<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
EDUTREK INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 8221 58-2255472
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3340 PEACHTREE ROAD
SUITE 2000
ATLANTA, GEORGIA 30326
(404) 812-8200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
STEVE BOSTIC
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
EDUTREK INTERNATIONAL, INC.
3340 PEACHTREE ROAD, SUITE 2000
ATLANTA, GEORGIA 30326
(404) 812-8200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
ARTHUR JAY SCHWARTZ, ESQ. M. HILL JEFFRIES, JR.
SMITH, GAMBRELL & RUSSELL, LLP ALSTON & BIRD LLP
SUITE 1800 ONE ATLANTIC CENTER
3343 PEACHTREE ROAD, N.E. 1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30326 ATLANTA, GEORGIA 30309-3424
(404) 264-2620 (404) 881-7000
(404) 264-2652 (FAX) (404) 881-7777 (FAX)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES TO AGGREGATE AMOUNT OF
BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, without par value......... $44,850,000 $13,590.91
================================================================================================================
</TABLE>
(1) Includes 390,000 shares that may be sold by the Company upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
---------------------
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
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 JUNE 19, 1997
PROSPECTUS
2,600,000 SHARES
[EDUTREK LOGO] EDUTREK INTERNATIONAL, INC.
CLASS A COMMON STOCK
---------------------
Of the 2,600,000 shares of Class A Common Stock (the "Class A Common
Stock") being offered hereby (the "Offering"), 2,342,890 shares are being sold
by EduTrek International, Inc. (the "Company") and 257,110 shares are being sold
by a shareholder of the Company (the "Selling Shareholder"). The Company will
not receive any proceeds from the sale of shares of Class A Common Stock by the
Selling Shareholder. See "Principal and Selling Shareholders."
Prior to this Offering, there has been no public market for the Class A
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $ and $ per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. Application has been made to have
the Class A Common Stock listed on the Nasdaq National Market under the trading
symbol "EDUT."
The Company's authorized capital stock includes the Class A Common Stock
and shares of Class B Common Stock, without par value (the "Class B Common
Stock"). The economic rights of the Class A Common Stock and the Class B Common
Stock (collectively, the "Common Stock") are identical, except that each share
of Class A Common Stock generally entitles the holder thereof to one vote in
respect of matters submitted for the vote of holders of Common Stock, whereas
each share of Class B Common Stock entitles the holder thereof to ten votes on
such matters. Immediately after this Offering, Steve Bostic, the Company's
Chairman and Chief Executive Officer, and his controlled affiliates will have
the power to vote all of the outstanding shares of Class B Common Stock
(representing approximately 95.1% of the aggregate voting power of the Common
Stock, assuming no exercise of the Underwriters' over-allotment option). Each
share of Class B Common Stock converts automatically into one share of Class A
Common Stock upon sale or other transfer to a party other than Permitted
Transferees (as defined herein). See "Description of Capital Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
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) SHAREHOLDER
- -----------------------------------------------------------------------------------------------------------------------
<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 $500,000, which are
payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
390,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. See "Underwriting." If the option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ , and $ ,
respectively. Proceeds to the Selling Shareholder will not be affected.
---------------------
The shares of Class A 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 Class A Common Stock offered hereby will be available for delivery on
or about , 1997 at the offices of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
---------------------
SMITH BARNEY INC. THE ROBINSON-HUMPHREY COMPANY, INC.
, 1997
<PAGE> 3
[PHOTOGRAPH DEPICTING A STUDENT AND TEACHER INTERACTING IN AN INTERIOR DESIGN
PROGRAM CLASS]
The University's FIDER accredited interior design program is supported by
an extensive library of design resources.
[PHOTOGRAPH OF THE EXTERIOR OF THE UNIVERSITY'S CAMPUS IN LONDON]
Students gather outside of the University's campus in London.
[PHOTOGRAPH DEPICTING STUDENTS STUDYING IN A WORKING GROUP]
The University's faculty utilizes collaborative learning techniques to
teach students to work effectively in teams.
[PHOTOGRAPH DEPICTING STUDENTS PARTICIPATING IN THE UNIVERSITY'S VIDEO
PRODUCTION PROGRAM]
Students enrolled in AIU's video production program employ the latest
technology to complete projects.
[PHOTOGRAPH DEPICTING A TYPICAL CLASSROOM USED IN THE UNIVERSITY'S INTERIOR
DESIGN PROGRAM]
The University's classrooms are designed to facilitate learning skills that
are both practical and marketable.
[PHOTOGRAPH DEPICTING A STUDENT WORKING AT A COMPUTER TERMINAL.]
AIU's students utilize state of the art computer equipment and software to
refine their design skills.
The Company intends to furnish its shareholders annual reports containing
audited financial statements and, upon request, will make available copies of
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, the term "Company"
includes EduTrek International, Inc. and the Predecessor (as defined in
"Acquisitions"), together with its subsidiaries. The offering of shares of the
Class A Common Stock of the Company is referred to herein as the "Offering."
Unless otherwise indicated, all information included in this Prospectus reflects
a 7-for-1 split of the Company's Common Stock effected as of June 17, 1997 and
assumes no exercise of the Underwriters' over-allotment option. See "Description
of Capital Stock" and "Principal and Selling Shareholders."
THE COMPANY
EduTrek International, Inc. (the "Company") intends to become a leading
provider of career-oriented, internationally focused higher education designed
to prepare students to compete in the global marketplace. The Company operates
the American Intercontinental University ("AIU" or the "University"), an
international postsecondary educational institution with campuses in Atlanta,
Los Angeles, London and Dubai, United Arab Emirates serving approximately 2,800
students from the U.S. and over 100 other countries. AIU's curriculum includes
such academic disciplines as international business, multimedia communications
and international design. To respond to the increasingly technology-intensive
workplace, the University intends to expand its curriculum to include academic
programs in the field of information technology management. The University's
Fall term enrollment has increased from 2,209 students in 1994 to 2,815 students
in 1996, and its net revenues have increased from approximately $20.7 million
for the fiscal year ended May 31, 1994 to approximately $26.5 million for the
fiscal year ended May 31, 1996.
Originally established as a two-year institution, AIU has grown into a
diversified institution awarding associate's and bachelor's degrees as well as a
master of business administration ("MBA") degree in international business. Of
its May 1997 graduates, 9.5% graduated with an associate's degree, 86.4%
graduated with a bachelor's degree and 4.1% graduated with a master's degree. In
1987, AIU became the first for-profit four-year university to be accredited by
the Commission of Colleges of the Southern Association of Colleges and Schools
("SACS"), one of six regional accrediting agencies recognized by the U.S.
Department of Education. Currently, AIU is the only for-profit educational
institution accredited by SACS to offer a master's degree program. AIU offers an
authentic international educational environment with over half of its students
being non-U.S. students. Through its Study Abroad Program (the "SAP program"),
AIU provides nearly 500 students from U.S. universities the opportunity to earn
academic credit toward a degree from their home university by studying
international business, liberal arts and applied art at one of AIU's
international campuses. The Company, through EduTrek Systems, Inc. ("EduTrek
Systems"), also licenses from third parties, acquires, develops and implements
corporate education programs specifically designed to meet corporate education
requirements.
The Company believes that the demand for postsecondary career-oriented
education will increase over the next several years as a result of certain
demographic, economic and social trends. The United States Department of
Education (the "U.S. Department of Education") estimates that the number of new
high school graduates is expected to increase by approximately 20% from 2.5
million graduates in 1994 to 3.0 million graduates in 2005. In addition, the
U.S. Department of Education expects significant growth to result from increased
enrollment of students over the age of 24 seeking to enhance their skills or
retrain for new technologies. Two significant segments in the U.S. postsecondary
education market are international students enrolling in U.S. institutions and
U.S. students studying abroad. According to the Institute of International
Education, international student enrollment at U.S. colleges and universities
reached a record high of over 450,000 for the 1995-1996 academic year. In
addition, the number of U.S. students studying abroad has risen from
approximately 48,000 in the 1985-1986 academic year to approximately 84,000 in
the 1994-1995 academic year.
The key elements of the Company's growth strategy are to (i) enhance growth
at existing campuses through an integrated marketing program, increased student
retention and job placement assistance and
3
<PAGE> 5
competitive financing programs; (ii) expand education program offerings,
including information technology management and corporate education; and (iii)
capitalize on AIU's international educational capabilities by aggressive
international student recruiting and growth in its SAP program.
The Company's principal executive offices are located at 3340 Peachtree
Road, Suite 2000, Atlanta, Georgia 30326, and its telephone number is (404)
812-8200.
PENDING LICENSING AGREEMENT
On June 11, 1997, the Company entered into a letter of intent with ITI
Education Corporation ("ITI") pursuant to which ITI will, subject to the
execution of a definitive agreement, license its Applied Information Technology
("AIT") program to the Company for use at the University's campuses in Atlanta,
Los Angeles and London. It is anticipated that under the licensing agreement,
the Company will pay ITI a one-time licensing and implementation fee to
implement the AIT program in the Atlanta campus curriculum, a one-time licensing
fee for each additional campus that implements the program and royalties of a
percentage of revenues derived from AIU students enrolled in the AIT program.
The AIT program is an intensive nine month post-graduate program in applied
information technology designed to train and certify students in the growing
field of information technology management. It is anticipated that a definitive
licensing agreement will be entered into by July 1, 1997 and that the AIT
program will be implemented in the Atlanta campus curriculum by January 1, 1998.
See "Business -- Applied Information Technology Program."
RISK FACTORS
An investment in the Class A Common Stock offered hereby involves a high
degree of risk. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. 2,342,890 shares of Class A Common Stock
Common Stock offered by the Selling Shareholder...... 257,110 shares of Class A Common Stock
Common Stock to be outstanding after the
Offering........................................... 3,265,000 shares of Class A Common Stock(1)
6,335,000 shares of Class B Common Stock
Use of proceeds...................................... To repay certain indebtedness of the Company
and for general corporate purposes, including
working capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............... EDUT
</TABLE>
- ---------------
(1) Excludes (i) 829,388 shares of Class A Common Stock reserved for issuance
under the Company's 1997 Incentive Plan, of which 395,500 shares were
subject to outstanding stock options as of June 19, 1997 and (ii) 622,041
shares of Class A Common Stock issuable upon the exercise of stock purchase
warrants. See "Use of Proceeds," "Management -- 1997 Incentive Plan,"
"Principal and Selling Shareholders," and "Description of Capital
Stock -- Warrants to Purchase Class A Common Stock."
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, PERCENTAGE AND ENROLLMENT DATA)
The following table sets forth certain consolidated financial and other
operating data for the Company and the Predecessor. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's Consolidated Financial
Statements and Notes thereto, the Predecessor's Consolidated Financial
Statements and Notes thereto, and other financial information included elsewhere
herein.
<TABLE>
<CAPTION>
THE PREDECESSOR(1)(2) THE COMPANY(1)
-------------------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM NINE MONTHS ENDED
FISCAL YEAR ENDED MAY 31, JUNE 1, 1996 JULY 1, 1996 FEBRUARY 28, 1997
--------------------------- THROUGH THROUGH PRO FORMA
1994 1995 1996 OCTOBER 8, 1996 FEBRUARY 28, 1997(2) AS ADJUSTED(3)
------- ------- ------- --------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues........................ $20,654 $23,696 $26,493 $ 6,189 $ 14,174 $ 20,363
Cost of education and facilities.... 8,611 10,051 11,144 3,257 5,279 8,536
Selling and promotional expenses.... 3,165 3,083 3,614 1,335 1,574 2,909
General and administrative
expenses.......................... 6,264 6,115 6,677 2,739 3,139 5,746
Rents paid to majority
shareholder....................... 146 145 150 49 0 0
Amortization of goodwill............ 0 0 0 0 431 775
------- ------- ------- ------- ---------- -----------
Income (loss) from campus
operations........................ 2,468 4,302 4,908 (1,191) 3,751 2,397
Income from management agreement.... 0 0 127 (21) 246 225
------- ------- ------- ------- ---------- -----------
Income (loss) from operations....... 2,468 4,302 5,035 (1,212) 3,997 2,622
Interest expense.................... 440 607 730 258 1,572 352
Interest income -- shareholder
notes............................. 183 153 361 98 0 0
Other income -- net................. 483 25 72 66 23 89
------- ------- ------- ------- ---------- -----------
Income (loss) before income taxes... 2,694 3,873 4,738 (1,306) 2,448 2,359
Provision for income taxes(4)....... 148 124 107 0 1,241 1,341
------- ------- ------- ------- ---------- -----------
Net income (loss)................... $ 2,546 $ 3,749 $ 4,631 $(1,306) $ 1,207 $ 1,018
======= ======= ======= ============ ================ ================
Net income per share(5)............. $ .15
================
Weighted average shares
outstanding....................... 8,274,651
================
Pro forma net income per share...... $ .10
================
Pro forma weighted average shares
outstanding(6).................... 10,533,327
================
PRO FORMA DATA:
Income before income taxes, as
reported.......................... $ 2,694 $ 3,873 $ 4,738 $(1,306)
Pro forma provision for income
taxes(4).......................... 1,051 1,510 1,848 509
------- ------- ------- -------
Pro forma net income................ $ 1,643 $ 2,363 $ 2,890 $ (797)
======= ======= ======= ============
SELECTED OPERATING DATA:
EBITDA(7)........................... $ 3,695 $ 5,445 $ 6,135 $ (821) $ 4,951 $ 4,195
EBITDA margin....................... 17.9% 23.0% 23.2% (13.3)% 34.9% 20.6%
Net cash provided by (used in)
operating activities.............. 4,375 5,515 5,806 1,401 (92)
Net cash provided by (used in)
investing activities.............. 725 (1,507) (2,662) (288) (31,162)
Net cash provided by (used in)
financing activities.............. (5,030) (3,916) (3,442) (1,196) 31,439
AIU Fall term enrollment(8)......... 2,001 2,209 2,440 2,815 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AT FEBRUARY 28, 1997
--------------------------
ACTUAL AS ADJUSTED(9)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $(10,992) $(6,597)
Total assets................................................ 48,022 48,111
Long-term debt, including current portion................... 29,525 2,041
Shareholders' equity........................................ 6,383 36,062
</TABLE>
See accompanying notes on following page.
