time to time. Such expenses include, but are not limited to, expenses for
travel, entertainment, and miscellaneous incurred in the conduct of the business
of the Employer. Employee shall keep appropriate records of such expenses and
submit receipts or other evidence relating to them in accordance with the
Employer's policy.
6. VACATION; SICK LEAVE/HOLIDAYS. During the term of this Agreement,
Employee shall be entitled to annual paid vacation as provided within the
Employer's policy in effect from time to time. In addition, Employee shall be
entitled to paid sick time and paid holidays as provided within Employer's
policies in effect from time to time.
7. FRINGE AND MEDICAL BENEFITS. Employee and his immediate family
members shall be eligible to participate in the Employer's medical benefits as
other similarly situated employees of the Employer until such time as Employee
qualifies for the Medicare program; provided, however, that, subsequent to the
Employment Term, Employee shall reimburse employer for the costs associated with
providing such benefits to Employee and his immediate family members. In
addition, the Employer shall provide such fringe benefits to Employee and his
immediate family members, either through direct payments by Employer or by
reimbursement, as the Employer's Board of Directors may determine from time to
time, provided that notwithstanding any of the foregoing, during the Employment
Term the Employee shall be entitled to continue to receive such benefits and
perquisites (other than salary and bonuses) as he regularly received from the
employer during the 12 month period immediately prior to entering into the
Agreement.
8. CONFIDENTIALITY AND NON-DISCLOSURE. Employee acknowledges that
Employee does and shall continue to have access to trade secrets and other
confidential information which is the property of Employer and/or its
affiliates1, including but not limited to information relating to their present
or future operations (all of the foregoing, whether or not it qualifies as a
"trade secret" under applicable law, is collectively called "Confidential
Information"). Employee recognizes that Confidential Information is proprietary
to Employee and its Affiliates and gives each of them significant competitive
advantage. Accordingly, Employee agrees not to use or disclose any of the
Confidential Information during or after the term of this Agreement, except for
- ----------------------------
1 An affiliate is any person or entity controlling, controlled by, or under
common control with, the Employer.
2
<PAGE> 3
the sole and exclusive benefit of the Employee or its Affiliates, or pursuant to
any relevant law or regulation, provided in the latter case Employee shall give
reasonable prior written notice of such disclosure to the Employer and only make
such disclosure upon receipt of an appropriate opinion of counsel confirming the
necessity of such disclosure, which opinion shall also be furnished to the
Employer. Upon any termination of this Agreement, Employee will return to the
Employee all tangible embodiments of any Confidential Information. Employee
agrees that each of the Employer and its Affiliates would be irreparably injured
by any breach of Employee's confidentiality agreement, that such injury would
not be adequately compensable by monetary damages, and that, accordingly, the
Employer and any offended Affiliate may specifically enforce the provisions of
this Paragraph by injunction or similar remedy by any court of competent
jurisdiction, without affecting any claim for damages.
9. NON-COMPETITION. Employee acknowledges that (i) the knowledge
Employee has obtained as a result of Employee's involvement with respect to any
of the business operations of Employer and (ii) the services to be rendered by
Employee pursuant to this Agreement are of a special and unusual character and
have a unique value to the Employer, the loss of which cannot adequately be
compensated by damages in an action at law. In view of this unique value, and
because of the Confidential Information which Employee shall have and will
obtain, and as a material inducement to the Employer to enter into this
Agreement, Employee agrees that Employee will not, for a period of one (1) year
from the date of the termination of Employee's employment pursuant to this
Agreement, (i) engage in the development or marketing or promotion of any
business which is, becomes, or reasonably may become competitive with any of the
business operations of Employer ("Prohibited Activities"); (ii) become
associated as manager, supervisor, employee, consultant, advisor, or stockholder
owning more than 5% of the outstanding stock of a company or participate in the
management or direction of a company or other entity with any person,
corporation or entity engaging in any Prohibited Activities; (iii) divert or
solicit any customer or prospective customer of the Employer for the benefit of
any other person or entity; or (iv) solicit on behalf of Employee or any other
person or entity the employment of any person employed by the Employer or any
entity controlling, controlled by or under common control with the Employer at
any time during the term of this Agreement.
10. ARBITRATION. Except for the agreements contained in Paragraphs 8
and 9, the exclusive remedy with respect to any dispute arising between Employee
and the Employer regarding the interpretation or enforcement of any portion of
this Agreement shall be determination by arbitration by a sole arbitrator under
the rules of the Commercial Division of the American Arbitration Association.
Arbitration shall take place in the appropriate jurisdiction in New Hampshire,
and any award, which may include attorneys' fees and costs, in the sole
discretion of the arbitrator, may be enforced in any court of competent
jurisdiction. All awards and determinations of the arbitration shall be final.
No written interrogatories or recorded testimony shall be provided to either
party prior to any arbitration proceeding, but in his sole discretion the
arbitrator may compel either party to produce witnesses for interviews and
documents for inspection prior to any hearing. With respect to the agreements
contained in Paragraphs 8 and 9, the Employer and Employee agree that damages,
by themselves, are an inadequate remedy at law, that a material breach of the
provisions of such paragraphs may be specifically enforced by injunction or
similar remedy in any court of competent jurisdiction without affecting any
claim for damages, provided that any such injunction shall either be preliminary
in nature, enjoining such activity pending the outcome of the arbitration as
provided in this section, or be in assistance of the final determination of the
arbitrators as provided for in such section. The Employer and Employee agree
that such injunction may be issued without the necessity of posting a bond.
3
<PAGE> 4
11. REMEDIES AND REASONABILITY.
A. Employee agrees that, if Employee shall violate any of the
covenants or agreements contained in Paragraphs 8 or 9 of this Agreement, the
Employer shall be entitled to an accounting and repayment of all profits,
compensation, commissions, remuneration, or benefits which Employee directly or
indirectly has realized and/or may realize as a result of, growing out of, or in
connection with any such violation; such remedy shall be in addition to and not
in limitation of any injunctive relief or other rights or remedies to which the
Employer may be entitled at law or in equity or under this Agreement.
B. With respect to the provisions of Paragraphs 8 and 9
Employee agrees that damages, by themselves, are an inadequate remedy at law,
that a material breach of the provisions of either of those Paragraphs would
cause irreparable injury to the aggrieved party, and that the provisions of
those Paragraphs may be specifically enforced by injunction or similar remedy in
any court of competent jurisdiction without affecting any claim for damages.
C. In the event that, notwithstanding the foregoing, any of
the provisions of Paragraphs 8 or 9 shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue to
be valid and enforceable as though invalid or unenforceable parts had not been
included therein. In the event that any provision of this Paragraph relating to
time period and/or areas of restriction shall be declared by a court of
competent jurisdiction to exceed the maximum time period or areas such panel or
court deems reasonable and enforceable, said time period and/or areas of
restriction shall be deemed to become, and thereafter be, the maximum time
period and/or area which such panel or court deems reasonable and enforceable.
D. Employee has carefully read and considered the provisions
of Paragraphs 8 and 9, and having done so, agree that the restrictions set forth
(including but not limited to the time period of restriction and the areas of
restriction) are fair and reasonable and are reasonably required for the
protection of the interests of the Employer, its officers, directors, and other
employees.
12. TERMINATION. The Employee shall have the right to terminate
the Employment Term at any time upon 30 days written notice to the Employer, and
all payments of compensation hereunder shall cease as of the date of such
termination. The Employer shall have the right to terminate the Employee's
employment for cause at any time. In the event the Employer elects to terminate
the Employee's employment for cause, or otherwise prior to the first anniversary
of this agreement, then the Employer shall continue Employee's current annual
salary through such anniversary date. No termination of employment pursuant to
this Section 12 shall effect the payments provided for pursuant to Section 7 of
this Agreement. For the purpose of this Section 12, the term "cause" shall mean
a substantial failure or refusal on the part of the Employee to perform
substantially such person's duties hereunder as determined by unanimous written
finding of the Board of Directors, the conviction of the Employee of a felony,
willful misconduct of the Employee contrary to the interest of the Employer, or
a material breach of the Employee's fiduciary duties to the Employer.
13. NOTICES. All notices required or permitted under this
Agreement shall be in writing and shall be deemed delivered when delivered in
person or deposited in the United States mail, postage paid, addressed as
follows:
4
<PAGE> 5
To Employer: Hesser, Inc.
c/o Educational Medical, Inc.
1327 Northmeadow Parkway, Suite 132
Roswell, GA 30076
Attention: President
To Employee: ----------------------------------
c/o Hesser College
3 Sundial Avenue
Manchester, NH 03103
Such addresses may be changed from time to time by either party by
providing written notice in the manner set forth above.
14. APPLICABLE LAW; VENUE. This Agreement shall be governed by the
State of New Hampshire. Venue for any action for either party in this Agreement
shall be the lowest state court of competent jurisdiction in Hillsborough
County, New Hampshire.
15. ATTORNEYS' FEES. In the event that any action is filed in relation
to this Agreement, the unsuccessful party in such action shall pay to the
successful party in addition to all the sums that either party may be called on
to pay, a reasonable sum for attorneys fees, including fees incurred for any and
all appeals.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
17. AMENDMENTS. This Agreement, or any provisions hereof, may not be
amended, changed or modified without the prior written consent of each of the
parties hereto.
18. ENTIRE AGREEMENT. This Agreement and the agreements referred to
in it contain the entire agreement between the parties with respect to the
transactions provided for in them and supersede all previously written or oral
negotiations, commitments, representations and/or agreements.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
EMPLOYER:
HESSER, INC., a New Hampshire
corporation
By:
----------------------------
EMPLOYEE:
-------------------------------
5
<PAGE> 6
EDUCATIONAL MEDICAL, INC. has joined in this Agreement for the
purposes of guaranteeing all of the obligations of the employer to the employee
hereunder.
EDUCATIONAL MEDICAL, INC., a
Delaware corporation
By:
-------------------------------
6
<PAGE> 1
EXHIBIT 10.65
NON COMPETITION AND CONFIDENTIALITY AGREEMENT
NON-COMPETITION AND CONFIDENTIALITY AGREEMENT, dated as of March , 1998,
--
among ("Employee"), EDUCATIONAL MEDICAL, INC. , a
-----------------------
Delaware corporation ("EMI") and NEW HAMPSHIRE ACQUISITION CORP., a Delaware
corporation ("Acquisition").
PRELIMINARY STATEMENTS
Employee is an employee of Hesser, Inc. (the "Corporation"). The Corporation
is the owner of a postsecondary educational institution located in New
Hampshire which operates four postsecondary schools (the "Schools"). EMI is a
publicly traded corporation engaged in the operation of postsecondary
educational institutions. Acquisition is a wholly owned subsidiary of EMI.
Pursuant to the provisions of that certain Stock Purchase Agreement of even
date herewith, Acquisition will purchase the stock of the Corporation (the
"Purchase").
CONFIDENTIALITY
1. Confidentiality. Employee acknowledges that, as a result of her employment
by the Corporation, she has had access to and knowledge of confidential or
proprietary information developed by the Corporation with respect to the
Schools and their operation, which knowledge is of a special and unique nature
and value to EMI and Acquisition including, but not limited to, the methods and
systems used in connection with the Schools' operations, the names and
addresses of its students and sources of referral, tuition charged and paid by
with respect to the Schools or their customers, curricula, related memoranda,
research reports, designs, records, student files, services, and operating
procedures, and other information, data, and documents now existing or later
acquired by the Corporation in connection with the Schools' operations,
regardless of whether any such information, data, or documents, qualify as a
"trade secret" under applicable Federal or state law (collectively
"Confidential Information"). Confidential Information does not include
information that (i) becomes generally available to the public other than as a
result of disclosures by Employee in violation of the terms of this Agreement,
or (ii) becomes available to Employee on a non-confidential basis from a source
that is not bound by a confidentiality agreement with EMI or Acquisition or
each of their respective directors, officers, employees, agents or
representatives. As a material inducement to EMI and Acquisition to enter into
the Stock Purchase Agreement, Employee covenants and agrees not at any time
following the Purchase directly or indirectly, to divulge or disclose for any
purpose whatsoever, any Confidential Information which is in the possession of
Employee as a result of her employment by the Schools, or otherwise as a result
of the relationship between Employee and the Schools' operations. In accordance
with the foregoing, Employee agrees at no time to remove from the School
Facilities (as defined in the Stock Purchase) records of any kind or
description whatsoever for any purpose whatsoever unless authorized in writing
by EMI and Acquisition. Notwithstanding the foregoing
<PAGE> 2
provisions of this Section, Employee may disclose Confidential Information (i)
to any of the Schools' employees, counsel, accountants and agents on a
need-to-know basis (provided that any such person shall be informed of the
confidential nature of such information and directed not to disclose or make
public such Confidential Information), (ii) to the extent required by
applicable law, rules and regulation, and (iii) in any action, suit or
proceeding between the parties, provided that in connection with disclosures
permitted by clauses (ii) and (iii) above, Employee shall provide EMI and
Acquisition with at least three (3) days written notice of such intent so that
an appropriate protective order may be sought by EMI and Acquisition if
desired.
NON-COMPETITION
2. Non-Competition.
A. Employee acknowledges that the services rendered to the Schools prior to
the purchase and the knowledge obtained as a result of such services and such
employment were of a special and unusual character and have a unique value to
the Schools. In view of the unique value of the services, and as a material
inducement to EMI and Acquisition to enter into this Agreement and to pay to
her the consideration referred to below, Employee covenants and agrees that she
will not, after the effective date of the Purchase (i) directly or indirectly
engage in any business anywhere within 50 miles of the boundaries of the state
of New Hampshire (the "Area") if such business teaches courses similar to those
taught by EMI or Acquisition or any affiliate or subsidiary of EMI
("Affiliate") in the state of New Hampshire ("Prohibited Activities"); (ii)
become associated as manager, supervisor, employee, consultant, advisor, or
stockholder owning more than 5% of the outstanding stock of a company or
participate in the management or direction of a company or otherwise with any
person, corporation or entity engaging in Prohibited Activities anywhere within
the Area; (iii) call upon any of Acquisition's, EMI's or any of EMI's
subsidiary schools' students, teachers or referral sources for the promotion of
any Prohibited Activities for any person, corporation, or other entity within
the Area, or (iv) divert, solicit or take away any student or referral source
of Acquisition's, EMI's or any of EMI's subsidiary schools located in the Area.