5
<PAGE> 7
- ---------------
(1) The Company was organized on July 1, 1996 for the purpose of acquiring the
Predecessor. On October 8, 1996, the Company acquired the Predecessor and
EduTrek Systems. See "Acquisitions."
(2) Because the Company did not acquire the Predecessor until October 8, 1996,
the financial information with respect to the Company for the period from
July 1, 1996 through October 8, 1996 does not include the Predecessor.
EduTrek Systems is included in the financial information of the Company in a
manner similar to a pooling of interests because the Company and EduTrek
Systems were under common control. Financial information for EduTrek Systems
is not included in the Summary Consolidated Financial Data prior to July 1,
1996 because, since its formation in 1992, EduTrek Systems has not generated
revenues and in 1992, 1993, 1994, 1995 and for the period ended October 8,
1996, EduTrek Systems incurred losses of $321,000, $90,911, $312,954,
$584,627 and $819,430, respectively. Such amounts are not considered to be
material.
(3) Assumes that the Company was formed on June 1, 1996 and gives effect to the
acquisitions of the Predecessor and EduTrek Systems as if such acquisitions
had occurred on June 1, 1996. See "Acquisitions." As adjusted to (i) give
effect to the sale of 2,342,890 shares of Class A Common Stock offered by
the Company hereby and (ii) the application of the estimated net proceeds
therefrom as if such application had occurred on June 1, 1996. See "Pro
Forma Consolidated Financial Data."
(4) As a result of its election to be treated as an S Corporation for income tax
purposes, the Predecessor has not been subject to federal and most state
income taxes. Accordingly, the historical provision for income taxes
includes income taxes only for those jurisdictions that do not recognize S
Corporation status. The pro forma provision for income taxes (computed under
the provisions of Statement of Financial Accounting Standards No. 109)
reflects provisions that would have been recorded had the Predecessor been a
C Corporation for income tax purposes during the periods shown using an
estimated income tax rate of 39%. Prior to this Offering, distributions in
the form of cash dividends have been made principally to assist the
shareholders with their income tax obligations arising from the
Predecessor's S Corporation status. Such distributions amounted to
$4,068,962, $3,800,000, $4,500,000 and $0 for fiscal 1994, 1995 and 1996 and
for the period from June 1, 1996 through October 8, 1996, respectively.
(5) Net income per share for the Predecessor is not presented as the amounts are
not considered meaningful because of its number of outstanding shares and
the S Corporation election of the Predecessor. Net income per share of the
Company is based upon the weighted average number of shares divided into net
income for the period. All stock options and stock purchase warrants
outstanding are assumed to be exercised as of the beginning of the period.
(6) Pro forma weighted average shares outstanding includes 665,000 shares of
Class A Common Stock and 6,335,000 shares of Class B Common Stock issued and
outstanding as of February 28, 1997, as adjusted for the 2,342,890 shares of
Class A Common Stock included in this Offering and all outstanding warrants
and options (1,017,541) to purchase Class A Common Stock. The calculation
excludes 84,214 shares of Class A Common Stock for which the proceeds of
approximately $1,179,000 are used for general corporate purposes.
(7) EBITDA represents income from operations plus depreciation and amortization.
While EBITDA data should not be construed as a substitute for income from
operations, net income, or cash flows from operations, in accordance with
generally accepted accounting principles, in analyzing the Company's and the
Predecessor's operating performance, financial position and cash flows, the
Company has included EBITDA data (which is not a measure of financial
performance under generally accepted accounting principles) because it
understands that such data are commonly used by certain investors to
evaluate a company's performance in the postsecondary education industry.
(8) Represents enrollment data as measured on the first day of each Fall term.
(9) Adjusted to give effect to the sale of 2,342,890 shares of Class A Common
Stock offered by the Company hereby and the application of the estimated net
proceeds therefrom as if such application had occurred on February 28, 1997.
See "Use of Proceeds."
6
<PAGE> 8
ACQUISITIONS
The Company, formerly known as E Holdings, Inc., is the successor to a
business organized in 1970 for the purpose of founding and operating the
University. The Company was organized by Mr. Steve Bostic, the Company's current
Chairman and Chief Executive Officer, for the purpose of acquiring all of the
capital stock of EduTrek Systems (a company also controlled by Mr. Bostic),
American European Corporation ("American European") and American College in
London, Ltd., U.S., as well as 85% of the membership interests of American
European Middle East Corporation, L.L.C. ("AEMEC" which, together with American
European and American College in London, Ltd., U.S. are collectively referred to
herein as the "Predecessor"). On October 8, 1996, the Company acquired the
capital stock and membership interests of the Predecessor (the "AIU
Acquisition") which, prior to its acquisition, operated AIU. The purchase price
for the acquisition of the Predecessor was approximately $38.0 million. Also on
October 8, 1996, the Company acquired all of the issued and outstanding capital
stock of EduTrek Systems for an aggregate of 105,000 shares of Class A Common
Stock and 1,995,000 shares of Class B Common Stock. See Note 1 of Notes to the
Company's Consolidated Financial Statements.
7
<PAGE> 9
RISK FACTORS
An investment in the shares of Class A Common Stock offered hereby involves
a high degree of risk. In addition to the other information in this Prospectus,
the following factors should be considered carefully in evaluating an investment
in the shares of Class A Common Stock offered hereby. Certain statements
included in this Prospectus concerning the Company's future financial condition
and performance are forward-looking statements, and the factors discussed below,
as well as those discussed elsewhere in this Prospectus, could cause actual
results and developments to be materially different from those expressed in or
implied by such statements.
POTENTIAL ADVERSE EFFECTS OF REGULATION; IMPAIRMENT OF FEDERAL FUNDING
General
The Company and AIU are subject to extensive regulation by federal, state
and foreign governmental agencies and accrediting agencies. In particular, the
Higher Education Act of 1965, as amended (the "HEA"), and the regulations (the
"Regulations") promulgated thereunder by the U.S. Department of Education set
forth numerous standards that schools must satisfy in order to participate in
the various federal student financial assistance programs under Title IV of the
HEA ("Title IV Programs"). For example, the HEA and the Regulations (i)
establish certain financial responsibility and administrative capability
standards, (ii) establish maximum acceptable rates of default by students on
federally guaranteed or funded student loans, (iii) restrict the ability of a
school or its parent corporation to engage in certain types of transactions that
would result in a change in ownership and control of that school or corporation,
(iv) limit the proportion of school revenues that may be derived from Title IV
Programs, and (v) prohibit the payment of certain types of incentives to
personnel engaged in student recruiting and admissions activities. See
"Business -- Regulatory Environment -- Student Financial Assistance -- Federal
Oversight of Title IV Programs."
In the event of a determination by the U.S. Department of Education that
AIU has improperly disbursed Title IV Program funds, AIU could be required to
repay those funds and could be assessed an administrative fine. Alternatively,
the U.S. Department of Education could transfer AIU from the "advance" system of
payment of Title IV Program funds, under which a school requests and receives
funding from the U.S. Department of Education in advance based on anticipated
needs, to the "reimbursement" system of payment, under which a school must
disburse funds to students and document their eligibility for Title IV Program
funds before receiving funds from the U.S. Department of Education. Violations
of Title IV Program requirements could also subject AIU or the Company to
sanctions under the federal False Claims Act as well as other civil and criminal
penalties. The failure by AIU to comply with applicable federal, state or
accrediting agency requirements could result in the limitation, suspension or
termination of the ability of AIU's campuses to participate in Title IV Programs
or the loss of state licensure or accreditation. Given that approximately 27% of
the Company's revenues are indirectly derived from Title IV Programs, the loss
of or a significant reduction in Title IV Program funds would have a material
adverse effect on the Company's revenues and cash flow because AIU's student
enrollment would likely decline as a result of its students' inability to
finance their education without the availability of Title IV Program funds. The
loss of or a significant reduction in Title IV Program funds may also increase
the amount of credit risk borne by the Company as it would likely have to
explore alternative means of providing student financing, including
Company-sponsored financing programs. See "Business -- Regulatory
Environment -- Student Financial Assistance -- Federal Oversight of Title IV
Programs."
Significant factors related to the HEA and its implementing regulations
that could adversely affect the Company include the following:
Financial Responsibility Standards
The HEA and the Regulations establish specific standards of financial
responsibility that must be satisfied in order to qualify for participation in
Title IV Programs. Such standards include certain financial requirements under
which an institution must: (i) have an acid test ratio (defined as the ratio of
cash, cash equivalents and current accounts receivable to current liabilities)
of at least 1:1 at the end of each fiscal year,
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(ii) have a positive tangible net worth at the end of each fiscal year, and
(iii) not have a cumulative net operating loss during either of its two most
recent fiscal years that results in a decline of more than 10% of the
institution's tangible net worth at the beginning of that two-year period. An
institution that is determined by the U.S. Department of Education not to meet
the standards of financial responsibility on the basis of failing to meet one or
more of the specified numeric indicators is nonetheless entitled to participate
in Title IV Programs if it can demonstrate to the U.S. Department of Education
that it is financially responsible on an alternative basis. An institution may
do so by demonstrating, with the support of a statement from a certified public
accountant, proof of prior compliance with the numeric standards and other
information specified in the regulations, that its continued operation is not
jeopardized by its financial condition. Alternatively, an institution may post
surety either in an amount equal to one-half of the total Title IV Program funds
received by students enrolled at such institution during the prior year or in an
amount equal to 10% of such prior year's funds and agree to disburse those funds
only on an "as-earned" basis. The U.S. Department of Education has interpreted
this surety condition to require the posting of an irrevocable letter of credit
in favor of the U.S. Department of Education.
The U.S. Department of Education applies the financial responsibility
standards to AIU on a consolidated basis at the level of the Company in
evaluating the financial condition of AIU. Based on the consolidated financial
statements of the Company as of February 28, 1997, AIU does not satisfy either
the acid test ratio or the tangible net worth test. As of February 28, 1997, the
Company's acid test ratio was .13 and the Company had a negative tangible net
worth of approximately $35 million. Notwithstanding such noncompliance, the
Company has maintained AIU's eligibility to continue participating in Title IV
Programs by posting an irrevocable letter of credit in the amount of $3.75
million in favor of the U.S. Department of Education, which amount is
approximately 50% of the Company's 1996 Title IV Program funds received by
students enrolled at AIU. The letter of credit was posted on March 19, 1997 and
will expire on March 31, 1998. Because the amount of the letter of credit is
based on the amount of Title IV Program funds received by AIU's students, to the
extent that such funds have increased during 1997, the Company may be required
to increase the letter of credit on or around June 30, 1997, the date the U.S.
Department of Education re-assesses the University's compliance with the
financial responsibility standards. If the Company continues to fail these
financial responsibility standards, the Company may be required to increase the
amount of its letter of credit. There can be no assurance that, if required, the
Company will be able to maintain its letter of credit or increase its letter of
credit in the future.
In addition to the financial responsibility standards, an institution is
required to make timely refunds when a student who receives Title IV Program
funds withdraws from an institution. Depending on when during the academic term
the student withdraws, the institution is required to refund all or a portion of
the Title IV Program funds paid by the withdrawing student. Beginning with the
1995-1996 award year, an institution that has failed to make all Title IV
Program refunds on a timely basis during the previous two years is required to
post a letter of credit in favor of the U.S. Department of Education equal to
25% of the Title IV Program refunds that the institution was required to make
for the previous year. During the past two years the University has made all
Title IV Program refunds on a timely basis.
In 1996, the U.S. Department of Education issued proposed regulations that
would establish new measures of financial responsibility. The Department has
extended the period for comment on the proposed regulations on three occasions
because of concerns expressed by members of the higher education community about
the proposed standards. If the proposed standards are adopted, there can be no
assurance that the Company's consolidated financial statements would satisfy
such standards as it is not possible to predict the outcome of this rulemaking
proceeding at this time. See "Business -- Regulatory Environment -- Student
Financial Assistance -- Federal Oversight of Title IV Programs -- Financial
Responsibility Standards."