B. Employee covenants and agrees that, if she shall violate any of the
covenants or agreements contained in this Section 2, EMI and/or Acquisition
shall be entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration, or benefits which she directly or indirectly has
realized and/or may realize as a result of, growing out of, or in connection
with any such violation; such remedy shall be in addition to and not in
limitation of any injunctive relief or other rights or remedies to which EMI
and/or Acquisition may be entitled at law or in equity or under this Agreement.
C. Employee has carefully read and considered the provisions of this Section
and Section 1, and having done so, agrees that the restrictions set forth
(including but not limited to the time period of restriction and the areas of
restriction) are fair and
2
<PAGE> 3
reasonable and are reasonably required for the protection of the interests
of EMI, Acquisition, its officers, directors, and other employees.
D. In the event that, notwithstanding the foregoing, any of the provisions
of this Section or Section 1 shall be held to be invalid or unenforceable, the
remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though invalid or unenforceable parts had not been included
therein. In the event that any provision of this Section relating to time
period and/or areas of restriction shall be declared by a panel of arbitrators
or a court of competent jurisdiction if such court refuses to refer such matter
to arbitration, to exceed the maximum time period or areas such panel or court
deems reasonable and enforceable, said time period and/or areas of restriction
shall be deemed to become, and thereafter be, the maximum time period and/or
area which such panel or court deems reasonable and enforceable.
E. With respect to the provisions of this Section, Employee agrees that
damages, by themselves, are an inadequate remedy at law, that a material breach
of the provisions of this Section would cause irreparable injury to the
aggrieved party, and that the provisions of this Section 2 may be specifically
enforced by injunction or similar remedy in any court of competent jurisdiction
without affecting any claim for damages, provided that any such injunction
shall either be preliminary in nature, enjoining such activity pending the
outcome of arbitration as provided for in Section 4 of this Agreement, or be in
assistance of the final determination of the arbitrators as provided for in
such Section. Employee agrees that such injunction may be issued without the
necessity of bond.
CONSIDERATION
3. Consideration. Upon the consummation of the Purchase and execution of
this Agreement, EMI and Acquisition will pay to Employee the sum of
-----
Thousand Dollars ($ ) and shall continue to pay to Employee such sum
-----------
on each anniversary of this Agreement for the remainder of Employee's life (the
"Consideration") in consideration for her execution, delivery and performance
of this Agreement. Upon Employee's death, this Agreement shall terminate and
her estate shall not be entitled to any Consideration under this Agreement.
GENERAL PROVISIONS
4. Governing Law; Arbitration. This Agreement shall be governed by, and
construed in accordance with the laws of the State of New Hampshire, without
regard to choice-of-law principles, as if made and to be performed solely in
New Hampshire. Any disputes between any of the parties to it with respect to
the agreements contained in it, or as modified in the future, are to be settled
by binding arbitration conducted pursuant to the commercial arbitration rules
of the American Arbitration Association. In any such arbitration the scope and
timing of any discovery shall be determined by the arbitrators. Such
arbitration is to be the sole remedy for the settlement of such disputes. All
of the parties agree that money damages are inadequate to compensate for a
breach of the
3
<PAGE> 4
confidentiality and non-competition provisions of this Agreement and contained
in this Agreement. Employee agrees that upon application by EMI and/or
Acquisition, any court of competent jurisdiction, upon a showing sufficient to
justify the entry of a temporary injunction, may enjoin any activity allegedly
in breach of such agreement pending the outcome of binding arbitration or enter
a similar order of like force and effect, or may enforce the final
determination of such arbitrators by the issuance of such an injunction or
similar order.
5. Entire Agreement. This Agreement and the agreements referred to in it
contain the entire agreement between the parties hereto with respect to the
transactions contemplated herein and supersedes all previously written or oral
negotiations, commitments, representations, and agreements.
6. Counterparts. This Agreement may be executed in one or more counterparts by
facsimile, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
7. Amendments. This Agreement, or any provisions hereof, may not be amended,
changed or modified without the prior written consent of each of the parties
hereto.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by the individual or officer duly authorized to do so, all as of the
day and year first above written.
EMPLOYEE NEW HAMPSHIRE ACQUISITION CORP.
By:
- ---------------------------------- --------------------------------
Authorized Signatory
EDUCATIONAL MEDICAL, INC.
By:
--------------------------------
Authorized Signatory
4
<PAGE> 1
EXHIBIT 10.66
STOCK POWER
FOR VALUE RECEIVED, The Linwood W. Galeucia Revocable Trust of 1997, a
revocable trust organized under the laws of the State of New Hampshire (the
"Transferor") hereby sells, assigns and transfers unto New Hampshire
Acquisition Corp., a Delaware corporation ("Transferee") Fifty (50) shares (the
"Shares") of the common stock of Hesser, Inc., a New Hampshire corporation (the
"Corporation") represented by Certificate Number 50, attached hereto and made a
part hereof by reference, and does hereby irrevocably constitute and appoint
the Secretary of the Corporation as its attorney in fact, with power of
substitution, to transfer the Shares on the books of the Corporation to the
Transferee consistent herewith.
Transferor hereby warrants that he has the right to sell, assign and transfer
the Shares and any person to whom the Shares may be transferred by Transferee
may rely upon this Stock Power as though it were unconditional and absolute,
without inquiry or investigation of the facts.
Dated this 13th day of March 1998.
Signed In Presence of: THE LINWOOD W. GALEUCIA
REVOCABLE TRUST OF 1997
- ---------------------------------- ----------------------------------
By: Linwood W. Galeucia, Trustee
- ----------------------------------
<PAGE> 1
EXHIBIT 10.67
AMENDED AND RESTATED
BUSINESS LOAN AGREEMENT
BETWEEN
BANK OF AMERICA, FSB (THE "BANK")
AND
EDUCATIONAL MEDICAL, INC. ("EMI")
AND ALL SUBSIDIARIES OF EMI ("BORROWERS")
DATED: MARCH 13,1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
1. DEFINITIONS..................................................................................................7
1.01 Borrowing Base........................................................................................7
--------------
1.02 Acceptable Receivable.................................................................................7
---------------------
1.03 Termination Date......................................................................................9
----------------
2. FACILITY NO. 1: REVOLVING LINE OF CREDIT AMOUNT AND TERMS....................................................9
2.01 Revolving Line of Credit Amount.......................................................................9
-------------------------------
2.02 Availability Period...................................................................................9
-------------------
2.03 Conditions to Each Extension of Credit...............................................................10
--------------------------------------
2.04 Repayment Terms......................................................................................10
---------------
2.05 Letters of Credit....................................................................................11
-----------------
2.06 Swap Contracts.......................................................................................12
--------------
3. FACILITY NO. 2: TERM LOAN FACILITY AMOUNT AND TERMS.........................................................13
3.01 Term Loan Facility...................................................................................13
------------------
3.02 Availability Period..................................................................................14
-------------------
3.03 Conditions to Each Extension of Credit...............................................................14
--------------------------------------
3.04 Repayment Terms......................................................................................14
---------------
3.05 Letters of Credit....................................................................................15
-----------------
4. FACILITY NO. 3: ACQUISITION LINE OF CREDIT AMOUNT AND TERMS.................................................16
4.01 Acquisition Line of Credit Amount....................................................................16
---------------------------------
4.02 Availability Period..................................................................................16
-------------------
4.03 Conditions to Each Extension of Credit...............................................................16
--------------------------------------
4.04 Repayment Terms......................................................................................17
---------------
4.05 Letters of Credit....................................................................................18
-----------------
5. INTEREST....................................................................................................18
5.01 Interest Rate.........................................................................................18
-------------
5.02 Optional Interest Rate................................................................................19
----------------------
6. COLLATERAL..................................................................................................20
6.01 Personal Property....................................................................................21
-----------------
7. DISBURSEMENTS, PAYMENTS AND COSTS...........................................................................21
7.01 Requests for Credit..................................................................................21
-------------------
7.02 Disbursements and Payments...........................................................................21
--------------------------
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
7.03 Direct Debit.........................................................................................21
------------
7.04 Banking Days.........................................................................................22
------------
7.05 Taxes................................................................................................22
-----
7.06 Additional Costs.....................................................................................22
----------------
7.07 Interest Calculation.................................................................................22
--------------------
7.08 Default Rate.........................................................................................22
------------
7.09 Overdrafts...........................................................................................23
----------
7.10 Payments in Kind.....................................................................................23
----------------
8. CONDITIONS..................................................................................................23
8.01 Authorizations.......................................................................................23
--------------
8.02 Governing Documents..................................................................................23
-------------------
8.03 Security Agreements..................................................................................23
-------------------
8.04 Evidence of Priority.................................................................................24
--------------------
8.05 Insurance............................................................................................24
---------
8.06 Legal Opinion........................................................................................24
-------------
8.07 Good Standing........................................................................................24
-------------
8.08 Payment of Closing Fee...............................................................................24
----------------------
8.09 Payment of Expenses and Fees.........................................................................24
----------------------------
8.10 Representations of Corporate Officers................................................................24
-------------------------------------
8.11 Other Items..........................................................................................24
-----------
9. CONDITIONS..................................................................................................24
9.01 Organization of Borrower.............................................................................24
------------------------
9.02 Authorization........................................................................................24
-------------
9.03 Enforceable Agreement................................................................................24
---------------------
9.04 Good Standing........................................................................................25
-------------
9.05 No Conflicts.........................................................................................25
------------
9.06 Financial Information................................................................................25
---------------------
9.07 Lawsuits.............................................................................................25
--------
9.08 Collateral...........................................................................................25
----------
9.09 Permits, Franchises..................................................................................25
-------------------
9.10 Other Obligations....................................................................................25
-----------------
9.11 Income Tax Returns...................................................................................26
------------------
9.12 No Tax Avoidance Plan................................................................................26
---------------------
9.13 No Event of Default..................................................................................26
-------------------
9.14 ERISA Plans..........................................................................................26
-----------
9.15 Locations of Borrowers...............................................................................27
----------------------
9.16 Subsidiaries.........................................................................................27
------------
9.17 Year 2000 Compliance.................................................................................27
--------------------
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
10. COVENANTS..................................................................................................27
10.01 Use of Proceeds.....................................................................................27
---------------
10.02 Financial Information...............................................................................27
---------------------
10.03 Fixed Charge Coverage Ratio.........................................................................29
---------------------------
10.04 Total Funded Debt/Adjusted Cash Flow Ratio..........................................................29
------------------------------------------
10.05 Senior Funded Debt/Adjusted Cash Flow Ratio.........................................................30
-------------------------------------------
10.06 Financial Information...............................................................................30
---------------------
10.07 Other Debts.........................................................................................30
-----------
10.08 Other Liens.........................................................................................31
-----------
10.09 Capital Expenditures................................................................................32
--------------------
10.10 Dividends...........................................................................................32
---------
10.11 Loans and Investments...............................................................................32
---------------------
10.12 Change of Ownership.................................................................................33
-------------------
10.13 Notices to Bank.....................................................................................33
---------------
10.14 Books and Records...................................................................................33
-----------------
10.15 Audits..............................................................................................33
------
10.16 Compliance with Laws................................................................................33
--------------------
10.17 Preservation of Rights..............................................................................34
----------------------
10.18 Maintenance of Properties...........................................................................34
-------------------------
10.19 Perfection of Liens.................................................................................34
-------------------
10.20 Cooperation.........................................................................................34
-----------
10.21 Insurance...........................................................................................34
---------
10.22 Additional Negative Covenants.......................................................................34
-----------------------------
10.23 ERISA Plans.........................................................................................36
-----------
10.24 Title IV Program Requirements.......................................................................36
-----------------------------
10.25 Subsidiaries........................................................................................37
------------
11. HAZARDOUS WASTE INDEMNIFICATION............................................................................37
12. DEFAULT....................................................................................................37
1201 Failure to Pay.......................................................................................38
--------------
12.02 Lien Priority.......................................................................................38
-------------
12.03 False Information...................................................................................38
-----------------
12.04 Bankruptcy..........................................................................................38
----------
12.05 Receivers...........................................................................................38
---------
12.06 Lawsuits............................................................................................38
--------
12.07 Judgments...........................................................................................38
---------
12.08 Government Action...................................................................................38
-----------------
12.09 Material Adverse Change.............................................................................39
-----------------------
12.10 Cross-default.......................................................................................39
-------------
12.11 Default under Related Documents.....................................................................39
-------------------------------
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
12.12 Other Bank Agreements...............................................................................39
---------------------
12.13 ERISA Plans.........................................................................................39
-----------
12.14 Delisting...........................................................................................39
---------
12.15 Other Breach Under Agreement........................................................................39
----------------------------
13. ENFORCING THIS AGREEMENT; MISCELLANEOUS....................................................................40
13.01 GAAP................................................................................................40
----
13.02 Georgia Law.........................................................................................40
-----------
13.03 Successors and Assigns..............................................................................40
----------------------
13.04 Arbitration.........................................................................................40
-----------
13.05 Severability; Waivers...............................................................................41
---------------------
13.06 Reimbursement Costs.................................................................................41
-------------------
13.07 Administration Costs................................................................................41
--------------------
13.08 Attorneys' Fees.....................................................................................42
---------------
13.09 Joint and Several Liability.........................................................................42
---------------------------
13.10 One Agreement.......................................................................................43
-------------
13.11 Disposition of Schedules............................................................................43
------------------------
13.12 Credit Adjustments..................................................................................43
------------------
13.13 Verification of Receivables.........................................................................44
---------------------------
13.14 Indemnification.....................................................................................44
---------------
13.15 Notices.............................................................................................44
-------
13.16 Headings............................................................................................44
--------
13.17 Counterparts........................................................................................44
------------
13.18 Amendment and Restatement...........................................................................44
-------------------------
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
List of Certain Defined Terms
-----------------------------
Defined Term Location in Text
------------ ----------------
<S> <C>
Acceptable Receivable Para. 1.2
BofA Para. 3. l(b)
banking day Para. 7.4
Borrower, Borrowers Page 1, First Paragraph
Borrowing Base Para. 1.1
Closing Date Page 1, First Paragraph
Default Para. 13
EBITDA Para. 10.4
EMI Page 1, First Paragraph
ERISA Para. 9.14(e)
evens of default Para. 13
Facilities or Facility Para. 5.1
Facility No. 1 Para. 2.1
Facility No. 1 Commitment Para. 2.1
Facility No. 2 Para. 3.1
Facility No. 2 Commitment Para. 3.1
Facility No. 3 Para. 4.1
Facility No. 3 Commitment Para. 4.1
</TABLE>
6
<PAGE> 7
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
This Agreement, dated as of March 13, 1998 ("Closing Date"), is made among
BANK OF AMERICA, FSB (the "Bank"), EDUCATIONAL MEDICAL, INC. ("EMI") and all
those subsidiaries of EMI listed on the signature page(s) to this Agreement
(EMI and such subsidiaries hereinafter sometimes collectively called the
"Borrowers" and individually called a "Borrower").
PREAMBLE. EMI and its subsidiaries are engaged In a common business
enterprise and, in connection therewith, have determined it to be in their
mutual economic interests to apply to the Bank on a collective basis for
extensions of credit for working capital and to finance continued expansion,
with EMI acting as agent for all Borrowers in connection with any requests for,
the receipt, disbursement, allocation and administration of, and the repayment
of, the extensions of credit to be made hereunder. Accordingly, the Borrowers
hereby covenant to and agree with the Bank as follows:
1. DEFINITIONS
In addition to the terms which are defined elsewhere in this Agreement, the
following terms have the meanings indicated for the purposes of this Agreement:
1.01 "Borrowing Base means 80% of the balance due on Acceptable
Receivables of the --------------- Borrowers.
1.02 "Acceptable Receivable means an account receivable of a Borrower
which satisfies the following requirements:
(a) The account has resulted from the sale of goods or the
performance of services by the Borrower in the ordinary course of the
Borrower's business.
(b) There are no conditions which must be satisfied before the
Borrower is entitled to receive payment of the account. Accounts arising from
COD sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any defense to payment
of the account.
(d) The account balance does not include the amount of any
counterclaims or offsets which have been or may be asserted against the
Borrower by the account debtor (including offsets for any "contra accounts"
owed by the Borrower to the account debtor for goods purchased by the
7
<PAGE> 8
Borrower or for services performed for the Borrower). To the extent any
counterclaims, offsets, contra accounts, or credit balances exist in favor of
the debtor, such amounts shall be deducted from the account balance.
(e) The account represents a genuine obligation of the debtor for
goods sold and accepted by the debtor, or for services performed for and
accepted by the debtor.
(f) The Borrower has sent an invoice to the debtor in the amount of
the account.
(g) The Borrower is not prohibited by the laws of the state where the
account debtor is located from bringing an action in the courts of that state
to enforce the debtor's obligation to pay the account. The Borrower has taken
all appropriate actions to ensure access to the courts of the state where the
account debtor is located, including, where necessary, the filing of a notice
of business activities report or other similar filing with the applicable state
agency or the qualification by the Borrower as a foreign corporation authorized
to transact business in such state.
(h) The account is owned by the Borrower free of any title defects or
any liens or interests of others except the security interest in favor of the
Bank, and except as permitted under Paragraph 10.8.
(i) The debtor upon the account is not any of the following:
(1) an employee, affiliate, parent or subsidiary of the Borrower, or,
an entity which has common officers or directors with the Borrower;
(2) any state, county, city, town or municipality;
(3) any person or entity located in a foreign country.
(j) The account is not in default. An account will be considered it
default if any of the following occur:
(1) The account is not paid within the 180 day period starting on it.
billing date; or
(2) Any petition is filed by or against the debtor obligated upon the
account under any bankruptcy law or any other law or laws for the relief of
debtors
8
<PAGE> 9
(k) The account is not the obligation of a debtor who is in default
(as defined above) on 50% or more of the accounts (if more than one) with the
Borrower upon which such debtor is obligated.
(l) The account is not evidenced by a promissory note or chattel
paper.
(m) The account is otherwise acceptable to the Bank.
1.03 "Termination Date shall mean the third (3rd) anniversary of the date
of this Agreement; provided however, that the Bank, in its sole discretion,
upon the Borrowers' request, may elect, by giving written notice to the
Borrowers to such effect, beginning in the second year of this Agreement, but
not later than 120 days before any then effective Termination Date, to extend
such "Termination Date" for up to two (2) additional periods of up to one (1)
year each on such terms and conditions (which may differ from those set forth
herein) as the Bank may offer, and the Borrowers may accept.
2. FACILITY NO. 1: REVOLVING LINE OF CREDIT AMOUNT AND TERMS
2.01 Revolving Line of Credit Amount.
(a) During the availability period described below, the Bank will
provide a revolving line of credit ("Facility No. 1 ") to the Borrowers. The
amount of this revolving line of credit (the "Facility No. 1 Commitment") is
equal to the lesser of (i) $10,000,000 or (ii) the Borrowing Base.
(b) Facility No. 1 is a revolving line of credit for advances with a
within line facility for letters of credit. During the availability period, the
Borrowers may repay principal amounts and reborrow them.
(c) Each advance under Facility No. 1 must be for at least $250,000
or for the amount of the remaining available line of credit, if less.
(d) The Borrowers agree not to permit the sum of outstanding
principal amount of advances obtained under Facility No. 1 plus the outstanding
amounts of any letters of credit under Paragraph 2.5, including amounts drawn
on letters of credit and not yet reimbursed, to exceed the Facility No. 1
Commitment. If the Borrowers exceed this limit, the Borrowers will immediately
pay the excess to the Bank upon the Bank's demand.
9
<PAGE> 10
Unless and until an Event of Default has occurred and is continuing? the
Borrowers shall have the right to direct the manner or order in which payments
received from the Borrowers under this Paragraph shall be applied to this
Facility. From and after the occurrence of an Event of Default and during its
continuance, the Bank may apply payments received from the Borrowers under this
Paragraph to the obligations of the Borrowers to the Bank in the order and the
manner as the Bank, in its discretion, may determine, including to this
Facility or the other Facility.
2.02 Availability Period. Facility No. 1 is available between the
date of this Agreement and the Termination Date, unless the Borrowers are in
default.
2.03 Conditions to Each Extension of Credit. Before each extension of
credit under Facility No. 1, including the first, the Borrowers will deliver to
the Bank (i) a notice of borrowing, in form and detail satisfactory to the
Bank, issued by EMI as agent for and on behalf of the Borrowers, specifying the
amount of the requested advance, the intended use of the proceeds thereof, the
requested disbursement date and the desired interest rate to be applicable,
initially, thereto; and (ii) a borrowing base certificate, in form and detail
satisfactory to the Bank, issued by EMI as agent for and on behalf of the
Borrowers, setting forth the Acceptable Receivables on which the requested
extension of credit is to be based and setting forth calculations demonstrating
the Borrowers' compliance with the requirements of Paragraphs 10.4 and 10.5
after giving effect to such advance.
2.04 Repayment Terms
(a) The Borrowers will pay interest, in arrears, at the then
applicable interest rate described below on outstanding advances under Facility
No. 1 on the first day of the calendar month following the disbursement of any
advance under Facility No. 1 and then on a monthly basis thereafter until
payment in full of such advance. The interest rate payable on outstanding
advances under Facility No. 1 shall be determined as follows:
<TABLE>
<CAPTION>
Interest Interest
Rate shall Rate shall be
If the Test be Reference -or- LIBOR Rate
Ratio is: Rate plus plus
<S> <C> <C>
2.0:1 or greater 0% 1.75%
1.0:1 or greater, but less than 2.0:1 (.25)% 1.50%
less than 1.0: 1 (.50)% 1.25%
</TABLE>
10
<PAGE> 11
As used herein, (i) "Reference Rate" is defined in Paragraph S.1, (ii) "LIBOR
Rate" is defined in Paragraph 5.2, and (iii) the "Test Ratio" shall be the
Total Funded Debt/Adjusted Cash Flow Ratio, as defined in Paragraph 10.4. The
Test Ratio shall be calculated on a quarterly basis by the Bank from the
Borrowers' quarterly or, as the case may be, annual financial statements then
most recently delivered to it pursuant to Paragraphs l0.2(a) and l0.2(b), and
the interest rate(s) described above shall be adjusted by the Bank, as
appropriate, effective as of the first day of the month following the month in
which such financial statements are delivered to the Bank, (i) as to all
advances then outstanding and any made on or after such date, for all advances
which bear interest determined by reference to the Reference Rate and (ii) as
to all advances made on or after such date (including any "rollover" of
existing LIBOR Rate portions during such period), for LIBOR Rate portions; in
each case, until the next such determination by the Bank becomes effective. If,
however, the Borrowers fail to timely deliver their quarterly or, as the case
may be, annual financial statements to the Bank pursuant to Paragraphs l0.2(a)
or l0.2(b) for any fiscal quarter, the Bank shall use an assumed Test Ratio of
2.0: 1 to make its calculations.
(b) The Borrowers agree to pay the Bank a commitment fee,
determined by multiplying (i) the difference between (A) the full amount of the
Bank's Facility No. 1 Commitment and (B) the amount of credit which the
Borrowers actually use of Facility No. 1, based on the weighted average credit
outstanding under Facility No. 1 during the specified period, by (ii) the per
annum commitment fee described below,
computed as follows:
<TABLE>
<CAPTION>
The Per Annum
If the Test Commitment
Ratio is Fee shall be
<S> <C>
2.0:1 or greater .500%
1.0:1 or greater but less than 2.0:1 .375%
less than 1.0:1 .250%
</TABLE>
with the Test Ratio being computed by the Bank in the same manner, and to take
effect at the same time, as is provided in subparagraph (a) above. The
calculation of credit outstanding under Facility No. 1 shall include the
undrawn amount of letters of credit. This commitment fee shall be due and
payable monthly in arrears on the first day of each calendar month until the
expiration of the availability period for Facility No. 1, commencing on the
first day of the first calendar month following the date of this Agreement.
11
<PAGE> 12
(c) The Borrowers will repay in full all principal and any
unpaid interest or other charges outstanding under Facility No. 1 no later than
the Termination Date.
2.05 Letters of Credit. Facility No. 1 may also be used for financing
standby letters of credit with a maximum maturity not to extend for more than
one (1) year or, in any event, beyond the Termination Date. The standby letters
of credit will be issued by Bank of America National Trust and Savings
Association or its designated affiliate bank (herein, an "issuer") subject to a
reimbursement obligation on the part of the Bank (which, in turn, will be
reimbursed by the Borrowers). The amount of such letters of credit outstanding
at any one time (including amounts drawn on letters of credit and not yet
reimbursed) may not exceed $4,000,000. In further regard to these standby
letters of credit, the Borrowers agree:
(a) any sum drawn under a letter of credit issued pursuant to
this Section 2.5 and reimbursed by the Bank may, at the option of the Bank, be
added to the principal amount outstanding under Facility No. 1. This amount
will bear interest and be due as described elsewhere in this Agreement.
(b) if there is a default under this Agreement, to immediately
prepay and make the Bank whole for its liability to the issuer for any
outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a
letter of credit is subject to the Bank's and the issuer's written approval and
must be in form and content satisfactory to the Bank and the issuer and in
favor of a beneficiary acceptable to the Bank and the issuer.
(d) at the Bank's or the issuer's request, to sign the issuer's
form application and agreement for standby letters of credit.
(e) to pay any issuance and/or other fees that the Bank or the
issuer notifies the Borrower will be charged for issuing and processing letters
of credit for the Borrower.
(f) to pay the Bank a non-refundable fee equal to 1-1/2% per
annum of the average daily balance of the outstanding undrawn amount of each
standby letter of credit, payable monthly in arrears. If there is a default
under this Agreement, at the Bank's option, the amount of the fee shall be
increased by 2% per annum, effective starting on the day the Bank provides
notice of the increase to the Borrowers.
12
<PAGE> 13
2.06 Swap Contracts. Facility No. 1 may also be used by the Borrowers
to obtain "swap contracts" from time to time, which term shall include any
agreement, whether or not in writing, relating to any transaction that is an
interest rate swap, basis swap, forward rate transaction, commodity swap,
commodity option, equity or equity index swap or option, bond, note or bill
option, interest rate option, forward foreign exchange transaction cap. collar
or floor transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any option to
enter into any of the foregoing) or any combination of the foregoing, and,
unless the context otherwise clearly requires, any master agreement relating to
or governing any or all of the foregoing. Swap contracts shall be issued by
Bank of America National Trust and Savings Association or its designated
affiliate (herein, a "swap provider"), subject to a reimbursement obligation on
the part of the Bank (which, in turn, will be reimbursed by the Borrowers). The
termination value of all such swap contracts outstanding at any one time
(including any amounts then subject to reimbursement by the Borrowers, but not
then reimbursed) may not exceed, in any event, $3,000,000. All such swap
contracts shall have maturity dates not later than, and be co-terminous with,
the Termination Date. Swap contracts may be issued only for the reasonable
requirements of the Borrowers' business, and no swap contracts may be issued
for speculative purposes. In further regard to these swap contracts, the
Borrowers agree:
(a) that any sum for which the Bank reimburses the swap provider
pursuant hereto may, at the option of the Bank, be added to the principal
amount outstanding under Facility No. 1. This amount will bear interest and be
due as described elsewhere in this Agreement.
(b) that if there is a default under this Agreement, to
immediately prepay and make the Bank whole for its liability to the swap
provider for any outstanding swap contracts.
(c) that the issuance of any swap contract (and any amendment to
any swap contract) is subject to the Bank's and the swap provider's written
approval and must be in form and content satisfactory to the Bank and the swap
provider.
(d) at the Bank's or the swap provider's request, to sign a form
application and agreement for swap contracts, commonly known as an "ISDA
Contract."
13
<PAGE> 14
(e) to pay any issuance and/or other fees that the Bank or the
swap provider notifies the Borrowers will be charged for issuing and processing
swap contracts for the Borrowers.
3. FACILITY NO. 2: TERM LOAN FACILITY AMOUNT AND TERMS
3.01 Term Loan Facility.
(a) During the availability period described below, the Bank
will provide a term loan facility to the Borrowers for the purpose of
financing, in whole or in part, permitted acquisitions under Paragraph 10.22(e)
("Facility No. 2"). The amount of this term loan facility (the "Facility No. 2
Commitment"), is equal to $11,000,000, initially, subject, however, to
reduction as provided in subparagraph (b).
(b) Each advance obtained under the Facility No. 2 Commitment
shall reduce, dollar-for-dollar, borrowing availability under the Facility No.