Student Loan Defaults
Under the HEA, an institution could lose its eligibility to participate in
some or all Title IV Programs if the defaults of its students on their federal
student loans exceed specified rates for specified periods of time. Under the
Federal Family Education Loan (the "FFEL") program, any institution that has
FFEL cohort default rates of 25% or greater for three consecutive federal fiscal
years will no longer be eligible to participate
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in the FFEL program or the William D. Ford Federal Direct Loan (the "Direct
Loan") program for the remainder of the federal fiscal year in which the
determination of ineligibility is made and for the two subsequent federal fiscal
years. An institution whose FFEL cohort default rate for any federal fiscal year
exceeds 40% may have its eligibility to participate in all Title IV Programs
limited, suspended or terminated. If an institution's FFEL cohort default rate
is 25% or greater in any of the three most recent federal fiscal years, that
institution may be placed on "provisional certification" status for up to four
years. Provisional certification does not limit an institution's access to Title
IV Program funds, but does subject that institution to closer review by the U.S.
Department of Education and possible summary adverse action if that institution
commits violations of Title IV Program requirements.
AIU has not had published FFEL cohort default rates of 25% or greater for
three consecutive federal fiscal years or during any of the last three fiscal
years. AIU had a published cohort default rate of 14.3% and 14.8% for federal
fiscal 1993 and 1994, respectively, and for federal fiscal 1995, the preliminary
FFEL cohort default rate for all borrowers at AIU was 18.5%. (Preliminary cohort
default rates are subject to revision by the U.S. Department of Education based
on information that schools and guaranty agencies identify and submit to the
U.S. Department of Education for review, in order to correct any errors in the
data previously provided to the U.S. Department of Education. Any such
adjustment will be made by the U.S. Department of Education at the time that
final rates are officially published. AIU has submitted such corrections for its
1995 preliminary cohort default rate.) However, there can be no assurance that
the University will be able to maintain cohort default rates below the required
regulatory minimums, and the loss of AIU's eligibility to participate in Title
IV Programs due to high FFEL cohort default rates could have a material adverse
effect on the Company. See "Business -- Regulatory Environment -- Student
Financial Assistance -- Federal Oversight of Title IV Programs -- Cohort Default
Rates."
Regulatory Consequences of a Change in Ownership or Control
Upon a "change in ownership" of an institution resulting in a "change of
control," as defined in the HEA and the Regulations, that institution becomes
ineligible to participate in Title IV Programs. In such event, an institution
may receive and disburse only previously committed Title IV Program funds to its
students until it has applied for and received from the U.S. Department of
Education recertification under such institution's new ownership. Approval of an
application for recertification must be based upon a determination by the U.S.
Department of Education that the institution under its new ownership is in
compliance with the requirements for institutional eligibility. The time
required to act on such an application can vary substantially and may take
several months. If a school is recertified, it will be on a provisional basis.
Under the HEA and the Regulations, a change in ownership resulting in a change
of control would occur upon the transfer of a controlling interest in the voting
stock of an institution or such institution's parent corporation. For a
corporation qualifying as closely held under the law of the state of its
incorporation, such as the Company, a change in ownership resulting in a change
of control would occur (i) if any person acquires ownership or control of more
than 50% of such corporation's total outstanding voting stock, or (ii) if a
person having ownership or control of more than 50% of such corporation's total
outstanding stock ceases to hold or control more than 50% of such corporation's
total outstanding stock. With respect to a publicly traded corporation, a change
in ownership resulting in a change of control occurs when there is an event that
would obligate that corporation to file a Current Report on Form 8-K with the
Securities and Exchange Commission (the "Commission") disclosing a change of
control. A change in ownership and control also could require an institution to
secure approval from the agency which accredits the institution and the states
which issue its authorization. The requirements of state and accrediting
agencies with jurisdiction over AIU vary widely in this regard. See "Business --
Regulatory Environment -- State Authorization." With respect to the Company's
acquisition of American European and the resulting change of control of the
University, AIU has been provisionally certified for eligibility to participate
in Title IV Programs by the U.S. Department of Education and has obtained the
required state and accrediting agency approvals. AIU's provisional certification
will expire in December 1999 at which time the University expects to receive
full certification. Provisional certification differs from full 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,
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suspension, or limitation of eligibility prior to expiration of its
certification. Additionally, the U.S. Department of Education may impose such
further conditions on a provisionally certified institution's eligibility to
continue participating in the Title IV Programs as the Department deems
necessary.
If the Offering were determined to constitute a change in ownership
resulting in a change of control, the Company would be required to reestablish
the state authorization and accreditation of AIU's campuses and apply to the
U.S. Department of Education to reestablish the certification of AIU to enable
it to participate in Title IV Programs. A significant delay in reobtaining or
the failure to reobtain state authorization, accreditation or Title IV Program
certification could have a material adverse effect on the Company. The Company
has been advised by the U.S. Department of Education that, based on the facts
pertaining to the Company's ownership and control which are set forth in this
Prospectus, the consummation of this Offering will not constitute a change in
ownership resulting in a change of control within the meaning of the HEA and the
Regulations. In addition, the Commission of Colleges of the Southern Association
of Colleges and Schools ("SACS") and each of the regulatory agencies in the
States of Georgia and California and in the District of Columbia have advised
the Company that, based on the facts pertaining to the Company's ownership and
control which are set forth in this Prospectus, the consummation of this
Offering will not constitute a change in ownership resulting in a change of
control within the meanings of their respective accreditation standards and
state laws and regulations.
Once the Company is deemed to be publicly traded, the potential adverse
implications of a change in ownership resulting in a change of control could
influence future decisions by the Company and its shareholders regarding the
sale, purchase, transfer, issuance or redemption of the Company's capital stock.
However, the Company believes that any such future transaction having an adverse
effect on state authorization, accreditation or participation in Title IV
Programs of any of the University's campuses is not likely to occur without the
consent of the Company's controlling shareholder and/or the Company's Board of
Directors. See "-- Voting Control by Principal Shareholder," "-- Anti-Takeover
Provisions," "Principal and Selling Shareholders" and "Description of Capital
Stock."
Accreditation
In order to participate in Title IV Programs, an institution must be
accredited by an accrediting agency recognized by the U.S. Department of
Education. Accreditation is a non-governmental process through which an
institution submits to qualitative review by an organization of peer
institutions, based on the standards of the accrediting agency and the stated
aims and purposes of the institution. An accrediting agency primarily examines
the academic quality of an institution's programs, as well as the institution's
administrative and financial operations. The HEA specifies certain standards
that each accrediting agency must utilize in reviewing institutions in order for
such accrediting agency to be recognized by the U.S. Department of Education.
AIU is accredited by SACS, an accrediting agency recognized by the U.S.
Department of Education which serves as AIU's accreditor for purposes of
participation in Title IV Programs. If AIU were to have its accreditation
revoked by SACS, it would lose its eligibility to participate in Title IV
Programs, which could have a material adverse effect on the Company. See
"Business -- Regulatory Environment -- Accreditation."
State Authorization
In order to award degrees and certificates and to participate in Title IV
Programs, an institution must be authorized to offer its programs of instruction
by the relevant agency of the state in which such school is located. Each state
has its own standards and requirements for authorization, which vary
substantially among the states. Typically, state laws require that an
institution demonstrate that it has the personnel, resources and facilities
appropriate to its instructional programs. AIU's campuses in Atlanta and Los
Angeles are licensed and approved by the relevant agencies in Georgia and
California, respectively. In addition, because AIU's London campus is operated
under a corporation whose parent corporation is organized under the laws of the
District of Columbia, the London campus has been licensed and approved by the
Education Licensure Commission of the District of Columbia. If any of AIU's
campuses were to lose its state license or
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authorization, AIU would lose its eligibility to participate in Title IV
Programs, which could have a material adverse effect on the Company. See
"Business -- Regulatory Environment -- State Authorization."
Risk of Legislative Action
The HEA was most recently reauthorized by the U.S. Congress in 1992, at
which time funding for the Title IV Programs was authorized through September
30, 1997, with an automatic one-year extension if the HEA were not reauthorized
by that date. Congress has commenced the reauthorization process, which is
expected to be completed in late 1997 or during 1998. Although there is no
present indication that Congress will decline to reauthorize the Title IV
Programs, at this time it is not possible to predict the outcome of the
reauthorization process. There can be no assurance that federal funding will
continue to be available for any or all Title IV Programs for proprietary
institutions such as AIU, that such funding will be maintained at current levels
for any or all such programs, that current requirements for student and
institutional participation will be unchanged, or that one or more present Title
IV Programs will not be replaced by other programs with materially different
student or institutional eligibility requirements or benefits. Given the
significant percentage of the Company's revenues that are indirectly derived
from the Title IV Programs, the loss of or a significant reduction in Title IV
Program funds available to AIU's students would have a material adverse effect
on the Company.
MANAGEMENT'S LIMITED HISTORY OF OPERATING THE UNIVERSITY
In October 1996, the Company acquired AIU through the acquisition of the
Predecessor. Because the Company only recently acquired AIU, management of the
Company has limited experience in operating the University. The Company intends
to continue efforts to build a management team that is highly skilled in the
operation of a proprietary post-secondary educational institution such as AIU.
Although the Company believes it has assembled a management team with the
necessary experience and skill to operate the University, there can be no
assurance that such a management team will be successful in operating the
University. See "Acquisitions."
RISKS ASSOCIATED WITH POSSIBLE EXPANSION AND ACQUISITION PLANS
The Company expects that a portion of its future growth will be based on
its ability to open and profitably operate additional schools to serve as branch
campuses of AIU. While the Company has no current agreements in place or
negotiations underway with respect to any acquisition, the Company also plans to
regularly evaluate acquisition opportunities. If the Company acquires an
existing school, a significant portion of the purchase price for such school may
be allocated to goodwill and intangibles where such acquisition does not involve
the purchase of significant amounts of tangible property. All of such goodwill
and intangibles must be amortized over time, which amortization would reduce the
Company's reported earnings. In addition, there can be no assurance that
suitable expansion or acquisition opportunities will be identified or that any
new or acquired institutions can be operated profitably or successfully
integrated into the Company's operations. Growth through expansion or
acquisition also could involve other risks, including the diversion of
management's attention from normal operating activities, the inability to find
appropriate personnel to manage the Company's expanding operations and the
possibility that new or acquired schools will be subject to unanticipated
business or regulatory uncertainties or liabilities. The failure of the Company
to manage any expansion and acquisitions effectively could have a material
adverse effect on the Company.
The Company's acquisition of a school located in the United States
constitutes a change in ownership resulting in a change of control with respect
to such school for purposes of Title IV eligibility, which means that schools
which participate in the Title IV Programs must either be acquired subject to
recertification of eligibility by the U.S. Department of Education or lose
eligibility to participate in Title IV Programs for an indeterminate period of
time during which it applies for recertification of eligibility. The U.S.
Department of Education typically processes such applications for
recertification in three to nine months. There can be no assurance, however,
that recertification applications will be acted upon on a timely basis by the
U.S. 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 U.S. Department of Education, the Company must also obtain
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approval of the change of control from applicable states and accrediting
agencies. In the event the Company opens an additional school to serve as a
branch campus, the Company also must obtain authorization from the relevant
regulatory agency of the state in which such school is located, as well as the
approval of SACS and the U.S. Department of Education. There can be no assurance
that such state, accrediting agency and U.S. Department of Education approvals
may not be subject to unexpected delays or difficulties which may materially and
adversely affect the Company's operations. See "-- Regulatory Consequences of a
Change in Ownership or Control," "-- State Authorization" and
"-- Accreditation."
RISKS ASSOCIATED WITH IMPLEMENTATION OF AIT INFORMATION TECHNOLOGY PROGRAM
On June 11, 1997, the Company entered into a letter of intent with ITI
pursuant to which ITI will, subject to the execution of a definitive agreement,
license its AIT program to the Company for use at the University's campuses in
Atlanta, Los Angeles and London. It is anticipated that under the licensing
agreement, the Company will pay ITI a onetime licensing and implementation fee
to implement the program in the Atlanta campus curriculum, a one-time licensing
fee for each additional campus that implements the program and royalties of a
percentage of revenues derived from AIU students enrolled in the AIT program. It
is anticipated that a definitive licensing agreement will be entered into by
July 1, 1997 and that the AIT program will be implemented in the Atlanta campus
curriculum by January 1, 1998. There can be no assurances that a definitive
license agreement will be entered into with ITI on terms acceptable to the
Company or that the University will be able to successfully operate and
integrate the AIT program into its curricula. The failure of any such event to
occur could have a negative impact on the Company's growth strategy. See
"Summary -- Pending Licensing Agreement" and "Business -- Growth Strategy."