2 Commitment, but such advance may be re-borrowed, once repaid, if such
repayment and subsequent reborrowing occurs within the availability period
described in Paragraph 3.2 below. After the availability period for this
Facility No. 2 has expired, no further borrowing (or reborrowing) under this
Facility No. 2 may be obtained. In addition, the amount of the Facility No. 2
Commitment shall be reduced to $9,000,000, effective on March 31, 1999, and
shall continue to be reduced thereafter, in increments of $750,000, on a
quarterly basis, commencing on June 30, 1999, and continuing thereafter on each
successive September 30, December 31, March 31 and June 30, until the Facility
No. 2 Commitment is reduced to zero.
(c) Each advance under Facility No. 2 must be for at least
$500,000, or for the amount of the then remaining available Facility No. 2
Commitment, if less.
(d) The Borrowers agree not to permit the outstanding principal
amount of advances obtained under Facility No. 2 to exceed the Facility No. 2
Commitment (as it will be reduced from time to time). If the Borrowers exceed
this limit, the Borrowers will immediately pay the excess to the Bank upon the
Bank's demand. Unless and until an Event of Default has occurred and is
continuing, the Borrowers shall have the right to direct the manner or order in
which payments received from the Borrowers under this Paragraph shall be
applied to this Facility. From and after the occurrence of an Event of Default
and during its continuance, the Bank may apply any payments received from the
Borrowers under this Paragraph to the obligations of the
14
<PAGE> 15
Borrowers to the Bank in the order and manner as the Bank, in its discretion,
may determine, including to this Facility or another Facility.
3.02 Availability Period. Advances under Facility No. 2 may be made
between the date of this Agreement and March 31, 1999, unless the Borrowers are
in default.
3.03 Conditions to Each Extension of Credit. Before each extension of
credit is made under Facility No. 2, including the first, the Bank shall
receive a notice of borrowing, in form and detail satisfactory to the Bank,
issued by EMI as agent for and on behalf of the Borrowers, specifying the
amount of the requested advance, the intended use of the proceeds thereof, the
requested disbursement date of the requested advance and the desired interest
rate to be applicable, initially, thereto, together with evidence satisfactory
to the Bank from the Borrowers that (i) the acquisition proposed to be financed
is then permitted under Paragraph 10.22(e) and (ii) EMI is then in compliance
with the requirements of Paragraphs 10.4 and 10.5 and will remain so after such
advance is obtained.
3.04 Repayment Terms.
(a) The Borrowers will pay interest, in arrears, at the then
applicable interest rate described below, on each advance made under this
Facility No. 2 on the first day of each calendar month following its
disbursement and then on a monthly basis thereafter and at maturity. The
interest rate payable on each advance made under this Facility No. 2 shall be
determined as follows:
<TABLE>
<CAPTION>
Interest Interest
Rate shall Rate shall
If the Test be Reference -or- be LIBOR
Ratio is : Rate plus Rate plus
<S> <C> <C>
2.0:1 or greater .25% 2.125%
l.0:1 or greater, but less than 2.0:1 0% 1.875%
less than 1.0:1 (.25)% 1.500%
</TABLE>
with the Test Ratio, and resulting interest rate, being computed by the Bank in
the same manner as is provided in Paragraph 2.4(a).
(b) The Borrowers will pay the Bank a non-refundable closing fee
in respect of Facility No. 2, equal to .125% of the full amount of the Facility
No. 2 Commitment, or $13,750, on the date of this Agreement.
15
<PAGE> 16
(c) The Borrowers further agree to pay the Bank a commitment fee
determined by multiplying (i) the difference between (A) the then full amount
of the Bank's Facility No. 2 Commitment and (B) the amount of credit which the
Borrowers actually use of the Facility, based on the weighted average credit
outstanding under Facility No. 2 during the availability period specified in
Paragraph 3.2 (including, for this purpose, letters of credit opened pursuant
to Paragraph 3.5 below), by (ii) the per annum commitment fee
described below, computed as follows:
<TABLE>
<CAPTION>
Per Annum
If the Test Commitment
Ratio is Fee shall be
<S> <C>
2.0:1 or greater .500%
1.0: 1 or greater, but less than 2.0: 1 .375%
less than 1.0:1 .250%
</TABLE>
The fee shall be due and payable monthly in arrears on the first day of each
calendar month until the expiration of the availability period for Facility No.
2, commencing on the first day of the first calendar month following the date
of this Agreement.
(d) The Borrowers will repay in full, all principal or other
charges outstanding under this Facility No. 2 on the Termination Date.
3.05 Letters of Credit. During the availability period specified in
Paragraph 3.2, Facility No. 2 may also be used for financing one or more
standby letters of credit in an amount not to exceed borrowing availability
then existing under this Facility, with a maximum maturity not to extend beyond
the end of the availability period or for more than one (1) year in any event,
to be issued to the seller under any acquisition otherwise approved by the Bank
pursuant to Paragraph 10.22(e). Any such standby letter of credit will be
issued by the issuer subject to a reimbursement obligation on the part of the
Bank (which, in turn, will be reimbursed by the Borrowers). The amount of
advances which the Borrowers may obtain under Facility No. 2 will be reduced
dollar-for-dollar by the amount of each such letter of credit so long as it
remains outstanding. In further regard to each standby letter of credit, the
Borrowers agree:
16
<PAGE> 17
(a) any sum drawn under each such letter of credit and
reimbursed by the Bank shall constitute an advance under Facility No. 2,
bearing interest, and payable as provided in Paragraph 3.4 hereof; and
(b) the provisions of clauses (b) through (f) of Paragraph 2.5
hereof shall apply in all respects to each such letter of credit.
4. FACILITY NO. 3: ACQUISITION LINE OF CREDIT AMOUNT AND TERMS
4.01 Acquisition Line of Credit Amount
(a) During the availability period described below, the Bank
will also provide a line of credit to the Borrowers for the purpose of
financing, in whole or in part, permitted acquisitions under Paragraph 10.22(e)
("Facility No. 3"). The amount of this acquisition line of credit (the
"Facility No. 3 Commitment") is equal to $15,000,000, subject, however, to
reduction in each year as provided in subparagraph (b).
(b) Facility No. 3 is not a revolving line of credit. That is,
each advance obtained under Facility No. 3 shall reduce, dollar-for-dollar, the
Facility No. 3 Commitment, regardless if and when such advance is made or
repaid; that is, an advance made in the first year shall reduce the Facility
No. 3 commitment dollar-for-dollar in such year and in all subsequent years;
(c) Each advance under Facility No. 3 must be for at least
$500,000, or for the amount of the then remaining available Facility No. 3
Commitment, if less.
(d) The Borrowers agree not to permit the outstanding principal
amount of advances obtained under Facility No. 3 to exceed the Facility No. 3
Commitment. If the Borrowers exceed this limit, the Borrowers will immediately
pay the excess to the Bank upon the Bank's demand. Unless and until an Event of
Default has occurred and is continuing, the Borrowers shall have the right to
direct the manner or order in which payments received from the Borrowers under
this Paragraph shall be applied to this Facility. from and after the occurrence
of an Event of Default and during its continuance, the Bank may apply any
payments received from the Borrowers under this Paragraph to the obligations of
the Borrowers to the Bank in the order and manner as the Bank, in its
discretion, may determine, including to this Facility or another Facility.
17
<PAGE> 18
4.02 Availability Period. Facility No. 3 is available between the
date of this Agreement and the Termination Date, unless the Borrowers are in
default.
4.03 Conditions to Each Extension of Credit. Before each extension of
credit under Facility No. 3, including the first, the Bank shall receive a
notice of borrowing, in form and detail satisfactory to the Bank, issued by EMI
as agent for and on behalf of the Borrowers, specifying the amount of the
requested advance, the intended use of the proceeds thereof, the requested
disbursement date and the desired interest rate to be applicable, initially,
thereto, together with evidence satisfactory to the Bank from the Borrowers
that (i) the acquisition proposed to be financed is then permitted under
Paragraph l0.22(e) and (ii) EMI is then in compliance with the requirements of
Paragraphs 10.4 and l0.5.
4.04 Repayment Terms.
(a) The Borrowers will pay interest, in arrears, at the then
applicable interest rate described below, on outstanding advances under
Facility No. 3 on the first day of the calendar month following the
disbursement of any advance under Facility No. 3 and then on a monthly basis
thereafter until such advance is paid in full. The interest rate payable on
outstanding advances under Facility No. 3 shall be determined as follows:
<TABLE>
<CAPTION>
Interest Interest
Rate shall Rate shall
If the Test be Reference -or- be LIBOR
Ratio is : Rate plus Rate plus
<S> <C> <C>
2.0:1 or greater .50% 2.25%
1.0:1 or greater but less than 2.0:1 .25% 2.00%
less than l.0:1 0% 1.75%
</TABLE>
with the Test Ratio, and resulting interest rate, being computed by the Bank in
the same manner as is provided in Paragraph 2.4(a).
(b) The Borrowers agree to pay the Bank a nonrefundable closing
fee for Facility No. 3, equal in amount to .25% of the initial Facility No. 3
Commitment, or $37,500, on the date of this Agreement.
(c) The Borrowers further agree to pay the Bank a commitment fee
determined by multiplying (i) the difference between (A) the then full amount
of the Bank's Facility No. 3 Commitment and (B) the amount of credit which the
Borrowers actually use of the Facility, based on the weighted
18
<PAGE> 19
average credit outstanding under Facility No. 3 during the specified period, by
(ii) the per annum commitment fee described below, computed as follows:
<TABLE>
<CAPTION>
Per Annum
If the Test Commitment
Ratio is Fee shall be
<S> <C>
2.0:1 or greater .500%
1.0:l or greater, but less than 2.0:1 .375%
less than 1.0:1 .250%
</TABLE>
The fee shall be due and payable monthly in arrears on the first day of each
calendar month until the expiration of the availability period for Facility No.
3, commencing on the first day of the first calendar month following the date
of this Agreement.
(d) The Borrowers will repay in full all principal or other
charges outstanding under this Facility No. 3 no later than the Termination
Date
4.05 Letters of Credit. During the availability period specified in
Paragraph 4.2, Facility No. 3 may also be used for financing one or more
standby letters of credit in an amount not to exceed borrowing availability
then existing under this Facility or $12,000,000, in the aggregate (whichever
is the lesser), with a maximum maturity not to extend beyond the end of the
availability period or for more than one year or beyond the Termination Date in
any event, to be issued to the seller under any acquisition otherwise approved
by the Bank pursuant to Paragraph 10..22(e). Any such standby letter of credit
will be issued by the issuer subject to a reimbursement obligation on the part
of the Bank (which, in turn, will be reimbursed by the Borrowers). The amount
of advances which the Borrowers may obtain under Facility No. 3 will be reduced
dollar-for-dollar by the amount of each such letter of credit so long as it
remains outstanding. In further regard to each standby letter of credit, the
Borrowers agree:
(a) any sum drawn under each such letter of credit and
reimbursed by the Bank shall constitute an advance under Facility No. 2,
bearing interest, and payable as provided in Paragraph 3.4 hereof; and
(b) the provisions of clauses (b) through (f) of Paragraph 2.5
hereof shall apply in all respects to each such letter of credit.
19
<PAGE> 20
5. INTEREST
5.01 Interest Rate
(a) Unless the Borrowers elect the optional interest rate
described below, the interest rate payable on advances outstanding under
Facility No. 1, Facility No. 2 and Facility No. 3 (the "Facilities" or a
"Facility") shall be based on the Bank's Reference Rate (described below), plus
the addition of a spread, as described more particularly in Paragraphs 2.4(a),
3.4(a) and 4.4(a).
(b) The "Reference Rate" is the rate of interest publicly
announced from time to time by Bank of America, National Trust and Saving
Association ("BofA") in San Francisco, California, as its Reference Rate. The
Reference Rate is set by BofA based on various factors, including its costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans. BofA may price loans to its customers
at, above, or below the Reference Rate. Any change in the Reference Rate shall
take effect at the opening of business on the day specified in the public
announcement of a change in BofA's Reference Rate.
5.02 Optional Interest Rate. Instead of an interest rate based on the
Reference Rate, the Borrowers may elect to have all or portions of their
outstanding advances and loans (herein called a "LIBOR Rate Portion") bear
interest based on the "LIBOR Rate" (described below), plus the addition of a
spread, as described more particularly in Paragraphs 2.4(a), 3.4(a) and 4.4(a).
Designation of a LIBOR Rate Portion is subject to the following requirements:
(a) The interest period during which the LIBOR Rate will be in
effect will be one, two, three or six months. The first day of the interest
period must be a day other than a Saturday or a Sunday on which BofA is open
for business in California, New York and London and dealing in offshore dollars
(a "LIBOR Banking Day"). The last day of the interest period and the actual
number of days during the interest period will be determined by the Bank using
the practices of the London interbank market. No interest period may extend
beyond the Termination Date, however.
(b) Each LIBOR Rate Portion will be for an amount not less than
$500,000, and no more than four (4) LIBOR Rate Portions, in total, per each
Facility, may be outstanding at any one time.
(c) The "LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/l00th of one percent. (All
amounts in the calculation will be determined by the Bank as of the first day
of the interest period.)
20
<PAGE> 21
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
( 1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank offered Rate" means the interest rate at
which BofA's London Branch, London, Great Britain, would offer U.S. dollar
deposits in amounts comparable to the LIBOR Rate Portion for the applicable
interest period to other major banks in the London inter-bank market at
approximately 11:00 a.m. London time two (2) London Banking Days before the
commencement of the interest period. A "London Banking Day" is a day on which
BofA's London Branch is open for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks of
the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal
Reserve Board Regulation D, rounded upward to the nearest 1/l00th of one
percent. The percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special, and other
reserve percentages.
(d) The Borrowers shall irrevocably request a LIBOR Rate Portion
no later than 9:00 a.m. Atlanta time on the LIBOR Banking Day preceding the day
on which the London Inter-Bank offered Rate will be set, as specified above;
that is, three (3) LIBOR Banking Days before the date on which the requested
advance is to be made.
(e) The Borrowers may not elect a LIBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last day of the
applicable interest period.
(f) Any portion of an advance or loan already bearing interest
at the LIBOR Rate will not be converted to a different rate during its interest
period.
(g) Each prepayment of a LIBOR Rate Portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and by a prepayment fee, which shall be
equal to the amount (if any) by which:
21
<PAGE> 22
(i) the additional interest which would have been payable at the
LIBOR Rate, without the addition of any spread; i.e., add-on, during the
Reinvestment Period (as defined below) on the amount prepaid had it not been
prepaid, exceeds
(ii) the interest which would have been recoverable by the Bank
by relending the amount prepaid at the Reinvestment Rate, for a period starting
on the date on which it was prepaid and ending on the last day of the interest
period for such portion (or the scheduled payment date for the amount prepaid,
if earlier) (the "Reinvestment Period"). The "Reinvestment Rate" shall be the
LIBOR Rate, without the addition of any spread, determined as of the date of
the prepayment, for the entire Reinvestment Period.
(h) The Bank will have no obligation to accept an election for a
LIBOR Rate Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of a LIBOR Rate Portion are not available in the
London inter-bank market;
(ii) the LIBOR Rate does not accurately reflect the cost of a
LIBOR Rate Portion; or
(iii) the Borrowers are in default.
22
<PAGE> 23
6. COLLATERAL
6.01 Personal Property. The Borrowers' obligations to the Bank
under this Agreement will be secured by all personal property which the
Borrowers now own or will Own in the future and, at the Bank's option, all or
portions of any real property (or interests in real property) owned or acquired
by the Borrowers from time to time. Collateral shall specifically include, but
not be limited to, all accounts receivables and general intangibles of each
Borrower, all equipment of each Borrower and the capital stock of each Borrower
(other than the capital stock of EMI, and except for any capital stock which,
now or hereafter, is encumbered in accordance with Section 10.8(e)). The
collateral is further defined in security agreement(s) executed by the
Borrowers. In addition, all collateral securing obligations under this
Agreement shall also secure all other present and future obligations of the
Borrowers to the Bank, any "issuer" or any "swap provider" (as those terms are
elsewhere defined herein); and all collateral securing any other present or
future obligations of the Borrowers to the Bank, any such "issuer" or any such
"swap provider" shall also secure obligations under this Agreement.
7. DISBURSEMENTS, PAYMENTS AND COSTS.
7.01 Requests for Credit. Each request for an extension of
credit will be made in writing in a manner acceptable to the Bank, or by
another means acceptable to the Bank, to be issued by EMI, as agent for and on
behalf of all the Borrowers.
7.02 Disbursements and Payments. Each disbursement by the Bank
and each payment by the Borrowers will be: (a) made at the Bank's branch (or
other location) selected by the Bank from time to time; (b) made for the
account of the Bank's branch selected by the Bank from time to time; (c) made
in immediately available funds, or such other type of funds selected by the
Bank; and (d) evidenced by records kept by the Bank. In addition, the Bank may,
at its discretion, require the Borrowers to sign one or more promissory notes
to evidence the debt arising from such disbursements.
7.03 Direct Debit. The Borrowers agree that after their
default in the payment of any such obligation, the Bank may create advances
under Facility No. 1 to pay interest, principal payments, and any fees that are
due under this Agreement. The Bank will create such advances on the dates the
payments become due. If a due date does not fall on a banking day, the Bank
will create the advance on the first banking day following the due date. If the
creation of an advance under Facility No. 1 causes the total amount of credit
outstanding under Facility No. 1 to exceed the limitations set forth in this
Agreement, the Borrowers will immediately pay the excess to the Bank upon the
Bank's demand. The foregoing shall not constitute a waiver by the Bank of any
such default.
<PAGE> 24
7.04 Banking Days. Unless otherwise provided in this
Agreement, a "banking day" is a day other than a Saturday or a Sunday on which
the Bank is open for business in Georgia. All payments and disbursements which
would be due on a day which is not a banking day will be due on the next
banking day. All payments received on a day which is not a banking day will be
applied to the credit on the next banking day.
7.05 Taxes.
(a) If any payments to the Bank under this Agreement are
made from outside the United States, the Borrowers will not deduct any foreign
taxes from any payments it makes to the Bank. If any such taxes are imposed on
any payments made by the Borrower (including payments under this paragraph),
the Borrowers will pay the taxes and will also pay to the Bank, at the time
interest is paid, any additional amount which the Bank specifies as necessary
to preserve the after-tax yield the Bank would have received if such taxes had
not been imposed. The Borrowers will confirm that they have paid any such taxes
by giving the Bank official tax receipts (or notarized copies) within 30 days
after the due date.
(b) Payments made by the Borrowers to the Bank will be
made without deduction of United States withholding or similar taxes. If the
Borrowers are required to pay U.S. withholding taxes, the Borrowers will pay
such taxes in addition to the amounts due to the Bank under this Agreement. If
the Borrowers fail to make such tax payments when due, each of the Borrowers
indemnifies the Bank against any liability for such taxes, as well as for any
related interest, expenses, additions to tax, or penalties asserted against or
suffered by the Bank with respect to such taxes.
7.06 Additional Costs. The Borrowers will pay the Bank, on
demand, for the Bank's costs or losses arising from any statute or regulation,
or any request or requirement of a regulatory agency which is applicable to all
national banks or a class of all national banks. The costs and losses will be
allocated to the advances in a manner determined by the Bank, using any
reasonable method. The costs include the following: (a) any reserve or deposit
requirements; and (b) any capital requirements relating to the Bank's assets
and commitments for credit.
7.07 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis of a
<PAGE> 25
360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used.
7.08 Default Rate. Upon the occurrence and during the
continuation of any default under this Agreement, principal amounts outstanding
under this Agreement will at the option of the Bank bear interest at a rate
which is two percent (2%) per annum higher than the rate of interest otherwise
provided under this Agreement. This will not constitute a waiver of any
default. Installments of principal which are not paid when due under this
Agreement shall continue to bear interest until paid. Any interest, fees or
costs which are not paid when due shall bear interest at the Reference Rate
plus two percent (2%) per annum. This may result in compounding of interest.
7.09 Overdrafts. At the Bank's sole option in each instance,
the Bank may do one of the following:
(a) The Bank may make advances under this Agreement to
prevent or cover an overdraft on any account of the Borrowers with the Bank or
BofA. Each such advance will accrue interest from the date of the advance or
the date on which the account is overdrawn, whichever occurs first, at the
Reference Rate plus two percent (2%) per annum.
(b) The Bank may reduce the amount of credit otherwise
available under this Agreement by the amount of any overdraft on any account of
the Borrowers with the Bank or BofA. This paragraph shall not be deemed to
authorize the Borrowers to create overdrafts on any of the Borrower's accounts
with the Bank or BofA.
7.10 Payments in Kind. If the Bank requires delivery in kind
of the proceeds of collection of any Borrower's accounts receivable, such
proceeds shall be credited to interest, principal, and other sums owed to the
Bank under this Agreement in the order and proportion determined by the Bank in
its sole discretion. All such credits will be conditioned upon collection and
any returned items may, at the Bank's option, be charged to the Borrowers.
8. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrowers under this Agreement:
<PAGE> 26
8.01 Authorizations. Evidence that the execution, delivery and
performance by the Borrowers of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
8.02 Governing Documents. A copy of each Borrower's articles
of incorporation and bylaws.
8.03 Security Agreements. Signed original security agreements
(or amendments to existing security agreements made by the Borrowers in favor
of the Bank pursuant to the Existing Loan Agreement), assignments, financing
statements and fixture filings (together with collateral in which the Bank
requires a possessory security interest), which the Bank may require from any
Borrower.
8.04 Evidence of Priority. Evidence that security interests
and liens in favor of the Bank are valid, enforceable, and prior to all others'
rights and interests, except as provided in Paragraph 10.8.
8.05 Insurance. Evidence of insurance coverage, as required in
Paragraph 1 O.2 1.
8.06 Legal Opinion. A written opinion from the Borrowers'
legal counsel, covering such matters as the Bank may require. The legal counsel
and the terms of the opinion must be acceptable to the Bank.
8.07 Good Standing. Certificates of good standing for each
Borrower from its state of formation and from any other state in which each
Borrower is required to qualify to conduct its business.
8.08 Payment of Closing Fee. Payment upon execution of this
Agreement of the non-refundable closing fees described in Paragraphs 3.4(b) and
4.4(b) above.
8.09 Payment of Expenses and Fees. Payment of all accrued and
unpaid expenses incurred by the Bank as required by Paragraph 13.6.
8.10 Representations of Corporate Officers. A completed
original of the Bank's form of Representations and Warranties of Corporate
officers executed by the principal officers of each Borrower.
8.11 Other Items. Any other items that the Bank reasonably
requires.
9. REPRESENTATIONS AND WARRANTIES
<PAGE> 27
When the Borrowers sign this Agreement, and until the Bank is
repaid in full the Borrowers make the following representations and warranties.
Each request for an extension of credit (including any letter of credit)
constitutes a renewed representation:
9.01 Organization of Borrower. Each Borrower is a corporation
duly formed and existing under the laws of the state where organized.
9.02 Authorization. This Agreement, and any instrument or
agreement required hereunder, are within the Borrowers' powers, have been duly
authorized, and do not conflict with any of their organizational papers.
9.03 Enforceable Agreement. This Agreement is a legal, valid
and binding agreement of the Borrowers, enforceable against the Borrowers in
accordance with its terms, and any instrument or agreement required hereunder,
when executed and delivered, will be similarly legal, valid, binding and
enforceable.
9.04 Good Standing. In each state in which a Borrower does
business, it is properly licensed, in good standing, and, where required, in
compliance with fictitious name statutes.
9.05 No Conflicts. This Agreement does not conflict with any
law, agreement, or obligation by which any Borrower is bound.
9.06 Financial Information. All financial and other
information that has been or will be supplied to the Bank, including the
Borrowers' financial statements as of and for the most recently completed
fiscal quarter of the Borrowers for which financial statements are available,
is:
(a) sufficiently complete to give the Bank accurate
knowledge of the Borrowers' financial condition.
(b) in compliance with all government regulations that
apply.
Since the date of the financial statements specified above, there has been no
material adverse change in the business condition (financial or otherwise),
operations, properties or prospects of the Borrowers.
9.07 Lawsuits. There is no lawsuit, tax claim or other dispute
pending or threatened against any Borrower which, if lost, would impair such
Borrower's
<PAGE> 28
financial condition or ability to repay the loans made pursuant hereto, except
as have been disclosed in writing to the Bank.
9.08 Collateral. All collateral required in this Agreement is
owned by the grantor of the security interest free of any title defects or any
liens or interests of others, except for those title defects, liens or
interests of others, as applicable thereto, specified in Paragraph 10.8.
9.09 Permits. Franchises. The Borrowers possess all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary
to enable it to conduct the business in which it is now engaged.
9.10 Other Obligations. The Borrowers are not in default on
any obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
9.11 Income Tax Returns. The Borrowers have no knowledge of
any pending assessments or adjustments of their income tax liabilities for any
year.
9.12 No Tax Avoidance Plan. The Borrowers' obtaining of credit
from the Bank under this Agreement does not have as a principal purpose the
avoidance of U.S. withholding taxes.
9.13 No Event of Default There is no event which is, or with
notice or lapse of time or both would be, a default under this Agreement.
9.14 ERISA Plans.
(a) The Borrowers have fulfilled their obligations, if
any, under the minimum funding standards of ERISA and the Code with respect to
each Plan and are in compliance in all material respects with the presently
applicable provisions of ERISA and the Code, and have not incurred any
liability with respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section
4043(b) of ERISA for which the PBGC requires 30 day notice.
(c) No action by the Borrowers to terminate or withdraw
from any Plan has been taken and no notice of intent to terminate a Plan has
been filed under Section 4041 of ERISA.
<PAGE> 29
(d) No proceeding has been commenced with respect to a
Plan under Section 4042 of ERISA, and no event has occurred or condition exists
which might constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for
purposes of this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(ii) "ER1SA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan
maintained or contributed to by the Borrowers and insured by the Pension
Benefit Guaranty Corporation under Title IV of ERISA.
9.15 Locations of Borrowers. Each Borrower's place of business
(or, if such Borrower has more than one place of business, its chief executive
of lice) is located at the address listed under such Borrower's signature on
this Agreement.
9.16 Subsidiaries. No Borrower has any subsidiaries, except as
disclosed on Schedule 9.16 attached hereto. All subsidiaries of EMI are
Borrowers under this Agreement.
9.17 Year 2000 Compliance. The Borrowers have conducted a
comprehensive review and assessment of their computer applications and made
inquiry of the Borrowers' key suppliers, vendors and customers as they have
determined to be appropriate with respect to the "year 2000 problem" (that is,
the risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and, based on that review and
inquiry, the Borrowers do not believe the year 2000 problem will result in a
material adverse change in their business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit.
<PAGE> 30
10. COVENANTS
The Borrowers agree, so long as credit is available under this
Agreement and until the Bank is repaid in full:
10.01 Use of Proceeds. To use the proceeds of the credit only
for working capital and general operating needs under Facility No. 1 and
permitted acquisitions under Facility No. 2 and Facility No. 3.
10.02 Financial Information. To provide the following
financial information and statements in form and content acceptable to the
Bank, and such additional information as requested by the Bank from time to
time:
(a) Within 120 days following the end of EMI's fiscal
year (1) consolidated financial statements meeting the requirements of
regulation S-X ("Regulation S-X") promulgated by the Securities Exchange
Commission ("SEC") for financial statements to be included in EMI's Annual
Report on Form 10-K to be filed with the SEC pursuant to the provisions of the
Securities Exchange Act of 1934 (the "34 Act") audited (with an unqualified
opinion) by a firm of certified public accountants acceptable to the Bank; (2)
unaudited annual consolidating statements of operations; and (3) audited
balance sheets and statements of operations for the individual schools operated
by EMI, likewise accompanied by the unqualified opinion of such certified
public accountants.
(b) Within 45 days of EMI's first, second and third
fiscal quarter (i) unaudited consolidated financial statements meeting the
requirements of regulation S-X for financial statements to be included in EMI's
Quarterly Report on Form 10-Q to be filed with the SEC pursuant to the
provisions of the "34 Act," (ii) unaudited quarterly consolidating statements
of operations for the applicable quarter, and (iii) unaudited statements of
operations for the individual schools operated by EMI.
(c) Within 30 days of the period's end, EMI's monthly
(i) unaudited consolidated statements of operations for the applicable period,
(ii) unaudited monthly consolidating statements of operations for the
applicable period, and (iii) unaudited statements of operations for the
individual schools operated by EMI for the applicable period.