RISKS ASSOCIATED WITH CHANGES IN TECHNOLOGY
The University's development of new courses, or enhancements to existing
courses, must anticipate and keep pace with the introduction in the marketplace
of new hardware, software and networking technology. The need to respond to
technological changes may require the Company to make substantial, unanticipated
expenditures in order to develop new courses and acquire additional equipment in
order to deliver such new courses. In addition, the University is contemplating
the development of distance learning capabilities such as videoconferencing
technology and the Internet. Any future development by AIU of such distance
learning capabilities must anticipate and keep pace with the introduction in the
marketplace of new hardware, software and networking technology, including
changes in the Internet and the online delivery of educational services. There
can be no assurance that the Company will be able to respond successfully to
technological change. If, because of financial, technological or other
constraints, the Company could not adequately anticipate or respond to changes
in technology, the University's AIT program and other curricula and its plans to
develop distance learning capabilities could be materially adversely affected.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company presently maintains offices and education centers in two
countries outside the United States. In fiscal 1996, international revenues
represented approximately 44% of the Company's revenues. The Company intends, on
an ongoing basis, to seek ways to expand its international operations and
expects that revenues derived from international sources will continue to
account for a significant portion of its revenues. Inherent risks represented by
the Company's international operations include currency fluctuations, varying
political and economic conditions, unanticipated changes in regulation, trade
barriers, staffing and management problems, and adverse tax consequences. See
"-- Risks Associated with Currency Fluctuations." There can be no assurance that
such factors will not have a material adverse effect on the Company in the
future. In addition, failure to staff and manage foreign campuses adequately
could result in the loss of accreditation for all of the University's campuses
which, in turn, could result in the inability of AIU to participate in Title IV
Programs. The inability of AIU to participate in Title IV Programs could have a
material adverse effect on the Company.
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NEED FOR ADDITIONAL FINANCING
The Company anticipates that it will need additional debt or equity
financing, in addition to the proceeds of this Offering, in order to grow
through expansion and acquisitions. The amount and timing of financing which the
Company may need will vary principally depending on the timing and size of any
expansion and acquisitions and sellers' willingness to provide financing. To the
extent that the Company requires additional financing in the future and is
unable to obtain such additional financing, it may not be able to implement
fully its growth strategy. Following the completion of this Offering, the
Company will have the ability to borrow up to $2.5 million (of which $2.1
million is currently available) under its revolving loan, with NationsBank, N.A.
The Company believes this borrowing capacity, together with the proceeds of this
Offering, will provide adequate financing to support its existing level of
operations as well as any acquisitions or expansion activities for at least the
next twelve months. If the Company's available funds are not adequate, however,
there can be no assurance that any necessary capital leases or additional
financing, whether debt or equity, will be obtainable on terms favorable to, or
affordable by, the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
RISKS ASSOCIATED WITH CURRENCY FLUCTUATIONS
The Company's consolidated financial statements are prepared in U.S.
dollars while the operations of its foreign campuses are recorded in their
respective local currencies. Consequently, fluctuations in exchange rates may
have an adverse effect on the Company's consolidated operating results and could
result in exchange losses (the currency in Dubai is pegged to the U.S. dollar).
In fiscal 1996, the Company realized $35,000 in exchange gains as a result of
currency fluctuations. During the nine months ended February 28, 1997, the
Company reported $143,400 in exchange losses compared to $77,000 in exchange
gains for the same period in fiscal 1996. The impact of future fluctuations in
exchange rates cannot be predicted with any measure of accuracy. No assurance
can be given that any future exchange rate fluctuations will not have a material
adverse effect on the Company's operations. To date, the Company has not sought
to hedge the risks associated with fluctuations in exchange rates and therefore
continues to be subject to such risks. In the future, the Company may undertake
such transactions. If any hedging techniques are implemented by the Company,
there can be no assurance that such techniques would be successful in
eliminating or reducing the effects of currency fluctuations.
COMPETITION
The postsecondary education market is highly competitive. In the U.S. and
London, AIU competes with traditional public and private two-year and four-year
colleges and universities and other proprietary schools, many of which have
greater financial and other resources than the Company. Certain public and
private colleges and universities may offer programs similar to those of AIU.
Such competing institutions are often able to charge lower tuition than AIU, due
in part to government subsidies, government and foundation grants,
tax-deductible contributions and other financial sources not available to the
University. Tuition at private non-profit institutions is, on average, higher
than AIU's tuition. In addition, the University's campus in Dubai competes with
numerous institutions in the Persian Gulf region, certain of which are
government sponsored and charge lower tuition than the University. See
"Business -- Competition."
The information technology training and the corporate education markets are
highly fragmented, with low barriers to entry and no single competitor
accounting for a dominant market share. The University's competitors in the
information technology training market include computer systems vendors, other
independent education and training companies, systems integrators and software
vendors, as well as certain of the Company's own customers that maintain
internal training departments. The Company's primary competitors in the
corporate education market include other independent education and training
companies as well as many of the Company's own customers that maintain internal
training departments. Some of these competitors offer, at lower prices, courses
and programs similar to those the Company offers in its corporate education
program as well as those the University intends to offer in its AIT program. In
addition, some competitors have greater financial and other resources than the
Company. There can be no assurance that the Company will be successful against
such competition. See "Business -- Competition."
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FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND VOLATILITY OF STOCK PRICE
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 students enrolling in the University's programs.
The Company's fiscal year ends on May 31. Historically, the Company has
experienced losses during the first quarter of its fiscal year because revenues
and income during the first quarter are typically at their lowest due to lower
student enrollment during the summer months. The Company expects these seasonal
trends will continue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Seasonality."
From time to time after this Offering there may be significant volatility
in the market price for the Class A Common Stock. Quarterly operating results of
the Company or of other companies participating in the educational services
industry, changes in estimates by analysts, changes in conditions in the
economy, the financial markets or the educational services industry, natural
disasters or other developments affecting the Company or its competitors could
cause the market price of the Class A Common Stock to fluctuate substantially.
DEPENDENCE ON KEY PERSONNEL
The Company's continuing and future success depends in large part on the
continued services of Mr. Steve Bostic, its Chairman and Chief Executive
Officer, as well as certain of its other officers and key personnel. The loss of
the services of Mr. Bostic, certain of the Company's officers or other key
personnel could have a material adverse effect on the Company. The Company
currently maintains key man life insurance policies on the life of Mr. Bostic in
the aggregate amount of $27 million, which policies have been pledged to secure
certain indebtedness incurred by the Company. The Company and Mr. Bostic have
not entered into an employment agreement. The Company's continuing and future
success will also depend on its ability to attract and retain highly-skilled
personnel, including its faculty. There can be no assurance that the Company
will be successful in these recruitment and training efforts, and the failure to
hire and train the intended complement of faculty members may have a material
adverse effect on the Company's operations. See "Management."
VOTING CONTROL BY PRINCIPAL SHAREHOLDER
After this Offering, Steve Bostic, Chairman and Chief Executive Officer of
the Company, and his controlled affiliates will own all 6,335,000 shares of
Class B Common Stock outstanding, representing approximately 95.1% of the total
voting power of the Common Stock. As a result of such concentration of
ownership, Mr. Bostic will have the ability to exert significant influence on
the policies and affairs of the Company and corporate actions requiring
shareholder approval, including the election of the members of the Board of
Directors. This concentration of ownership could have the effect of delaying,
deferring or preventing a change of control of the Company, including any
business combination with an unaffiliated party, and could also affect the price
that investors might be willing to pay in the future for shares of Class A
Common Stock. See "Principal and Selling Shareholders" and "Description of
Capital Stock."
VOTING RIGHTS OF CLASS A AND CLASS B COMMON STOCK
The voting rights of the Class A Common Stock are limited by the Company's
Articles of Incorporation, as amended (the "Articles of Incorporation"). On all
matters with respect to which the Company's shareholders have a right to vote,
including the election of directors, each share of Class A Common Stock is
entitled to one vote, while each share of Class B Common Stock is entitled to
ten votes. Except as otherwise required by law or expressly provided in the
Articles of Incorporation, the Class A Common Stock and Class B Common Stock
vote together as a single class. Class B Common Stock can be converted into
shares of Class A Common Stock on a share-for-share basis at the election of the
holder and will be converted to shares of Class A Common Stock automatically
upon transfer by Steve Bostic, Alice Jane Bostic or the Bostic Family Limited
Partnership, except for transfers to immediate family members, the trustees of
certain trusts and entities controlled by such holders of the Class B Common
Stock (collectively, the "Permitted
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Transferees"). The Articles of Incorporation prohibit the Company from issuing
additional Class B Common Stock to any person or entity except Steve Bostic,
Alice Jane Bostic, the Bostic Family Limited Partnership or a Permitted
Transferee. See "Description of Capital Stock."
DIVIDEND POLICY
The Company currently anticipates that it will retain future earnings, if
any, to fund the development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future. See "Dividend Policy." In
addition, U.S. Department of Education financial responsibility standards
applicable to AIU could, in certain circumstances, restrict the ability of the
Company to obtain dividends or other funds from its subsidiaries, which, in
turn, could limit the Company's ability to pay dividends. See "-- Potential
Adverse Effects of Regulation; Impairment of Federal Funding -- Financial
Responsibility Standards." Also, certain of the Company's present credit
arrangements contain restrictions on the ability of the Company to pay
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
ABSENCE OF PRIOR PUBLIC MARKET; DILUTION
Prior to this Offering there has been no public market for shares of the
Company's Class A Common Stock. Although the Company has applied for listing of
the Class A Common Stock on the Nasdaq National Market, there can be no
assurance that the Company's application will be approved or that an active
trading market for the Class A Common Stock will develop or continue after the
Offering. The initial offering price of the Class A Common Stock will be
determined by negotiations among the Company, the Selling Shareholder and the
Underwriters based on several factors and may not be indicative of the market
price for the Class A Common Stock after this Offering. See "Underwriting."
Investors in the Offering will experience immediate and substantial dilution,
and present shareholders will receive a material increase in the book value of
their shares of Class A Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of this Offering, the Company will have 3,265,000 shares of
Class A Common Stock and 6,335,000 shares of Class B Common Stock outstanding,
assuming no exercise of the Underwriters' over-allotment option. Of these
shares, the 2,600,000 shares of Class A Common Stock offered hereby will be
eligible for sale in the open market without restriction (except for any such
shares purchased by affiliates of the Company). All of the remaining 665,000
shares of Class A Common Stock (and 6,335,000 shares of Class A Common Stock
into which shares of Class B Common Stock are convertible) are "restricted
securities" as that term is defined in Rule 144 ("Rule 144") promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). All of these
restricted securities will be eligible for sale in the public market 90 days
following the date of this Prospectus pursuant to Rule 144. Additional shares of
Class A Common Stock, including shares issuable upon exercise of options and
warrants, will also become eligible for sale in the public market pursuant to
Rule 144 from time to time. The Company, the holders of warrants to purchase an
aggregate of 622,041 shares of Class A Common Stock and the Company's directors,
executive officers and shareholders (other than the Selling Shareholder) have
agreed, however, not to sell any of their shares of Common Stock (other than the
shares to be sold by the Company and the Selling Shareholder in this Offering)
for a period of 180 days from the date of this Prospectus without the prior
written consent of Smith Barney Inc. Following this Offering, sales and
potential sales of substantial amounts of the Company's Class A Common Stock in
the public market pursuant to Rule 144 or otherwise could adversely affect the
prevailing market prices for the Class A Common Stock and impair the Company's
ability to raise additional capital through the sale of equity securities. See
"Principal and Selling Shareholders," "Description of Capital Stock," "Shares
Eligible for Future Sale" and "Underwriting."
As of the date of this Prospectus, the holders of 350,000 shares of Class A
Common Stock and of warrants to purchase an aggregate of 622,041 shares of Class
A Common Stock are entitled to certain demand and piggyback registration rights
with respect to such shares. If the Company were required to register or to
include in a Company-initiated registration shares held by such holders pursuant
to the exercise of their
16
<PAGE> 18
demand or piggyback registration rights, sales or potential sales of the shares
so registered might have an adverse effect on the Company's ability to raise
needed capital in the capital markets at a time and price favorable to the
Company. See "Description of Capital Stock" and "Shares Eligible for Future
Sale -- Registration Rights."
ANTI-TAKEOVER PROVISIONS
The Board of Directors has authority to issue shares of preferred stock and
to fix the rights, preferences, privileges and restrictions, including voting
rights, of the preferred stock without further vote or action by the Company's
shareholders. The rights of the holders of Class A Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. While the Company has no present
intention to issue additional shares of preferred stock, such issuance, while
providing desired flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. See "Description of Capital Stock -- Preferred Stock." Provisions in
the Regulations pursuant to which the Company would lose its Title IV
eligibility in the event of a change in ownership resulting in a change of
control could have a similar discouraging effect. See "-- Potential Adverse
Effects of Regulation; Impairment of Federal Funding -- Regulatory Consequences
of a Change in Ownership or Control."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,342,890 shares of
Class A Common Stock offered by the Company, at an assumed initial public
offering price of $14.00 per share, are estimated to be approximately $30.0
million, after deducting the estimated underwriting discounts and commissions
and Offering expenses payable by the Company. The Company will not receive any
proceeds from the sale of Class A Common Stock by the Selling Shareholder.
The Company anticipates that of the net proceeds received by the Company in
the Offering, (i) approximately $21.0 million will be used to repay the
Company's outstanding principal and accrued interest under its term loan (the
"Term Loan") pursuant to its credit agreement with NationsBank, N.A. (the
"NationsBank Credit Agreement"), (ii) approximately $7.0 million will be used to
repay the Company's outstanding principal and accrued interest (the "Subordinate
Debt") to Stratford Capital Partners, L.P. ("Stratford") and GMM Investors SBIC,
L.P. ("GMM"), (iii) approximately $500,000 will be used to reduce the
outstanding principle and accrued interest under its revolving loan (the
"Revolving Loan") established under the NationsBank Credit Agreement and (iv)
any remaining amount will be used for general corporate purposes, including the
increased working capital requirements of the Company resulting from its growth.
The Company's outstanding indebtedness under the Term Loan and the
Subordinate Debt was incurred in October 1996 primarily to fund the acquisition
of the Predecessor. Borrowings under the Revolving Loan provide working capital
for the Company's operations. For a discussion of the terms of such credit
arrangements, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Pending such uses, the net proceeds of this Offering will be invested in
short-term, interest-bearing obligations of investment grade.
DIVIDEND POLICY
The Company currently anticipates that all of its earnings will be retained
for development of the Company's business and does not anticipate paying any
cash dividends in the foreseeable future. Certain of the Company's present
credit arrangements contain restrictions on the ability of the Company to pay
dividends. In addition, U.S. Department of Education financial responsibility
standards applicable to AIU could, in certain circumstances, restrict the
ability of the Company to receive dividends or other funds from its
subsidiaries, which, in turn, could limit the Company's ability to pay
dividends. See "Business -- Regulatory Environment -- Student Financial
Assistance -- Federal Oversight of Title IV Programs -- Financial Responsibility
Standards." Future cash dividends, if any, will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's future earnings, operations, capital requirements and surplus, general
financial condition, contractual restrictions and such other factors as the
Board of Directors may deem relevant. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the actual indebtedness and capitalization
of the Company as of February 28, 1997 and as adjusted to reflect the sale by
the Company of 2,342,890 shares of Class A Common Stock offered hereby (at an
assumed initial public offering price of $14.00 per share) and the application
of the estimated net proceeds therefrom as described under "Use of Proceeds."
The following table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short term debt............................................. $ 788 $ --
Current portion of long-term debt........................... 1,979 192
Long-term debt.............................................. 27,546 1,849
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized; no shares
issued and outstanding................................. -- --
Class A Common Stock, no par value per share 40,000,000
shares authorized; 665,000 shares issued and
outstanding; 3,265,000 shares issued and outstanding as
adjusted(1)............................................ 1,287 31,379
Warrants to acquire 622,041 shares of Class A Common Stock
at a price of $.0014 per share......................... -- 589
Class B Common Stock, no par value per share 10,000,000
shares authorized; 6,335,000 shares issued and
outstanding as of February 28, 1997 and as adjusted.... 4,000 4,000
Foreign currency translation.............................. 126 126
Retained earnings(2)...................................... 970 (32)
------- -------
Total shareholders' equity........................ 6,383 36,062
------- -------
Total capitalization.............................. $36,695 $38,103
======= =========
</TABLE>
- ---------------
(1) Includes 257,110 shares of Class A Common Stock issued upon the exercise of
stock purchase warrants which were outstanding as of February 28, 1997. See
Note 5 of the Notes to the Consolidated Financial Statements of the Company.
(2) Reflects write-off of deferred costs and discounts related to debt which was
repaid from proceeds of the Offering in the amount of $1,643,000 net of
taxes of $641,000.
19
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company at February 28, 1997
was approximately $(35,084,000) or $(4.24) per share of Class A and Class B
Common Stock. Pro forma net tangible book value per share represents the amount
of the Company's total assets less intangible assets and total liabilities,
divided by the total number of shares of Class A and Class B Common Stock
outstanding. After giving effect to the sale by the Company of 2,342,890 shares
of Class A Common Stock offered hereby at an assumed initial public offering
price of $14.00 per share and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company at February 28,
1997 would have been approximately $(4,315,000) or $(0.41) per share of Class A
and Class B Common Stock. This represents an immediate increase in such pro
forma net tangible book value of $3.83 per share to existing shareholders and an
immediate dilution in the pro forma net tangible book value of $14.41 per share
to investors purchasing shares of Class A Common Stock in this Offering. The
following table illustrates the resulting per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Net tangible book value per share prior to this
Offering............................................... $(4.24)
Increase per share attributable to new investors(1)....... 3.83
------
Pro forma net tangible book value per share after this
Offering.................................................. (0.41)
------
Dilution per share to new investors(2)...................... $14.41
======
</TABLE>
- ---------------
(1) After deduction of underwriting discounts and commissions and estimated
offering expenses.
(2) Determined by subtracting the adjusted net tangible book value per share
after the Offering from the amount of cash paid by a new investor for every
share of Class A Common Stock.
The following table summarizes, on a pro forma basis as of February 28,
1997, the number of shares of Common Stock previously purchased from the Company
and the total consideration paid and the average price per share paid to the
Company by existing shareholders and by new investors purchasing the shares of
Class A Common Stock offered hereby, assuming an initial public offering price
of $14.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... 7,257,110 76.0% $ 5,286,744 14.0% $ 0.73
New investors....................... 2,342,890 24.0 32,800,460 86.0 14.00
--------- ----- ----------- -----
Total..................... 9,600,000 100.0% $38,087,204 100.0%
======== ===== ========== =====
</TABLE>
The sale of shares by the Selling Shareholder in this Offering will cause
the number of shares of Class A Common Stock held by all existing shareholders
as of February 28, 1997 on a pro forma basis to be reduced to 665,000 shares, or
20.4% of total shares of Class A Common Stock to be outstanding after this
Offering, and the number of shares of Class A Common Stock held by new investors
as of February 28, 1997 on a pro forma basis to be 2,600,000 shares, or 79.6% of
the total shares of Class A Common Stock to be outstanding after this Offering.
See "Principal and Selling Shareholders."
The foregoing discussion and tables assume no exercise of warrants to
purchase 622,041 shares of Class A Common Stock outstanding on February 28, 1997
on a pro forma basis.
20
<PAGE> 22
PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, PERCENTAGE AND ENROLLMENT DATA)
The unaudited pro forma consolidated financial data set forth below assumes
that the Company was formed on June 1, 1996 and gives effect to the acquisition
of the Predecessors and the acquisition of EduTrek Systems as if such
acquisitions had occurred on June 1, 1996. The pro forma as adjusted data
adjusts the pro forma data to give effect to the Offering and the application of
the net proceeds to the Company as described in "Use of Proceeds" as if they had
occurred on June 1, 1996. The pro forma consolidated financial data should be
read in conjunction with "Management's discussion and Analysis of Financial
Condition and Results of Operations," the Company's Consolidated Financial
Statements and Notes thereto, the Predecessor's Consolidated Financial
Statements and Notes thereto, and other financial information included elsewhere
herein. The pro forma results are not necessarily indicative of the results that
would have been achieved had the acquisition of the Predecessor, the acquisition
of EduTrek Systems and the Offering occurred on June 1, 1996, or of future
operations.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
--------------- ------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
JUNE 1, 1996 JULY 1, 1996
THROUGH THROUGH PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
OCTOBER 8, 1996 FEBRUARY 28, 1997 ADJUSTMENT CONSOLIDATED FOR OFFERING AS ADJUSTED
--------------- ----------------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues................ $ 6,189 $ 14,174 $ 0 $ 20,363 $ 0 $ 20,363
Cost of education and
facilities................ 3,257 5,279 0 8,536 0 8,536
Selling and promotional
expenses.................. 1,335 1,574 0 2,909 0 2,909
General and administrative
expenses.................. 2,739 3,139 (132)(1)(2) 5,697 0 5,746
Rents paid to majority
shareholder............... 49 0 (49)(3) 0 0 0
Amortization of goodwill.... 0 431 344(4) 775 0 775
------- --------- ----- --------- --------- ----------
Income (loss) from campus
operations................ (1,191) 3,751 (163) 2,397 0 2,397
Income from management
agreement................. (21) 246 0 225 0 225
------- --------- ----- --------- --------- ----------
Income (loss) from
operations................ (1,212) 3,997 (163) 2,622 0 2,622
Interest expense............ 258 1,572 52(5) 1,778 1,426(6) 352
Interest
income -- shareholder
notes..................... 98 0 (98)(7) 0 0 0
Other income -- net......... 66 23 0 89 0 89
------- --------- ----- --------- --------- ----------
Income (loss) before income
taxes..................... (1,306) 2,448 (209) 1,031 1,426 2,359
Provision for income
taxes..................... 0 1,241 456(8)(9) 785 556(9) 1,341
------- --------- ----- --------- --------- ----------
Net income (loss)........... $(1,306) $ 1,207 $(665) $ 148 $ 870 $ 1,018
============ ============== ========= ========== ========== ==========
Net income per share(10).... $ .15
==============
Weighted average shares
outstanding............... 8,274,651
==============
Pro forma net income per
share..................... $ .10
==========
Pro forma weighted average
shares outstanding(11).... 10,533,327
==========
SELECTED OPERATING DATA:
EBITDA...................... $ (821) $ 4,951 $ 65 $ 4,195 0 $ 4,195
EBITDA margin............... (13.3)% 34.9% 20.6% 20.6%
</TABLE>
See accompanying notes on the following page.
21
<PAGE> 23
(1) Represents an adjustment to eliminate costs of $1,101,000 relating to (i)
compensation costs of $450,000 associated with a selling shareholder of the
Predecessor, (ii) costs of $461,000 relating to assets purchased by a
selling shareholder of the Predecessor, (iii) staff costs of employees who
remained with a selling shareholder of the Predecessor of $153,000 and (iv)
office costs of a selling shareholder of the Predecessor of $37,000.
(2) Represents an adjustment of $969,000 to reflect the effect of (i) additions
of home office staff of $339,000, (ii) office space of $255,000 and (iii)
other costs associated with being a public company of $375,000.
(3) Represents an adjustment of $49,000 to eliminate rent paid to majority
shareholder on office facilities that remained with a selling shareholder.
(4) Represents an adjustment to reflect the effect of goodwill amortization for
the nine month period.
(5) Represents an adjustment to eliminate interest expense relating to the
financing of assets purchased by one of the selling shareholders prior to
acquisition of the Predecessor.
(6) Represents an adjustment of $1,328,000 to reflect the reduction of interest
expense relating to the elimination of borrowings from the application of
the net proceeds and of $98,000 to reflect the elimination of amortization
of deferred financing costs. An extraordinary charge to write off
unamortized deferred financing costs of $665,000, net of taxes, and a
unamortized debt discount of $337,000, net of taxes, will be made
concurrent with the elimination of related borrowings.
(7) Represents an adjustment of $98,000 to eliminate Interest Income from
shareholder notes.
(8) Represents an adjustment to record pro forma income taxes giving effect to
the Predecessor's loss during the period. Prior to October 8, 1996, the
Predecessor was an S Corporation and, therefore, had no federal tax
obligation.
(9) Represents an adjustment to reflect a provision for income taxes on the
income from pro forma adjustments and adjustments for Offering at a
marginal rate of 39%.
(10) Net income per share for the Predecessor is not presented as the amounts
are not considered meaningful because of its number of outstanding shares
and the S Corporation election of the Predecessor. Net income per share of
the Company is based upon the weighted average number of shares divided
into net income for the period. All stock options and stock purchase
warrants outstanding are assumed to be exercised as of the beginning of the
period.
(11) Pro forma weighted average shares outstanding include 665,000 shares of
Class A Common Stock and 6,335,000 shares of Class B Common Stock issued
and outstanding as of February 28, 1997. As adjusted for the 2,342,890
shares of Class A Common Stock included in this Offering and all
outstanding warrants and options (1,017,541) with respect to Class A Common
Stock. The calculation excludes 84,214 shares of Class A Common Stock for
which the proceeds of approximately $1,179,000 are used for general
corporate purposes.
22
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, PERCENTAGE AND ENROLLMENT DATA)
The following tables set forth selected consolidated financial data of the
Company and the Predecessor for the periods indicated. The selected consolidated
financial data of the Company as of February 28, 1997 and for the period from
July 1, 1996 through February 28, 1997 are derived from the Consolidated
Financial Statements of the Company which have been audited by Deloitte & Touche
LLP, independent auditors. The selected consolidated financial data of the
Predecessor as of May 31, 1996, for the period from June 1, 1996 through October
8, 1996 and for each of the three years ended May 31, 1996 are derived from the
Consolidated Financial Statements of the Predecessor which have been audited by
Deloitte & Touche LLP, independent certified public accountants. The selected
consolidated financial data of the Predecessor as of May 31, 1992, 1993, 1994
and 1995 and for each of the two years ended May 31, 1993 are derived from the
unaudited Consolidated Financial Statements of the Predecessor for such periods.
The pro forma as adjusted selected consolidated financial data for the period
set forth below are unaudited. The unaudited financial statements of the Company
and the Predecessor include all adjustments, consisting solely of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of the financial condition and results of operations for these
periods. Operating results for the period ended February 28, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending May 31, 1997. These selected consolidated financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's Consolidated Financial Statements and
Notes thereto, the Predecessor's Consolidated Financial Statements and Notes
thereto, and other financial information included elsewhere herein.