(d) Copies of EMI's Form 10-K Annual Report and Form
10-Q Quarterly Report within 5 days after the date of filing with the
Securities and Exchange Commission, copies of EMI's Form 8-K Current Report
within 1 business day after the date of its filing with the Securities and
Exchange Commission and copies of any news releases within 1 business day after
their publication.
<PAGE> 31
(e) Within the period(s) provided in (a) and (b) above,
a compliance certificate of the Borrowers signed by an authorized financial
officer of EMI, as agent for the Borrowers, setting forth (i) the information
and computations (in sufficient detail) to establish that the Borrowers are in
compliance with all financial covenants contained herein at the end of the
period covered by the financial statements then being furnished and (ii)
whether there existed as of the date of such financial statements and whether
there exists as of the date of the certificate, any default under this
Agreement and, if any such default exists, specifying the nature thereof and
the action the Borrowers are taking and propose to take with respect thereto.
(f) A borrowing certificate, signed by EMI, as agent for
the Borrowers, setting forth the amount of Acceptable Receivables as of the
last day of each fiscal month as to which average daily advances outstanding
under Facility No. 1 equaled or exceeded $5,000,000 within 30 days after each
month end and as of the last day of each fiscal quarter within 45 days after
each quarter end, and on a pro forma basis in connection with each proposed
advance under either Facility No. 2 or Facility No. 3.
(g) Statements showing an aging and reconciliation of
the Borrowers' receivables upon Bank's request.
(h) A statement showing an aging of accounts payable of
the Borrowers upon Bank's request.
(i) A listing of the names and addresses of all debtors
obligated upon the Borrowers' accounts receivable upon the Bank's request.
(j) Promptly upon the Bank's request, such other
statements, lists of property and accounts, budgets, forecasts, reports or
information as to the Borrowers, any school, or group of schools, and as to
each guarantor of the Borrowers' obligations to the Bank as the Bank may
request from time to time.
(k) a report of continuing compliance and eligibility in
respect of all Title IV Program Requirements within 120 days after each fiscal
year end of EMI, such report to demonstrate, among other things, each school's
continuing maintenance of prescribed- financial responsibility standards which
are part of the Title IV Program Requirements, to include calculations
demonstrating maintenance of at least the following: (i) a 1:1 "acid test;"
(ii) a positive tangible net worth; and (iii) net operating results (two years)
which do not show an aggregate net loss of 10% of tangible net worth.
<PAGE> 32
10.03 Fixed Charge Coverage Ratio. To maintain on a
consolidated basis a Fixed Charge Coverage Ratio of at least the ratio set
forth below for each fiscal quarter end occurring within each "Applicable
Period" set forth below:
<TABLE>
<CAPTION>
Applicable Period Ratio
- ---------------------------------- --------
<S> <C>
Fiscal year ending March 31, 1998 1.10:1.0
Fiscal year ending March 31, l999 1.15:1.0
Fiscal year ending March 31, 2000 1.20:1.0
and each fiscal year thereafter
</TABLE>
"Fixed Charge Coverage Ratio" means the ratio of (1) Adjusted EBIRTDA to (2)
the sum of interest expense, lease expense and rent expense plus scheduled debt
repayments capital expenditures of EMI and its subsidiaries (excluding
therefrom any payment made in respect of permitted school acquisitions), on a
consolidated basis, in the preceding four fiscal quarters. "Adjusted EBIRTDA"
means the sum of net income after taxes (considered without regard to any
extraordinary items of gain or loss unless otherwise approved by the Bank after
consultation with EMI), EM interest expense, lease expense and rent expense,
plus tax expense, ~ depreciation and amortization expense, on a consolidated
basis. This ratio will be calculated at the end of each fiscal quarter of EMI,
using the results of that quarter and each of the three immediately preceding
quarters.
10.04 Total Funded Debt/Adjusted Cash Flow Ratio. To maintain
on a consolidated basis a Total Funded Debt/Adjusted Cash Flow Ratio of not
more than 3.0:1.
"Total Funded Debt/Adjusted Cash Flow Ratio" means the ratio of Total Funded
Debt to Adjusted Cash Flow. "Total Funded Debt" means purchase money debt
(including, without limitation, any such debts to sellers of schools, but
excluding trade payables) and indebtedness for money borrowed and guarantees of
such debts, including, without limitation, any debts represented by notes
payable, bonds, debentures, capitalized lease obligations and letters of credit
and any subordinated debt, of EMI and its subsidiaries, on a consolidated
basis. "Adjusted Cash Flow" means the sum of (a) "EBITDA" (as defined below) of
EMI and its consolidated subsidiaries less dividends, withdrawals, loans,
advances, and other distributions to any stockholders, of EMI and its
subsidiaries on a consolidated basis and (b) 75 of EBITDA for all schools
acquired by EMI during the measurement period (to the extent that the operating
results of such schools would not otherwise be included in the calculation set
forth in the preceding clause (a)). For purposes hereof "EBITDA" for any entity
shall mean net income after taxes of such entity (considered without regard to
any extraordinary items of gain or loss unless otherwise approved by the Bank
after consultation with
<PAGE> 33
EMI), and, in the case of EMI, its consolidated subsidiaries, after adjustment
to reflect the following, as applicable: plus in the case of any newly acquired
school, any non-recurring charges or expenses; plus interest expense; plus tax
expense; plus depreciation and amortization expense, each for the same said
entities and period. This ratio will be calculated (a) at the end of each
fiscal quarter of EMI, using the results of that quarter and each of the three
immediately preceding quarters and (b) prior to the making of any loan or
advance hereunder under any of the Facilities, on a pro forma basis, as of the
most recently ended fiscal quarter of EMI, after giving effect to such loan or
advance.
10.05 Senior Funded Debt/Adjusted Cash Flow Ratio. To maintain
a Senior Funded Debt/Adjusted Cash Flow Ratio of not more than 2.25:1 during
the fiscal years of EMI and its consolidated subsidiaries ending March 31, 1998
and March 31, 1999 and 2.0:1.0 during each fiscal year thereafter.
"Senior Funded Debt/Adjusted Cash Flow Ratio" means the ratio of "Senior Funded
Debt" to "Adjusted Cash Flow." Senior Funded Debt is equal to Total Funded Debt
(as defined above) less any such debt which has been subordinated, in a form,
manner and substance acceptable to the Bank, to all of the Borrowers'
obligations to the Bank. "Adjusted Cash Flow" has the meaning described in
Paragraph 10.4 above. This ratio will be calculated (a) at the end of each
fiscal quarter, using the results of that quarter and each of the three
immediately preceding quarters (b) and prior to the making of any loan or
advance hereunder under any of the Facilities, on a pro forma basis, as of the
most recently ended fiscal quarter of EMI, after giving effect to such loan or
advance.
10.06 Total Liabilities to Net Worth Ratio. To maintain at all
times on a consolidated basis a ratio of total liabilities to book net worth of
not more than 1.6 to 1.0. "Total liabilities" and "book net worth" shall have
the respective meanings given to such terms under GAAP.
10.07 Other Debts. Not to have outstanding or incur any direct
or contingent liabilities or lease obligations (other than those to the Bank,
any "issuer," any "swap provider" or any of its other affiliates, whether
arising pursuant hereto or otherwise), or Become liable for the liabilities of
others (other than those to the Bank or any of its affiliates, whether arising
pursuant hereto or otherwise) without the Bank's written consent. This does not
prohibit:
(a) Acquiring goods, supplies, or merchandise on normal
trade credit.
<PAGE> 34
(b) Endorsing negotiable instruments received in the
usual course of business.
(c) obtaining surety bonds in the usual course of
business.
(d) Liabilities in existence on the date of this
Agreement disclosed in the Borrowers' financial statements described in
Paragraph 9.6.
(e) Additional debts and lease obligations for the
acquisition of fixed or capital assets, to the extent permitted elsewhere in
this Agreement.
(f) unsecured (except for permitted liens, as described
below) debt to sellers of schools provided that (i) such indebtedness is on
terms and conditions satisfactory to the Bank and (ii) the maximum amount of
such indebtedness does not exceed $10,000,000.
(g) swap contracts, as defined in Paragraph 2.6. to the
extent made in accordance with the terms thereof.
(h) Additional debts and lease obligations incurred for
business purposes not otherwise described in, and permitted by, subparagraphs
(a) through (g) above, which, m aggregate amount, do not exceed a total
principal amount of $2,000,000 outstanding at any one time.
10.08 Other Liens. Not to create, assume, or allow any
security interest or lien (including judicial liens) on property the Borrowers
now or later own, except:
(a) Deeds of trust and security agreements in favor of
the Bank, any "issuer" or any "swap provider" or any of its other affiliates,
whether arising pursuant hereto or otherwise.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement and
disclosed in writing to the Bank on Schedule 10.8 attached hereto.
(d) Additional purchase money security interests in
personal or real property acquired after the date of this Agreement, if the
total principal amount of all debts secured by such liens does not exceed
$2,500,000 at any one time.
<PAGE> 35
(e) Pledges of a school's capital stock given to support
the payment of permitted purchase money debt to the seller of a school pursuant
to an acquisition permitted in Paragraph 10.22(e).
(f) Liens which the DOE may claim in respect of certain
deposit accounts which the schools may be required to maintain for the receipt
of funds under Title IV Programs as part of the Title IV Program Requirements.
(g) Liens in the form of letters of credit issued to
seller under Facility No. 2 or Facility No. 3.
10.09 Capital Expenditures. Not to spend more than the
following amounts in any specified fiscal year to acquire fixed or capital
assets (except any made for permitted school acquisitions under Paragraph
10.22(e)):
Fiscal Year
Ending Amount
March 31, 1999 $4,000,000
March 31, 2000 $5,000,000
March 31, 2001 $6,000,000
10.10 Dividends. Not to declare or pay any dividends on any
of its shares except dividends payable to EMI by its subsidiaries and dividends
payable in capital stock of a Borrower; and not to purchase, redeem or
otherwise acquire for value any of its shares, or create any sinking fund in
relation thereto.
10.11 Loans and Investments. Not to make any loans or other
extensions of credit to, or make any investments in, or make any capital
contributions or other transfers of assets to, any individual or entity, except
for:
(a) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business.
(b) investments in any of the following: (i) marketable,
direct obligations of the United States of America and its agencies maturing
within three hundred sixty-five (365) days of the date of purchase, (ii)
commercial paper issued by corporations maturing 180 days from the date of
original issue which is rated "P-1" or better by Moody's or "A-1" or better by
S&P, (iii) certificates of deposit maturing within l year of the date of
purchase issued by a United States national or state bank having deposits
totaling more than
<PAGE> 36
$250,000,000, and whose short-term debt is rated "P- 1" or better by Moody's or
"A- l" or better by S&P, and (iv) investments made with, or through, the Bank
or BofA.
(c) extensions of credit to and investments in other
Borrowers.
(d) acquisitions of schools permitted under Paragraph
10.22(e).
10.12 Change of Ownership. Not to cause, permit, or suffer
any change, direct or indirect, in (i) the capital ownership by EMI of its
subsidiaries; or (ii) the capital ownership of EMI, to the extent that a report
on Form 8-K is required to be filed with the Securities and Exchange Commission
disclosing a change in control.
10.13 Notices to Bank. To promptly notify the Bank in writing
of:
(a) any lawsuit claiming damages over $100,000 against a
Borrower.
(b) any dispute between a Borrower and any government
authority which the Bank determines, if resolved adversely to such Borrower,
would materially interfere with the conduct of such Borrower's business as then
being conducted by it.
(c) any failure to comply with this Agreement.
(d) any material adverse change in a Borrower's (or any
guarantor's) business condition (financial or otherwise), operations,
properties or prospects, or ability to repay the credit.
(e) any change in a Borrower's name, legal structure,
place of business, or chief executive of rice if such Borrower has more than
one place of business.
(f) any default or event of default under Paragraph 12.
10.14 Books and Records. To maintain adequate books and
records.
10.15 Audits. To allow the Bank and its agents to inspect
Borrowers' properties and examine, audit and make copies of books and records
<PAGE> 37
at any reasonable time. If any of the Borrowers' properties, books or records
are in the possession of a third party, the Borrowers authorize that third
party to permit the Bank or its agents to have access to perform inspections or
audits and to respond to the Bank's requests for information concerning such
properties, books and records.
10.16 Compliance with Laws. To comply with the laws
(including any fictitious name statute), regulations, and orders of any
government body with authority over each Borrower's business (excepting
therefrom, however, instances of incidental noncompliance occurring from time
to time in the ordinary course of a Borrower's business without actual
knowledge of a Borrower, which the Bank determines are immaterial to the
operation of its business and are capable of being cured without any
significant disruption to such business). The foregoing shall include,
specifically, but without limitation, compliance with all Title IV Program
Requirements, as prescribed with more particularity in Section 10.24.
10.17 Preservation of Rights. To maintain and preserve all
rights, privileges, and franchises the Borrowers now have.
10.18 Maintenance of Properties. To make any repairs,
renewals, or replacements to keep the Borrowers' properties in good working
condition.
10.19 Perfection of Liens. To help the Bank perfect and
protect its security interests and liens, and reimburse it for related costs it
incurs to protect its security interests and liens.
10.20 Cooperation. To take any action reasonably requested by
the Bank to carry out the intent of this Agreement.
10.21 Insurance.
(a) Insurance Covering Collateral. To maintain all risk
property damage insurance policies covering the tangible property comprising
the collateral. Each insurance policy must be in an amount acceptable to the
Bank. The insurance must be issued by an insurance company acceptable to the
Bank and must include a lender's loss payable endorsement in favor of the Bank
in a form acceptable to the Bank.
(b) General Business Insurance. To maintain insurance
satisfactory to the Bank as to amount, nature and carrier covering property
damage (including loss of use and occupancy) to any Borrower's properties,
public liability insurance including coverage for contractual liability,
product
<PAGE> 38
liability and workers' compensation, and any other insurance which is usual for
the Borrowers' businesses.
(c) Evidence of Insurance. Upon the request of the Bank,
to deliver to the Bank a copy of each insurance policy, or, if permitted by the
Bank, a certificate of insurance listing all insurance in force.
10.22 Additional Negative Covenants. Not to, without the
Bank's written consent:
(a) engage in any business activities substantially
different from the Borrowers' present businesses.