<TABLE>
<CAPTION>
THE COMPANY(1)
THE PREDECESSOR(1)(2) -----------------
----------------------------------------------------------------- PERIOD FROM
PERIOD FROM JULY 1, 1996
FISCAL YEAR ENDED MAY 31, JUNE 1, 1996 THROUGH
----------------------------------------------- THROUGH FEBRUARY 28,
1992 1993 1994 1995 1996 OCTOBER 8, 1998 1997(2)
------- ------- ------- ------- ------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues......................... $19,463 $19,995 $20,654 $23,696 $26,493 $ 6,189 $ 14,174
Cost of education and facilities..... 8,156 8,654 8,611 10,051 11,144 3,257 5,279
Selling and promotional expenses..... 2,705 3,129 3,165 3,083 3,614 1,335 1,574
General and administrative
expenses........................... 6,403 6,549 6,264 6,115 6,677 2,739 3,139
Rents paid to majority shareholder... 135 135 146 145 150 49 0
Amortization of goodwill............. 0 0 0 0 0 0 431
------- ------- ------- ------- ------- ------- ---------
Income (loss) from campus
operations......................... 2,064 1,528 2,468 4,302 4,908 (1,191) 3,751
Income from management agreement..... 0 0 0 0 127 (21) 246
------- ------- ------- ------- ------- ------- ---------
Income (loss) from operations........ 2,064 1,528 2,468 4,302 5,035 (1,212) 3,997
Interest expense..................... 534 433 440 607 730 258 1,572
Interest income -- shareholder
notes.............................. 51 169 183 153 361 98 0
Other income -- net.................. 92 304 483 25 72 66 23
------- ------- ------- ------- ------- ------- ---------
Income (loss) before income taxes.... 1,673 1,568 2,694 3,873 4,738 (1,306) 2,448
Provision for income taxes(4)........ (342) 88 148 124 107 0 1,241
------- ------- ------- ------- ------- ------- ---------
Net income (loss).................... $ 2,015 $ 1,480 $ 2,546 $ 3,749 $ 4,631 $(1,306) $ 1,207
======= ======= ======= ======= ======= ============ ==============
Net income per share(5).............. $ .15
==============
Weighted average shares
outstanding........................ 8,274,651
==============
Pro forma net income per share.......
Pro forma weighted average shares
outstanding(6).....................
PRO FORMA DATA:
Income before income taxes, as
reported........................... $ 1,673 $ 1,568 $ 2,694 $ 3,873 $ 4,738 $(1,306)
Pro forma provision for income
taxes(4)........................... 652 613 1,051 1,510 1,848 509
------- ------- ------- ------- ------- -------
Pro forma net income................. $ 1,021 $ 956 $ 1,643 $ 2,363 $ 2,890 $ (797)
======= ======= ======= ======= ======= ============
SELECTED OPERATING DATA:
EBITDA(7)............................ $ 3,355 $ 2,824 $ 3,695 $ 5,445 $ 6,135 $ (821) $ 4,951
EBITDA margin........................ 17.2% 14.1% 17.9% 23.0% 23.2% (13.3)% 34.9%
Net cash provided by (used in)
operating activities............... 2,587 1,937 4,375 5,515 5,806 1,401 (92)
Net cash provided by (used in)
investing activities............... (1,118) (1,373) 725 (1,507) (2,662) (288) (31,162)
Net cash provided by (used in)
financing activities............... (2,053) (968) (5,030) (3,916) (3,442) (1,196) 31,439
AIU Fall term enrollment(8).......... 2,071 2,037 2,001 2,209 2,440 2,815 N/A
<CAPTION>
THE COMPANY(1)
-----------------
NINE MONTHS ENDED
FEBRUARY 28, 1997
PRO FORMA
AS ADJUSTED(3)
-----------------
<S> <C>
STATEMENT OF INCOME DATA:
Net revenues......................... $ 20,363
Cost of education and facilities..... 8,536
Selling and promotional expenses..... 2,909
General and administrative
expenses........................... 5,746
Rents paid to majority shareholder... 0
Amortization of goodwill............. 775
----------
Income (loss) from campus
operations......................... 2,397
Income from management agreement..... 225
----------
Income (loss) from operations........ 2,622
Interest expense..................... 352
Interest income -- shareholder
notes.............................. 0
Other income -- net.................. 89
----------
Income (loss) before income taxes.... 2,359
Provision for income taxes(4)........ 1,341
----------
Net income (loss).................... $ 1,018
================
Net income per share(5)..............
Weighted average shares
outstanding........................
Pro forma net income per share....... $ .10
================
Pro forma weighted average shares
outstanding(6)..................... 10,533,327
================
PRO FORMA DATA:
Income before income taxes, as
reported...........................
Pro forma provision for income
taxes(4)...........................
Pro forma net income.................
SELECTED OPERATING DATA:
EBITDA(7)............................ $ 4,195
EBITDA margin........................ 20.6%
Net cash provided by (used in)
operating activities...............
Net cash provided by (used in)
investing activities...............
Net cash provided by (used in)
financing activities...............
AIU Fall term enrollment(8).......... N/A
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
THE COMPANY
THE PREDECESSOR ----------------------
----------------------------------------------- AT FEBRUARY 28, 1997
AT MAY 31, ----------------------
----------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(9)
------- ------- ------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $(6,463) $(6,372) $(8,467) $(8,355) $(8,696) $(10,992) $(6,597)
Total assets........................................... 7,667 5,976 7,190 6,682 7,253 48,022 48,111
Long-term debt, including current portion.............. 0 0 0 0 0 29,525 2,041
Shareholders' equity................................... (2,302) (3,562) (4,877) (6,166) (7,287) 6,383 36,062
</TABLE>
- ---------------
(1) The Company was organized on July 1, 1996 for the purpose of acquiring the
Predecessor. On October 8, 1996, the Company acquired the Predecessor and
EduTrek Systems. See "Acquisitions."
(2) Because the Company did not acquire the Predecessor until October 8, 1996,
the financial information with respect to the Company for the period from
July 1, 1996 through October 8, 1996 does not include the Predecessor.
EduTrek Systems is included in the financial information of the Company in a
manner similar to a pooling of interests because the Company and EduTrek
Systems were under common control. Financial information for EduTrek Systems
is not included in the Selected Consolidated Financial Data prior to July 1,
1996 because, since its formation in 1992, EduTrek Systems has not generated
revenues and in 1992, 1993, 1994, 1995 and for the period ended October 8,
1996, EduTrek Systems incurred losses of $321,000, $90,911, $312,954,
$584,627 and $819,430, respectively. Such amounts are not considered to be
material.
(3) Assumes that the Company was formed on June 1, 1996 and gives effect to the
acquisitions of the Predecessor and EduTrek Systems as if such acquisitions
had occurred on June 1, 1996. See "Acquisitions." As adjusted to (i) give
effect to the sale of 2,342,890 shares of Class A Common Stock offered by
the Company hereby and (ii) the application of the estimated net proceeds
therefrom as if such application had occurred on June 1, 1996. See "Pro
Forma Consolidated Financial Data."
(4) As a result of its election to be treated as an S Corporation for income tax
purposes, the Predecessor has not been subject to federal and most state
income taxes. Accordingly, the historical provision for income taxes
includes income taxes only for those jurisdictions that do not recognize S
Corporation status. The pro forma provision for income taxes (computed under
the provisions of Statement of Financial Accounting Standards No. 109)
reflects provisions that would have been recorded had the Predecessor been a
C Corporation for income tax purposes during the periods shown using an
estimated income tax rate of 39%. Prior to this Offering, distributions in
the form of cash dividends have been made principally to assist the
shareholders with their income tax obligations arising from the
Predecessor's Corporation status. Such distributions amounted to $1,200,000,
$2,000,000, $4,068,962, $3,800,000, $4,500,000 and $0 for fiscal 1992, 1993,
1994, 1995 and 1996 and for the period from June 1, 1996 through October 8,
1996, respectively.
(5) Net income per share for the Predecessor is not presented as the amounts are
not considered meaningful because of its capital structure and the S
Corporation election of the Predecessor. Net income per share of the Company
is based upon the weighted average number of shares divided into net income
for the period. All stock options and stock purchase warrants outstanding
are assumed to be exercised as of the beginning of the period.
(6) Pro forma weighted average shares outstanding includes 665,000 shares of
Class A Common Stock and 6,335,000 shares of Class B Common Stock issued and
outstanding as of February 28, 1997, as adjusted for the 2,342,890 shares of
Class A Common Stock included in the Offering and all outstanding warrants
and options (1,017,541) to purchase Class A Common Stock. The calculation
excludes 84,214 shares of Class A Common Stock for which the proceeds of
approximately $1,179,000 are used for general corporate purposes.
(7) EBITDA represents income from operations plus depreciation and amortization.
While EBITDA data should not be construed as a substitute for income from
operations, net income, or cash flows from operations, in accordance with
generally accepted accounting principles, in analyzing the Company's and the
Predecessor's operating performance, financial position and cash flows, the
Company has included EBITDA data (which is not a measure of financial
performance under generally accepted accounting principles) because it
understands that such data are commonly used by certain investors to
evaluate a company's performance in the postsecondary education industry.
(8) Represents enrollment data as measured on the first day of each Fall term.
(9) Adjusted to give effect to the sale of 2,342,890 shares of Class A Common
Stock offered by the Company hereby and the application of the estimated net
proceeds therefrom as if such application had occurred on February 28, 1997.
See "Use of Proceeds."
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company and the Predecessor should be read in conjunction with
the "Selected Consolidated Financial Data," the Company's Consolidated Financial
Statements and Notes thereto and the Predecessor's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus. Unless
otherwise specified, any reference to a "fiscal year" is to a fiscal year ended
May 31.
OVERVIEW
The Company acquired AIU through its acquisition of the Predecessor on
October 8, 1996. Through its American European subsidiary, the Company operates
AIU, an international postsecondary educational institution with campuses in
Atlanta, Los Angeles, London and Dubai, United Arab Emirates. Founded in Atlanta
in 1970, the University has grown from 2,209 students for the 1994 Fall term to
2,815 students for the 1996 Fall term.
The Company's principal sources of revenues are tuition, related fees and
payments for student housing collected from its students. Net revenues are
calculated by deducting University awarded scholarships and cash discounts from
gross revenues. Cash discounts reflect deductions granted for tuition and fee
payments received in advance of their due dates. The University's cash discount
program was discontinued at the end of fiscal 1997.
The University's academic year is generally divided into three 10-week
terms: Fall, Winter and Spring. In addition, the University offers two
eight-week Summer terms: Summer I and Summer II. Summer terms are shorter, more
concentrated and equal to a 10-week term with regard to the delivery of
education services and related per student tuition and fee levels. Because of
lower student enrollment during the Summer terms, the two Summer terms together
are the equivalent of a 10-week term with respect to their contribution to net
revenues. The average term enrollment levels for the Winter and Spring terms are
approximately 90% of the Fall term benchmark. The following table relates the
Company's fiscal quarters to the University's academic terms:
<TABLE>
<CAPTION>
FISCAL QUARTERS ACADEMIC TERMS
- --------------- --------------
<S> <C>
First (June -- August) Summer I and one-half of Summer II
Second (September -- November) Last half of Summer II and two-thirds of Fall Term
Third (December -- February) Last third of Fall Term and four-fifths of Winter Term
Fourth (March -- May) Last fifth of Winter Term and all of Spring Term
</TABLE>
Tuition and related fees are payable prior to the start of each term, and
historically over 80% of funds are received in advance of the term's start date.
Of the balance, approximately 40% is collected through financial aid; the
remainder is collected under payment schedules established on a student by
student basis. Uncollectible receivables are written off once a year and have
not exceeded 0.6% of annual net revenues during each of the fiscal years in the
three-year period ended May 31, 1996.
Each of the University's campuses is owned and controlled by the Company
except the campus in Dubai which is operated by the University under a
management agreement with an investment group based in the United Arab Emirates.
Under the terms of the agreement, the local investment group in Dubai provided
all of the start-up capital required to open the campus in Dubai and is
responsible for ongoing capital expenditures in exchange for 65% of the net
operating cash flow from that campus. In exchange for its management services,
the Company receives approximately 30% of the net operating cash flow. See
"Business -- Dubai Campus Management Agreement."
As tuition is received, normally before the start of the academic term or
in some cases the full academic year, it is recorded as deferred tuition income,
a current liability. During the term, the applicable portion of deferred tuition
income is recognized as revenue each month based on the aggregate number of
credit hours taken by students during the term. Deferred tuition income
historically has been at its highest level at the end
25
<PAGE> 27
of September before the start of the academic year and Fall term due to several
factors, including: (i) the Fall term represents the highest level of enrollment
for the year; (ii) some students, principally non-US citizens in London, pay a
full year's tuition in advance; and (iii) the University has in the past offered
a tuition and fee discount of up to 15% based on the then current tuition rates
for payments made three to four months in advance of the normal due date. Total
discounts in each of the last three years have averaged approximately $500,000,
or approximately 2.0% of net revenues. This program has been discontinued and
will reduce discounts in fiscal 1998 as compared to prior years.
The Company's expenses consist of cost of education and facilities, selling
and promotional expenses, general and administrative expenses and, effective
with the acquisition of the Predecessor in October 1996, the amortization of
goodwill.