(b) liquidate or dissolve any of the Borrowers'
businesses.
(c) enter into any consolidation, merger, or other
combination, or become a partner in a partnership, a member of a joint venture,
or a member of a limited liability company, except (i) in connection with any
acquisition permitted under subparagraph (e) and (ii) that Subsidiaries of EMI
may merge, combine or consolidate with each other or with EMI (so long as, in
the case of any merger, combination or consolidation with EMI, EMI is the
survivor).
(d) sell, lease, transfer or dispose of all or a
substantial part of a Borrower's business or a Borrower's assets, except, in
the case of any Borrower, to any other Borrower.
(e) acquire or purchase a business or its assets;
provided, however, that, acquisitions of all, or substantially all, of the
assets of, or of all or a controlling interest in the shares of capital stock
of, any business engaged in the provision of career-oriented, postsecondary
education within the United States (herein, a "school"), shall be permitted,
if, but only if: (i) no default then exists under this Agreement, or would be
caused by, or would result from, such proposed acquisition (after giving pro
forma effect to such acquisition, in respect of the financial covenants set
forth at Paragraphs 10.3 through 10.6); (ii) both (A) the cash consideration
payable in respect of such acquisition does not exceed $5,000,000, and (B) the
cash consideration payable in respect of such acquisition (subject to the
foregoing limitation) plus the amount of any assumed liabilities plus the
amount of any seller debt does not exceed $10,000,000; (iii) the incremental
amount which the Borrower then may borrow under Facility No. 1 (after giving
pro forma effect to the proposed acquisition), determined under subparagraphs
(a) and (d) of Paragraph 2.1, is at least $4,000,000; (iv) the school being
acquired has a positive EBITDA (computed in the same manner as
<PAGE> 39
is defined in Paragraph 10.4 in respect of EMI, after adjustments by the Bank
as necessary for excessive compensation amounts and like items) for its most
recently concluded period of twelve (12) fiscal months; and (v) the acquisition
is not opposed by the board of directors of the school proposed to be acquired;
net, it is not a "hostile" acquisition. EMI, as agent on behalf of the
Borrowers, shall certify the foregoing to the Bank at the time of such
acquisition. Such certification shall include calculations of pro forma
compliance with Paragraphs 10.3 through 10.6 on both a consolidated basis
(including the school being acquired) and on a stand alone basis for such
school. The Bank has reserved to itself the right, in its sole discretion, to
consent in writing to any such acquisition notwithstanding the Borrower's
non-compliance with one or more of the foregoing conditions, but any such
consent may be made subject to such other terms and conditions as the Bank, in
its sole discretion, then may elect.
(f) sell, assign, lease, transfer or otherwise dispose
of any assets, or enter into any agreement to do so, except:
(i) dispositions of inventory, or used, worn-out
or surplus equipment, all in the ordinary course of business;
(ii) the sale of equipment to the extent that such
equipment is exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are reasonably promptly
applied to the purchase price of such replacement equipment; and
(iii) dispositions not otherwise permitted hereunder
which are made for fair market value; provided, that (i) at the time of any
disposition, no event of default shall exist or shall result from such
disposition, (ii) the aggregate sales price from such disposition shall be paid
in cash, and (iii) the aggregate value of all assets so sold by the Borrowers
shall not exceed in any fiscal year $250,000.
(g) enter into any sale and leaseback agreement covering
any of its fixed or capital assets.
(h) close, or voluntarily suspend the business of any
school (other than for the purpose of consolidating the operations of one
school with one or more other schools) for more than 30 days, if that school's
contribution (computed as defined in Paragraph 10.24) then represents 5% or
more of the total school contributions for the most recently concluded period
of four fiscal quarters.
10.23 ERISA Plans. To give prompt written notice to the Bank
of:
<PAGE> 40
(a) The occurrence of any reportable event under Section
4043(b) of ERISA for which the PBGC requires 30 day notice.
(b) Any action by a Borrower to terminate or withdraw
from a Plan or the filing of any notice of intent to terminate under Section
4041 of ERISA.
(c) Any notice of noncompliance made with respect to a
Plan under Section 404 1 (b) of ERISA.
(d) The commencement of any proceeding with respect to a
Plan under Section 4042 of ERISA.
10.24 Title IV Program Requirements. To maintain at all times
all Title IV Program Requirements for schools representing, in the aggregate,
not less than 80% of the total school contributions of all schools operated by
the Borrowers. For purposes hereof, "school contributions" for each school
shall be computed on a quarterly basis, for the most recently completed period
of four fiscal quarters, and shall be equal to each school's total revenue
minus all school operating costs (to include training expense, facility
expense, advertising expense, sales expense, administrative expense and bad
debt expense). "Total school contributions" of all schools shall be the
aggregate of each school's contribution.
"Title IV Program Requirements" shall mean and include all
eligibility, program and general requirements imposed upon schools under Title
IV programs administered by the U.S. Department of Education ("DOE") under the
Higher Education Act of 1965, as amended, and the regulations thereunder
("Title IV Programs"), including, without limitation, for each of the schools
operated by Borrowers (i) its continuing certification by the DOE as an
"eligible institution;" (ii) its continuing authorization to offer its programs
by the relevant state agency where it is located; (iii) its continuing
accreditation by a nationally recognized accrediting agency; (iv) its
continuing compliance with respect to maximum rates of default by its students
with respect to federally guaranteed or funded student loans; i.e., cohort
default rates; (v) its continuing satisfaction of certain financial
responsibility standards; (vi) its continuing compliance with standards for
maximum acceptable proportions of school revenues derived from Title IV
programs, i.e., "85/15" rule; and (vii) its continuing compliance in respect of
changes in curriculum, location and control. Without limitation of the
foregoing, to the extent that any school is at any time required by the DOE to
post a letter of credit, bond or other, similar evidence of financial assurance
as a condition to its remaining an "eligible institution," the Bank, in its
sole
<PAGE> 41
discretion shall have the right to declare that such school shall not be
considered as maintaining all Title IV Program Requirements for purposes of
this Paragraph.
10.25 Subsidiaries. Promptly upon its creation or
acquisition, to cause all subsidiaries of Borrowers hereafter created or
acquired (including any acquired as schools) to execute a joinder to this
Agreement in form and substance acceptable to the Bank whereby such subsidiary
shall become a Borrower hereunder.
11. HAZARDOUS WASTE INDEMNIFICATION
The Borrowers, jointly and severally, will indemnify and hold
harmless the Bank from any loss or liability directly or indirectly arising out
of the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous substance. This
indemnity will apply whether the hazardous substance is on, under or about any
Borrower's property or operations or property leased to any Borrower. The
indemnity includes but is not limited to attorneys' fees (including the
reasonable estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to the Bank, its parent, its and its parent's subsidiaries
(including BofA) and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous"
or "toxic" under any federal, state or local law. This indemnity will survive
repayment of the Borrowers' obligations to the Bank and this Agreement's
termination.
12. DEFAULT
If any of the following events occurs (called in this
Agreement a "default" or "event of default"), the Bank may do one or more of
the following: declare the Borrowers in default, stop making any additional
credit available to the Borrowers, and require the Borrowers to repay the
entire debt immediately and without prior notice. If an event of default occurs
under the paragraph entitled "Bankruptcy," below, with respect to the
Borrowers, then, the entire debt outstanding under this Agreement will
automatically be due immediately.
12.01 Failure to Pay. A Borrower fails to make a payment
under this Agreement when due.
12.02 Lien Priority. The Bank fails to have an enforceable
first lien (except for any prior liens which are expressly permitted to exist
under this
<PAGE> 42
Agreement or as to which the Bank has consented in writing) on or security
interest in any property given as security for the advances.
12.03 False Information. A Borrower (or any guarantor) has
given the Bank false or misleading information or representations in respect of
any matter, event or occurrence which the Bank determines to be material.
12.04 Bankruptcy. A Borrower (or any guarantor) files a
bankruptcy petition, a bankruptcy petition is filed against a Borrower (or any
guarantor) or a Borrower (or any guarantor) makes a general assignment for the
benefit of creditors. The default will be deemed cured if any bankruptcy
petition filed against a Borrower (or any guarantor) is dismissed within a
period of 60 days after the filing; provided. however. that the Bank will not
be obligated to extend any additional credit to the Borrowers during that
period.
12.05 Receivers. A receiver or similar official is appointed
for any Borrower's business, or the business is terminated.
12.06 Lawsuits. Any lawsuit or lawsuits are filed on behalf
of one or more creditors against a Borrower in an aggregate amount of $100,000
or more in excess of any insurance coverage.
12.07 Judgments. Any judgments or arbitration awards are
entered against any Borrower (or any guarantor), or any Borrower (or any
guarantor) enters into any settlement agreements with respect to any litigation
or arbitration, in an aggregate amount of $100,000 or more in excess of any
insurance coverage.
12.08 Government Action. Any government authority takes
action that the Bank believes materially adversely affects any Borrower's (or
any guarantor's) financial condition or ability to repay the advances.
12.09 Material Adverse Change. A material adverse change
occurs in any Borrower's (or any guarantor's) business condition (financial or
otherwise), operations, properties or prospects, or ability to repay the
advances.
12.10 Cross-default. Any default occurs under any agreement
in connection with any credit which any Borrower (or any guarantor) or any
Borrower's related entities or affiliates has obtained from another lender or
which any Borrower (or any guarantor) or any Borrower's related entities or
affiliates has guaranteed in the amount of $100,000 or more in the aggregate if
the default consists of failing to make a payment when due or gives the other
lender the right to accelerate the obligation.
<PAGE> 43
12.11 Default under Related Documents. Any guaranty,
subordination agreement, security agreement, deed of trust, or other document
required by this Agreement is violated or no longer in effect.
12.12 Other Bank Agreements. A Borrower (or any guarantor)
fails to meet the conditions of, or fails to perform any obligation under any
other agreement which a Borrower (or any guarantor) has with the Bank, BofA,
any "issuer," any "swap provider" or any other affiliate of the Bank. If, in
the Bank's opinion, the breach is capable of being remedied, the breach will
not be considered an event of default under this Agreement for a period of 10
days after the date on which the Bank gives written notice of the breach to the
Borrowers; provided, however, that the Bank will not be obligated to extend any
additional credit to the Borrowers during that period.
12.13 ERISA Plans. The occurrence of any one or more of the
following events with respect to any Borrower, provided such event or events
could reasonably be expected, in the judgment of the Bank, to subject any
Borrower to any tax, penalty or liability (or any combination of the foregoing)
which, in the aggregate, could have a material adverse effect on the financial
condition of any Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a
Plan which is, in the reasonable judgment of the Bank likely to result in the
termination of such Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings
to terminate a Plan) or a Borrower's full or partial withdrawal from a Plan.
12.14 Delisting. EMI's stock ceases to be listed on NASDAQ
for any reason (except for its being listed, instead, on the NYSE or AMEX).
12.15 Other Breach Under Agreement. The Borrowers fail to
meet the conditions of, or fail to perform any obligation under, any term of
this Agreement not specifically referred to in this Article. This includes any
failure or anticipated failure by the Borrowers to comply with any financial
covenants set forth in this Agreement, whether such failure is evidenced by
financial statements delivered to the Bank or is otherwise known to the
Borrowers or the Bank. If, in the Bank's opinion, the breach is capable of
being remedied, the breach will not be considered an event of default under
this Agreement for a period of 10 days after the date on which the Bank gives
written notice of the breach to the Borrowers; provided, however, that the Bank
will not be obligated to extend any additional credit to the Borrowers during
that period.
<PAGE> 44
13 ENFORCING THIS AGREEMENT; MISCELLANEOUS
13.01 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently applied
(herein, "GAAP").
13.02 Georgia Law. This Agreement is governed by Georgia law.
13.03 Successors and Assigns. This Agreement is binding on
each Borrower's and the Bank's successors and assignees. The Borrowers agree
that they will not assign this Agreement without the Bank's prior consent. The
Bank may sell participations in or assign this loan, and may exchange financial
information about the Borrowers with actual or potential participants or
assignees. If a participation is sold or the loan is assigned, the purchaser
will have the right of set-off against the Borrowers.
13.04 Arbitration
(a) Dispute Resolution. Any controversy or claim between
or among the parties or their assignees arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith, including any claim based on or arising from an alleged
tort, shall at the request of any party be determined by arbitration,
reference, or trial by a judge as provided hereafter. A controversy involving
only a single claimant, or claimants who are related or asserting claims
arising from a single transaction, shall be determined by arbitration as
described below. Any other controversy shall be determined by judicial
reference of the controversy to a referee appointed by the court or, if the
court where the controversy is venued lacks the power to appoint a referee, by
trial by a judge without a jury, as described below. THE PARTIES AGREE AND
UNDERSTAND THAT THEY ARE GIVING -UP THE RIGHT To TRIAL BY JURY, AND THERE SHALL
BE No JURY WHETHER THE CONTROVERSY OR CLAIM IS DECIDED BY ARBITRATION, BY
JUDICIAL REFERENCE, OR BY TRIAL BY A JUDGE.
(b) Arbitration. Since this Agreement touches and
concerns interstate commerce, an arbitration under this Agreement shall be
conducted in accordance with the United States Arbitration Act (Title 9, United
States Code), notwithstanding any choice of law provision in this Agreement.
The Commercial Rules of the American Arbitration Association ("AAA") also shall
apply. The arbitrator(s) shall follow the law and shall give effect to statutes
of limitation in determining any claim. Any controversy concerning whether an
issue is
<PAGE> 45
arbitrable shall be determined by the arbitrator(s). The award of the
arbitrator(s) shall be in writing and include a statement of reasons for the
award. The award shall be final. Judgment upon the award may be entered in any
court having jurisdiction, and no challenge to entry of judgment upon the award
shall be entertained except as provided by Section 10 of the United States
Arbitration Act or upon a finding of manifest injustice.
(c) Judicial Reference or Trial by a Judge. At the
request of any party any controversy or claim under subparagraph (a) that is
not submitted to arbitration as provided in subparagraph (b) shall be
determined by reference to a referee appointed by the court who, sitting alone
and without a jury, shall decide all questions of law and fact. The parties
shall designate to the court a referee selected under the auspices of the AAA
in the same manner as arbitrators are selected in AAA-sponsored proceedings.