Education costs includes salaries of full and part-time faculty,
instructional support, academic administrators, student development and support
costs relating to their activities including library and classroom expenses.
Facility costs consist of leasing, maintenance and other occupancy costs
relating to campus facilities. In addition, housing costs relating to the
student housing program are included. Home office facilities costs for office
space located near the Atlanta campus are included in general and administrative
expenses.
Selling and promotional expenses include salaries of personnel involved in
recruitment, admissions and marketing at the campus and home office level and
their related costs, including off-campus presentations. In addition, the costs
of advertising and production of marketing materials such as catalogs are
included.
General and administrative expenses include salaries of personnel engaged
in general administration, accounting, financial aid, personnel and compliance
at the campus level, all home office personnel and their related expenses and
the net cost of the Company's airplane. These expenses also include depreciation
and amortization of related fixed assets and deferred costs as well as benefits
relating to personnel throughout the campuses and at the home office.
As a result of its election to be treated as an S Corporation for income
tax purposes, the Predecessor was not subject to federal and most state income
taxes. Accordingly, the provision for income taxes for the Predecessor includes
income taxes only for those jurisdictions that do not recognize S Corporation
status. Since its incorporation in July 1996, the Company has been a C
Corporation for income tax purposes. The Company's income tax provision is
provided at rates approximating statutory federal and state rates (approximately
39%).
26
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain statement of income items to net revenues for the
Company and the Predecessor:
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
-------------------------------------------- -----------------
PERIOD FROM PERIOD FROM
FISCAL YEAR ENDED MAY 31, JUNE 1, 1996 JULY 1, 1996
-------------------------- THROUGH THROUGH
1994 1995 1996 OCTOBER 8, 1996 FEBRUARY 28, 1997
------ ------ ------ --------------- -----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of education and
facilities..................... 41.7 42.4 42.1 52.6 37.2
Selling and promotional
expenses....................... 15.3 13.0 13.6 21.6 11.1
General and administrative
expenses....................... 30.3 25.8 25.2 44.2 22.2
Rents paid to majority
shareholder.................... 0.7 0.6 0.6 0.8 0
Amortization of goodwill......... 0 0 0 0 3.0
----- ----- ----- ----- ------
Income from campus operations.... 12.0 18.2 18.5 (19.2) 26.5
Income from management
agreement...................... 0 0 0.5 (0.3) 1.7
----- ----- ----- ----- ------
Income from operations........... 12.0 18.2 19.0 (19.5) 28.2
Interest expense................. 2.2 2.6 2.8 4.2 11.1
Interest income -- stockholder
notes.......................... 0.9 0.6 1.4 1.6 0
Other income -- net.............. 2.3 0.1 0.3 1.0 0.2
----- ----- ----- ----- ------
Income before income taxes....... 13.0 16.3 17.9 (21.1) 17.3
Provision for income taxes....... 0.7 0.5 0.4 0 8.8
----- ----- ----- ----- ------
Net income....................... 12.3% 15.8% 17.5% (21.1)% 8.5%
===== ===== ===== =========== =============
</TABLE>
EIGHT MONTHS ENDED FEBRUARY 28, 1997 (COMPANY) COMPARED TO FIVE MONTHS ENDED
FEBRUARY 28, 1996 (PREDECESSOR)
The Company was organized in July 1, 1996 for the purpose of acquiring the
Predecessor and all of the capital stock of EduTrek Systems. Prior to the
Company's acquisition of the Predecessor in October 1996, the Company's
operations were de minimis as its principal operations primarily related to the
acquisition of the Predecessor. The following discussion compares the Company's
results for the eight month period from July 1, 1996 through February 28, 1997
to the Predecessor's results for the five month period from October 8, 1995
through February 28, 1996 which, because the operations of the Company were de
minimis prior to October 1996, essentially presents a comparison of the
operations of the Company for the five month period ended February 28, 1997 to
the comparable five months of the prior year. The results of the Company during
the period from July 1996 through October 1996 related primarily to the
Company's acquisition activities, were non-operational in nature and immaterial
in amount. The period from October through February is comprised of the
University's Fall term and approximately 80% of the Winter term.
Net revenues. Net revenues increased $1.5 million or 11.6% from $12.7
million for the five months ended February 29, 1996 (the "1996 period") to $14.2
million for the eight months ended February 28, 1997 (the "1997 period"). Of
this increase 11.6% increase, 6.3% or $800,000 was due to an increase in student
enrollment and 5.3% or $700,000 was the result of an effective price increase.
See "Business -- Tuition and Fees."
Cost of education and facilities. Cost of education and facilities
increased approximately $605,000 or 12.9% from $4.7 million in the 1996 period
to $5.3 million in the 1997 period. Education costs increased approximately
$363,000 or 14.5% from $2.5 million in the 1996 period to $2.9 million in the
1997 period due to salary and other cost increases. Facility costs increased
approximately $254,000 or 11.7% from $2.2 million in the 1996 period to $2.4
million in the 1997 period due to rent increases and an increase of the number
of housing students. Cost of education and facilities increased as a percentage
of net revenues from 36.8% in the 1996 period to 37.2% in the 1997 period.
27
<PAGE> 29
Selling and promotional expenses. Selling and promotional expenses
increased by approximately $57,000 or 3.8% from $1.5 million in the 1996 period
to $1.6 million in the 1997 period. Decreases in advertising of $100,000 were
offset by increases in salary and other selling and promotional expenses. As a
percentage of net revenues, selling and promotional expenses decreased from
11.9% in the 1996 period to 11.1% in the 1997 period.
General and administrative expenses. General and administrative expenses
increased approximately $469,000 or 17.6% from $2.7 million in the 1996 period
to $3.1 million in the 1997 period. The increase was due to costs incurred prior
to the acquisition and to additions of personnel at the home office after the
acquisition of the Predecessor, which expenses were offset in part by a
reduction in costs relating to assets purchased by one of the selling
shareholders in the AIU Acquisition. As a percentage of net revenues, general
and administrative expenses increased from 21.0% in the 1996 period to 22.1% in
the 1997 period.
Amortization of goodwill. Amortization expenses, principally goodwill
expenses, of approximately $431,000 in the 1997 period were the result of the
October 1996 acquisition of the Predecessor with goodwill costs being amortized
over a 40 year period.
Income from management agreement. Income from the Dubai campus management
agreement was approximately $246,000 in the 1997 period from its start-up level
in 1996.
Income from operations. Income from operations increased approximately
$149,000 or 3.9% from $3.8 million in the 1996 period to $4.0 million in the
1997 period. The increase was due to the 11.6% increase in net revenues of $1.5
million and income of $246,000 generated from the Dubai campus management
agreement, offset in part by increases in expenses of $1.7 million. As a
percentage of net revenues, income from operations decreased from 30.3% in the
1996 period to 28.2% in the 1997 period.
Before acquisition related amortization expenses of approximately $431,000
in the 1997 period, income from operations as a percentage of net revenues
increased from 30.3% in the 1996 period to 31.2% in the 1997 period.
Interest expense. Interest expense increased approximately $1.3 million
from $292,000 in the 1996 period to $1.6 million in the 1997 period due to an
increase in borrowing associated with the acquisition of the Predecessor in
October 1996.
Other income -- net. Other income decreased approximately $194,000 from
$217,000 in the 1996 period to $23,000 in the 1997 period due to a decrease in
interest income.
YEAR ENDED MAY 31, 1996 (PREDECESSOR) COMPARED TO YEAR ENDED MAY 31, 1995
(PREDECESSOR)
Net revenues. Net revenues increased approximately $2.8 million or 11.8%
from $23.7 million for the year ended May 31, 1995 to $26.5 million for the year
ended May 31, 1996. Of this 11.8% increase, 3.0% or $700,000 was due to an
increase in student enrollment and 8.8% or $2.1 million was due to an effective
price increase.
Cost of education and facilities. Cost of education and facilities
increased $1.1 million or 10.9% from $10.1 million for the year ended May 31,
1995 to $11.1 million for the year ended May 31, 1996, approximating the
increase in net revenues. Education costs increased approximately $580,000 or
10.3% from $5.6 million for the year ended May 31, 1995 to $6.2 million for the
year ended May 31, 1996 due to salary and other cost increases. Facility costs
increased approximately $509,000 or 11.5% from $4.4 million for the year ended
May 31, 1995 to $5.0 million for the year ended May 31, 1996 due to increases in
rental rates. Cost of education and facilities decreased as a percentage of net
revenues from 42.4% for the year ended May 31, 1995 to 42.1% for the year ended
May 31, 1996, primarily due to a decrease in education costs as a percentage of
revenues from 23.7% for the year ended May 31, 1995 to 23.4% for the year ended
May 31, 1996.
Selling and promotional expenses. Selling and promotional expenses
increased approximately $531,000 or 17.2% from $3.1 million for the year ended
May 31, 1995 to $3.6 million for the year ended May 31, 1996 due principally to
advertising and salary increases. As a percentage of net revenues, selling and
promotional expenses increased from 13.0% for the year ended May 31, 1995 to
13.6% for the year ended May 31, 1996.
28
<PAGE> 30
General and administrative expenses. General and administrative expenses
increased approximately $567,000 or 9.1% from $6.3 million for the year ended
May 31, 1995 to $6.8 million for the year ended May 31, 1996. The increase was
due primarily to an increase in salaries and bonuses paid to managing
shareholders in 1996. General and administrative expenses decreased as a
percentage of net revenues from 26.4% for the year ended May 31, 1995 to 25.8%
for the year ended May 31, 1996.
Income from management agreement. Income from the Dubai campus management
agreement was approximately $127,000 for the year ended May 31, 1996 compared to
its start up status in the prior year.
Income from operations. Income from operations increased approximately
$733,000 or 17.0% from $4.3 million for the year ended May 31, 1995 to $4.9
million for the year ended May 31, 1996 due to the increase in net revenues of
$2.8 million and income of $127,000 generated from the Dubai campus management
agreement, offset by the smaller overall increase in expenses of $2.2 million.
As a percentage of net revenues, income from operations increased from 18.2% for
the year ended May 31, 1995 to 19.0% for the year ended May 31, 1996 reflecting
the fixed nature of many of the University's operating expenses.
Interest expense. Interest expense increased approximately $123,000 or
20.3% from approximately $607,000 for the year ended May 31, 1995 to
approximately $730,000 for the year ended May 31, 1996 due to an increase in the
level of borrowing in 1996 compared to 1995.
Other income -- net. Other income increased approximately $255,000 from
$178,000 for the year ended May 31, 1995 to $433,000 for the year ended May 31,
1996 due primarily to a loss on sale of assets in 1995 of approximately
$200,000.
YEAR ENDED MAY 31, 1995 (PREDECESSOR) COMPARED TO YEAR ENDED MAY 31, 1994
(PREDECESSOR)
Net revenues. Net revenues increased approximately $3.0 million or 14.7%
from $20.7 million for the year ended May 31, 1994 to $23.7 million for the year
ended May 31, 1995. Of this 14.7% increase, 6.5% or $1.3 million was due to an
increase in student enrollment and 8.2% or $1.7 million was due to an effective
price increase.
Cost of education and facilities. Cost of education and facilities
increased approximately $1.4 million or 16.7% from $8.6 million for the year
ended May 31, 1994 to $10.1 million for the year ended May 31, 1995 due
primarily to increased facility costs. Education costs increased approximately
$549,000 or 10.9% from $5.1 million for the year ended May 31, 1994 to $5.6
million for the year ended May 31, 1995 due both to the addition of personnel
and to salary increases. Facility costs increased approximately $889,000 or
25.0% from $3.6 million for the year ended May 31, 1994 to $4.4 million for the
year ended May 31, 1995 due to rent escalations. Overall cost of education and
facilities increased as a percentage of net revenues from 41.7% for the year
ended May 31, 1994 to 42.4% for the year ended May 31, 1995. A decrease in
education costs as a percentage of net revenues from 24.5% for the year ended
May 31, 1994 to 23.7% for the year ended May 31, 1995 more than offset an
increase in facility costs as a percentage of net revenues from 17.2% for the
year ended May 31, 1994 to 18.7% for the year ended May 31, 1995.
Selling and promotional expenses. Selling and promotional expenses
decreased approximately $82,000 or 2.6% from $3.2 million for the year ended May
31, 1994 to $3.1 million for the year ended May 31, 1995 due principally to a
decrease in advertising offset in part by salary increases. As a percentage of
net revenues, selling and promotional expenses decreased from 15.3% for the year
ended May 31, 1994 to 13.0% for the year ended May 31, 1995.
General and administrative expenses. General and administrative expenses
decreased approximately $150,000 or 2.3% from $6.4 million for the year ended
May 31, 1994 to $6.3 million for the year ended May 31, 1995. Salary increases
were offset by a reduction of salaries and bonuses paid to the managing
shareholders. General and administrative expenses as a percentage of net
revenues decreased from 31.0% for the year ended May 31, 1994 to 26.4% for the
year ended May 31, 1995.