The referee shall be an active attorney or retired judge. If the court where
the controversy is venued lacks the power to appoint a referee, the controversy
instead shall be decided by trial by a judge without a jury.
(d) Self-Help. Foreclosure. and Provisional Remedies. No
provision of this paragraph shall limit the right of any party to this
Agreement to exercise self-help remedies such as setoff or repossession, to
foreclose by power of sale or judicially against or sell any collateral or
security, or to obtain any provisional or ancillary remedies from a court of
competent jurisdiction before, after, or during the pendency of any arbitration
under subparagraph (b), above. Neither the obtaining nor the exercise of any
such remedy shall waive the right of either party to demand that the related or
any other dispute or controversy be determined by arbitration as provided
above.
13.05 Severability; Waivers. If any part of this Agreement is
not enforceable, the rest of the Agreement may be enforced. The Bank retains
all rights, even if it makes an advance after default. If the Bank waives a
default, it may enforce a later default. Any consent or waiver under this
Agreement must be in writing.
13.06 Reimbursement Costs. The Borrowers agree to reimburse
the Bank immediately for any expenses it incurs in the preparation of this
Agreement and any agreement or instrument required by this Agreement. Expenses
include, but are not limited to, reasonable attorneys' fees, including any
allocated costs of the Bank's in-house counsel, filing, recording and search
fees, appraisal fees, title report fees and documentation fees.
<PAGE> 46
13.07 Administration Costs. The Borrowers shall pay the Bank
for all reasonable costs incurred by the Bank in connection with administering
this Agreement.
13.08 Attorneys' Fees. The Borrowers shall reimburse
the Bank for any reasonable costs and attorneys' fees incurred by the Bank in
connection with the enforcement or preservation of any rights or remedies under
this Agreement and any other documents executed in connection with this
Agreement, and including any amendment, waiver, "workout" or restructuring
under this Agreement. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys' fees
incurred in connection with the lawsuit or arbitration proceeding, as
determined by the court or arbitrator. In the event that any case is commenced
by or against the Borrowers under the Bankruptcy Code (Title l l, United States
Code) or any similar or successor statute, the Bank is entitled to recover
costs and reasonable attorneys' fees incurred by the Bank related to the
preservation, protection, or enforcement of any rights of the Bank in such a
case. As used in this paragraph, "attorneys' fees" includes the allocated costs
of the Bank's in-house counsel.
13.09 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and
severally liable to the Bank for the payment of all obligations arising under
this Agreement, and that such liability is independent of the obligations of
the other Borrower(s) (or any guarantor). The Bank may bring an action against
any Borrower, whether an action is brought against the other Borrower(s) (or
any guarantor).
(b) Each Borrower agrees that any release which may
be given by the Bank to the other Borrower(s) (or any guarantor) will not
release such Borrower from its obligations under this Agreement.
(c) Each Borrower waives any right to assert against
the Bank any defense, setoff, counterclaim, or claims which such Borrower may
have against the other Borrower(s) or any other party (including any guarantor)
liable to the Bank for the obligations of the Borrowers under this Agreement.
(d) Each Borrower agrees that it is solely
responsible for keeping itself informed as to the financial condition of the
other Borrower(s) and of all circumstances which bear upon the risk of
nonpayment. Each Borrower waives any right it may have to require the Bank to
disclose to such Borrower any information which the Bank may now or hereafter
acquire concerning the financial condition of the other Borrower(s).
(e) Each Borrower waives all rights to notices of
default or nonperformance by any other Borrower under this Agreement. Each
Borrower further waives all rights to notices of the existence or the creation
of new indebtedness by any other Borrower.
(f) The Borrowers represent and warrant to the Bank
that they each will derive benefit, directly and indirectly, from the
collective administration and
<PAGE> 47
availability of credit under this Agreement. The Borrowers agree that the Bank
will not be required to inquire as to the disposition by any Borrower of funds
disbursed in accordance with the terms of this Agreement.
(g) Each Borrower waives any right of subrogation,
reimbursement, indemnification and contribution (contractual, statutory or
otherwise), including without limitation, any claim or right of subrogation
under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute,
which such Borrower may now or hereafter have against any other Borrower with
respect to the indebtedness incurred under this Agreement, unless and until
this Agreement is terminated and all debts to the Bank arising hereunder have
been fully paid and satisfied. Each Borrower further waives any right to
enforce any remedy which the Bank now has or may hereafter have against any
other Borrower, and waives any benefit of, and any right to participate in, any
security now or hereafter held by the Bank.
13.10 One Agreement. This Agreement and any related security
or other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and
agreements between the Bank and the Borrowers concerning this credit;
(b) replace any prior oral or written agreements
between the Bank and the Borrowers concerning this credit; and
(c) are intended by the Bank and the Borrowers as
the final, complete and exclusive statement of the terms agreed to by them. In
the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
13.11 Disposition of Schedules. The Bank will not be obligated
to return any schedules, invoices, statements, budgets, forecasts, reports or
other papers delivered by the Borrowers. The Bank will destroy or otherwise
dispose of such materials at such time as the Bank, in its discretion, deems
appropriate.
13.12 Credit Adjustments. Until the Bank exercises its rights
to collect the accounts receivable as provided under any security agreement
required under this Agreement, the Borrowers may continue their present policies
for credit adjustments. If a credit adjustment is made with respect to any
Acceptable Receivable, the amount of such adjustment shall no longer be included
in the amount of such Acceptable Receivable in computing the Borrowing Base.
<PAGE> 48
13.13 Verification of Receivables The Bank may at any time,
either orally or in writing, request confirmation from any debtor of the current
amount and status of the accounts receivable upon which such debtor is
obligated.
13.14 Indemnification. The Borrowers will indemnify and hold
the Bank harmless from any loss, liability, damages, judgments, and costs of any
kind relating to or arising directly or indirectly out of (a) this Agreement or
any document required hereunder, (b) any credit extended or committed by the
Bank to the Borrowers hereunder, (c) any claim, whether well-founded or
otherwise, that there has been a failure to comply with any law regulating the
Borrowers' sales or leases to or performance of services for debtors obligated
upon the Borrowers' accounts receivable and disclosures in connection therewith,
and (d) any litigation or proceeding related to or arising out of this
Agreement, any such document, any such credit, or any such claim. This indemnity
includes but is not limited to attorneys' fees (including the allocated cost of
in-house counsel). This indemnity extends to the Bank, its parent, its and its
parent's subsidiaries (including BofA) and all of their directors, officers,
employees, agents, successors, attorneys, and assigns. This indemnity Will
survive repayment of the Borrowers' obligations to the Bank and this Agreement's
termination. All sums due to the Bank hereunder shall be obligations of the
Borrowers, due and payable immediately without demand.
13.15 Notices. All notices required under this Agreement shall
be personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
the Bank and the Borrowers may specify from time to time in writing.
13.16 Headings. Article and paragraph headings are for
reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement.
13.17 Counterparts This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
13.18 Amendment and Restatement. This Agreement constitutes an
amendment and restatement of the Business Loan Agreement, dated as of February
25, 1997, between Borrowers (or certain of them, as the case may be) and the
Bank (the "Existing Loan Agreement"). The execution and delivery of this
Agreement shall not constitute a novation, waiver, release or modification of
any rights, claims or remedies of the Bank under the Existing Loan Agreement or
otherwise, or any indebtedness or other obligations owing to the Bank under the
Existing Loan Agreement or otherwise, based on any facts or events occurring or
existing prior to the execution and delivery of this Agreement.
<PAGE> 49
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA, FSB EDUCATIONAL MEDICAL, INC.
By: By:
-------------------------------- -------------------------------
Typed Name Typed Name
------------------------- ------------------------
Title Title Vice President and Chief
------------------------------ -----------------------------
Officer
-----------------------------
Attest
----------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
-----------------------------
Address where notices to Addresses where notices to
the Bank are to be sent: the Borrowers are to be sent:
1230 Peachtree Street 1327 Northmeadow Parkway
Suite 3600 Suite 132
Atlanta, Georgia 30309 Roswell, Georgia 30076
ANDON COLLEGES, INC.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------------
Officer
------------------------------
Attest
-----------------------------
Typed Name Morris C. Brown
-------------------------
Title Secretary
------------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 50
CALIFORNIA ACADEMY OF
MERCHANDISING, ART AND
DESIGN, INC.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 51
DBS ACQUISITION CORP.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 52
DEST EDUCATION CORPORATION
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 53
ICM ACQUISITION CORP.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 54
HBC ACQUISITION CORP.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 55
MARIC LEARNING SYSTEMS
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
- - Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 56
MTSX ACQUISITION CORP.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 57
OIOPT ACQUISITION CORP.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 58
PALO VISTA COLLEGE OF NURSING
AND ALLIED HEALTH
SCIENCES, INC.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 59
SACMD ACQUISITION CORP.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 60
SCOTTSDALE EDUCATIONAL
CENTER FOR ALLIED HEALTH
CAREERS, INCORPORATED
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
-----------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 61
NEBRASKA ACQUISITION CORP.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 62
CHI ACQUISITION CORP.
By:
-------------------------------
Typed Name Vince Pisano
------------------------
Title Vice President and Chief
------------------------
Officer
------------------------
Attest
------------------------
Typed Name Morris C. Brown
------------------------
Title Secretary
------------------------
Chief executive office:
1327 Northmeadow Parkway
Suite 132
Roswell, Georgia 30076
<PAGE> 63
SCHEDULE 3.1
Certain Acquisitions
<PAGE> 64
SCHEDULE 8.16
[SUBSIDIARIES]
Dest Education Corporation is a subsidiary of Andon Colleges, Inc.
<PAGE> 65
SCHEDULE 9.9
[LIENS]
[See attached]
<PAGE> 1
EXHIBIT 21
LIST OF EDUCATIONAL MEDICAL'S SUBSIDIARIES
Parent Corporation: Educational Medical, Inc.
1. Andon Colleges, Inc. d/b/a Andon College, Andon College at Modesto
2. California Academy of Merchandising, Art and Design, Inc. f/k/a CAMAD
Acquisition Corp. d/b/a California Academy of Fashion Merchandising,
Art and Design
3. DBS Acquisition Corp. f/k/a A-DBS Acquisition Corp. d/b/a Dominion
College (previously d/b/a Dominion Business School)
4. DEST Education Corporation d/b/a Andon College, Andon College at
Stockton, (DEST is 100% owned by Andon Colleges, Inc. which is 100%
owned by Educational Medical, Inc.))
5. HBC Acquisition Corp. d/b/a Hagerstown Business College
6. ICM Acquisition Corp. d/b/a ICM School of Business
7. Maric Learning Systems, Inc. d/b/a Maric College of Medical Careers
8. MTSX Acquisition Corp. d/b/a Modern Technology School of X-Ray
9. Nebraska Acquisition Corp. d/b/a (1) Lincoln School of Commerce and (2)
Nebraska School of Business
10. OIOPT Acquisition Corp. d/b/a Ohio Institute of Photography and
Technology
11. Palo Vista College of Nursing and Allied Health Sciences, Inc. d/b/a
Maric College of Medical Careers
12. SACMD Acquisition Corp. d/b/a (1) Career Centers of Texas - El Paso and
(2) San Antonio College of Medical and Dental Assistants
13. Scottsdale Educational Center for Allied Health Careers, Inc. d/b/a
Long Medical Institute
In addition to the above subsidiaries, the following are established
corporations which have not yet been utilized to accomplish acquisitions and
thus, are not active subsidiaries:
14. DPT Acquisition Corp.
15. New Hampshire Acquisition Corp.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated June 30, 1997 except for the second paragraph of
Note 3 as to which the date is August 27, 1997 and except as to the last heading
of Note 2 as to which the date is February 26, 1998 in the Registration
Statement (Form S-1) and related Prospectus of Educational Medical, Inc. for the
registration of 2,500,000 shares of its common stock.
/s/ Ernst & Young LLP
April 15, 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-1 of Educational Medical, Inc. for the registration of 2,500,000 shares
of its common stock.
/s/ Winther, Stave & Co. LLP
Winther, Stave & Co., LLP
Spencer, Iowa
April 15, 1998
<PAGE> 1
EXHIBIT 23.4
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-1 of Educational
Medical, Inc. for the registration of 2,500,000 shares of its Common Stock.
/s/ Tsakopulos Brown Schott & Anchors
-------------------------------------
TSAKOPULOS BROWN SCHOTT & ANCHORS
San Antonio, Texas
April 14, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form S-1 of
Educational Medical, Inc. for the registration of 2,500,000 shares of its common
stock, 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, appearing in the Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Plante & Moran, LLP
Southfield, Michigan
April 14, 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>
<RESTATED>
<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>
<PAGE> 1
EXHIBIT 99.1
INDEPENDENT AUDITORS REPORT
Board of Directors
Nebraska Acquisition Corp.,
a wholly-owned subsidiary of Educational Medical, Inc.
We have audited the accompanying 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. This financial statement
is the responsibility of the Division's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Nebraska College of Business
(a division of Nebraska Acquisition Corp., a wholly-owned subsidiary of
Educational Medical, Inc.) as of March 31,1997 in conformity with generally
accepted accounting principles.
/s/ Winther, Stave & Co., LLP
Spencer, Iowa
May 16, 1997
<PAGE> 1
EXHIBIT 99.2
INDEPENDENT AUDITORS REPORT
Board of Directors
Nebraska Acquisition Corp.,
a wholly-owned subsidiary of Educational Medical, Inc.
We have audited the accompanying 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. This financial statement
is the responsibility of the Division's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position 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 conformity with generally
accepted accounting principles.
/s/ Winther, Stave & Co., LLP
Spencer, Iowa
May 16, 1997
<PAGE> 1
EXHIBIT 99.3
INDEPENDENT AUDITORS REPORT
Board of Directors
Educational Management, Inc. and
Partners, Wikert and Rhude, General Partnership
We have audited the accompanying combined balance sheets of Educational
Management, Inc. and Wikert and Rhude, general partnership, (collectively, the
"Company") as of December 31, 1996 and 1995 and the related combined statements
of operations, owners' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
combined financial statements presentation. We believe that our audit of the
combined financial statements provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Educational Management, Inc. and Wikert and Rhude, general partnership, as of
December 31, 1996 and 1995, and the results of their combined operations and
cash flows for each of the three years in the period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ Winther, Stave & Co., LLP
Spencer, Iowa
April 18, 1997