Income from operations. Income from operations increased approximately
$1.8 million or 74.3% from $2.5 million for the year ended May 31, 1994 to $4.3
million for the year ended May 31, 1995 due to the
29
<PAGE> 31
increase in net revenues of $3.0 million and the smaller overall increase in
expenses of $1.2 million. As a percentage of net revenues, income from
operations increased from 11.9% for the year ended May 31, 1994 to 18.2% for the
year ended May 31, 1995, reflecting the fixed nature of many of the University's
operating expenses.
Interest expense. Interest expense increased approximately $167,000 or
38.0% from approximately $440,000 for the year ended May 31, 1994 to
approximately $607,000 for the year ended May 31, 1995, due principally to
increased borrowing.
Other income -- net. Other income decreased approximately $488,000 or
73.3% from $666,000 for the year ended May 31, 1994 to $178,000 for the year
ended May 31, 1995 due primarily to a year to year net change in gain on sale of
assets of approximately $500,000.
SEASONALITY
The following table sets forth unaudited quarterly financial data for each
of the eight fiscal quarters in the two years ended May 31, 1996 and the first
three quarters of the fiscal year ended May 31, 1997. 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 of the
Company and the Predecessor included elsewhere herein. The operating results for
any quarter are not necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
------------------------------------- -----------------------------------------------
FISCAL YEAR
ENDED
FISCAL YEAR ENDED MAY 31, 1995 FISCAL YEAR ENDED MAY 31, 1996 MAY 31, 1997
------------------------------------- ------------------------------------- ------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Amount........................... $3,826 $5,267 $7,045 $7,558 $4,447 $5,879 $7,960 $8,207 $4,842
Percentage of fiscal year
total.......................... 16.2% 22.2% 29.7% 31.9% 16.8% 22.2% 30.0% 31% N/A
Income (loss) from operations:
Amount........................... $ (455) $ 394 $2,288 $2,075 $ (763) $ 727 $2,511 $2,560 $ (284)
Percentage of fiscal year
total.......................... (10.6)% 9.2% 53.2% 48.2% (15.2)% 14.4% 50.0% 50.8% N/A
<CAPTION>
THE COMPANY
------------------------------
FISCAL YEAR ENDED MAY 31, 1997
------------------------------
2ND QTR(1) 3RD QTR
---------- -------
<S> <C> <C>
Net revenues:
Amount........................... $6,718 $8,803
Percentage of fiscal year
total.......................... N/A N/A
Income (loss) from operations:
Amount........................... $ 371 $2,605
Percentage of fiscal year
total.......................... N/A N/A
</TABLE>
- ---------------
(1) Includes financial data of the Predecessor from September 1, 1996 through
October 8, 1996, the date the Company acquired the Predecessor.
The Company's quarterly revenues have fluctuated in the past and may
fluctuate significantly in the future as a result of a number of factors,
primarily the number and timing of new students enrolling in the Company's
programs. Enrollment generally is highest in the second quarter, or Fall term,
and lowest in the first quarter, or Summer terms. In 1996, enrollments at the
beginning of the first and second Summer terms were 1,344 and 900, respectively,
and enrollments at the beginning of the Fall, Winter and Spring academic terms
were 2,815, 2,347 and 2,298, respectively. Costs are generally highest in the
second and third quarters due to higher student enrollment and because a larger
faculty is needed. To some extent, instructional and educational support
expenses are lower in the first quarter because fewer faculty are needed. Other
factors affecting quarterly 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, or other actions by regulatory authorities. In the past, the
Company has raised its tuition by amounts which exceeded the rate of inflation.
For the foreseeable future, the Company anticipates that tuition increases will
keep pace with inflation. Because certain of the Company's expenses do not vary
with student enrollment, quarterly variations in net revenues are amplified at
the income (loss) from operations level.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operating activities and capital requirements,
including debt repayments, principally from cash provided by operating
activities and borrowings under the NationsBank Credit
30
<PAGE> 32
Agreement. The Company has generated positive cash flow from operations over the
last three fiscal years. Cash flow from operations was $4.4 million, $5.5
million and $5.8 million for fiscal 1994, 1995 and 1996, and cash used in
operations for the period ended February 28, 1997 was $92,228, which includes
the operations of the University from October 8, 1996. The Company's principal
sources of funds as of February 28, 1997 were cash and cash equivalents of
$187,000 and available borrowings of $1.7 million under the Revolving Loan. As
of February 28, 1997, the maximum permitted borrowings under the Revolving Loan
was $2.5 million. The NationsBank Credit Agreement provides that, beginning on
October 1, 1997, the maximum permitted borrowings under the Revolving Loan is to
be reduced to $1.75 million and on October 1, 1998, the maximum permitted
borrowings under the Revolving Loan is to be further reduced to $1.0 million.
Historically, the Company's investing activity has primarily consisted of
capital asset purchases. Capital expenditures, excluding capital leases, totaled
$440,000, $490,000 and $1.4 million for fiscal 1994, 1995 and 1996,
respectively, and $1.3 million and $566,000 for the period ended February 28,
1996 and 1997, respectively.
The Company's capital assets consist primarily of classroom equipment (such
as computers, software and video equipment), classroom and office furniture, and
leasehold improvements. All building facilities are leased. The Company plans to
continue to expand current facilities, upgrade and replace equipment, and open
new campuses. During fiscal 1998, the Company intends to make certain
improvements to its campuses including furniture, fixtures and equipment
improvements, computerizing classrooms, and implementing electronic library
systems at an estimated cost of $1.5 million. Also during fiscal 1998 and the
beginning of fiscal 1999, the Company plans to implement the AIT program in the
Atlanta and Los Angeles campus curricula. The Company estimates that the total
cash required to implement the AIT programs at such campuses, including
computers, software, leasehold improvements and other start-up expenses, will be
approximately $1.5 million per campus. To support its growth, the Company also
is implementing a centralized information system to integrate AIU's campus
operations and financial data including admissions, financial aid, student
services, placement services and default management. The Company anticipates
that the information system will be fully operational by the end of fiscal 1998
and that it will require approximately $1.0 million in fiscal 1998 to develop
and implement this integrated information system.
Including the improvements to its campuses, the implementation of the AIT
program into the Atlanta and Los Angeles campus curricula and the development
and implementation of its integrated information system, the Company expects
fiscal 1998 capital expenditures to be approximately $5.5 million. To take
advantage of the highly fragmented postsecondary education market and to expand
its international presence, from time to time the Company also plans to acquire
existing schools in favorable locations throughout the U.S. as well as utilize
joint ventures to open campuses outside of the U.S. The Company's ability to
fund its working capital and capital expenditure requirements, make interest
payments, fund future acquisitions and meet its other cash requirements depends,
among other things, on internally generated funds and the continued availability
of and compliance with the terms of the NationsBank Credit Agreement. Management
believes that the proceeds from this Offering, internally generated funds and
funds available under the Company's Revolving Loan will be sufficient to meet
the Company's capital requirements and operating needs for fiscal 1998. However,
if there is a significant reduction of internally generated funds or if the
Company is unable to satisfy the financial covenants of the NationsBank Credit
Agreement, the Company may require additional funds from outside financing
sources. In such event, there can be no assurance that the Company will be able
to obtain such funding as and when required or on acceptable terms.
Cash flow from operations on a long-term basis is partly dependent on the
receipt of funds from Title IV Programs. Presently, approximately 27% of the
Company's net revenues is derived from Title IV Programs. Disbursement of Title
IV Program funds is dictated by federal regulations including, among others,
certain financial responsibility standards. Based on the consolidated financial
statements of the Company as of February 28, 1997, AIU does not satisfy either
of the acid test ratio or the tangible net worth test as required under such
financial responsibility standards. As of February 28, 1997, the Company's acid
test ratio was .13 and the Company had a negative tangible net worth of
approximately $35 million. Notwithstanding, the Company has maintained AIU's
eligibility to continue participating in the Title IV Programs by posting an
irrevocable letter of credit in the amount of $3.75 million in favor of the U.S.
Department of Education, which
31
<PAGE> 33
amount is approximately 50% of the Title IV Program funds received by students
enrolled at AIU. The letter of credit was posted on March 19, 1997 and will
expire on March 31, 1998. Because the amount of the letter of credit is based on
the amount of Title IV Program funds received by AIU's students, to the extent
that such funds have increased during 1997, the Company may be required to
increase the letter of credit on or around June 30, 1997, the date the U.S.
Department of Education re-assesses the University's compliance with the
financial responsibility standards. Because the HEA and the Regulations are
subject to amendment, and because the U.S. Department of Education may change
its interpretation of the HEA and the Regulations, there can be no assurance
that such requirements will not change in the future. See
"Business -- Regulatory Environment."
Pursuant to the NationsBank Credit Agreement, as of February 28, 1997 the
Company had borrowed $21 million under the Term Loan and $788,000 under the
Revolving Loan. The Company has borrowed an additional $7 million under its
Subordinate Loan and Warrant Agreement with Stratford (the "Stratford
Subordinate Loan Agreement"). The Term Loan and the Subordinate Debt were
incurred primarily to fund the Company's acquisition of the Predecessor. The
Revolving Loan is intended to provide working capital for the Company's
operations. The Term Loan currently bears interest at 9.5% which is payable
quarterly. Beginning on October 31, 1997, the principal amount under the Term
Loan is payable in 22 equal consecutive quarterly installments of $875,000 plus
accrued and unpaid interest and a 23rd final payment of $1,750,000 plus accrued
and unpaid interest is due on March 31, 2003. Borrowings under the Revolving
Loan bear interest at the prime rate plus 1% (9.25% as of February 28, 1997) and
are payable quarterly. Borrowings under the Revolving Loan are due on October 8,
1999; provided, however, the Company shall be in default if, during each
calendar year, there are not at least two occasions of consecutive 30 day
periods in which the balance under the Revolving Loan is zero and in which the
Company has not borrowed under the Revolving Loan. The Subordinate Debt bears
interest at a fixed rate of 13% and is payable in monthly installments of
accrued interest until maturity (October 8, 2003), at which time the original
principal amount is due in full. Under the NationsBank Credit Agreement, the
Company may also borrow up to an additional $500,000 to finance the cost of
furniture, fixtures and equipment and leasehold improvements for AIU's campus
located in Los Angeles (the "LA Loan"). The NationsBank Credit Agreement and the
Stratford Subordinate Loan Agreement contain customary covenants that, among
other things, require the Company to maintain specified capitalization levels
and meet specified interest and debt service coverage ratios, restrict capital
expenditures by the Company, restrict the payment of dividends and restrict the
incurrence of certain additional indebtedness. As of February 28, 1997, the
Company was in compliance with all covenants under the NationsBank Credit
Agreement and the Stratford Subordinate Loan Agreement.
Following the consummation of the Offering, approximately $28.8 million of
the net proceeds received by the Company will be used to repay in full the
outstanding principal and interest under the Term Loan and the Subordinate Debt
and a portion of the Revolving Loan.
EFFECT OF INFLATION
The Company does not believe its operations have been materially affected
by inflation.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
will require the presentation of basic and diluted net income per share. Basic
net income per share excludes common stock equivalents such as options, while
diluted net income per share considers the possible effect of all common shares
which potentially can be issued. The Statement will be effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. Early adoption of this Statement is not permitted.
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BUSINESS
OVERVIEW
The Company intends to become a leading provider of career-oriented,
internationally focused higher education designed to prepare students to compete
in the global marketplace. The Company operates AIU, an international
postsecondary educational institution with campuses in Atlanta, Los Angeles,
London and Dubai, United Arab Emirates serving approximately 2,800 students from
the U.S. and over 100 other countries. AIU's curriculum includes such academic
disciplines as international business, multimedia communications and
international design. To respond to the increasingly technology-intensive
workplace, the University intends to expand its curriculum to include academic
programs in the field of information technology management. The University's
Fall term enrollment has increased from 2,209 students in 1994 to 2,815 students
in 1996, and its net revenues have increased from approximately $20.7 million
for the fiscal year ended May 31, 1994 to approximately $26.5 million for the
fiscal year ended May 31, 1996.
Originally established as a two-year institution, AIU has grown into a
diversified institution awarding associate's and bachelor's degrees as well as
an MBA in international business. Of its May 1997 graduates, 9.5% graduated with
an associate's degree, 86.4% graduated with a bachelor's degree and 4.1%
graduated with a master's degree. In 1987, AIU became the first for-profit
four-year university to be accredited by SACS, one of six regional accrediting
agencies recognized by the U.S. Department of Education. Currently AIU is the
only for-profit educational institution accredited by SACS to offer a master's
degree program. AIU offers an authentic international educational environment
with over half of its students being non-U.S. students. Through its SAP program,
AIU provides nearly 500 students from U.S. universities the opportunity to earn
academic credit toward a degree from their home university by studying
international business, liberal arts and applied art at one of AIU's
international campuses. The Company, through EduTrek Systems, also licenses from
third parties, acquires, develops and implements corporate education programs
specifically designed to meet corporate education requirements.
EDUCATION INDUSTRY
The National Center for Education Statistics estimates that the U.S.
education industry accounted for approximately 8% of U.S. gross domestic product
in 1995, or over $600 billion. Of that amount, the postsecondary education
market in which AIU operates accounted for approximately $208 billion, of which
for-profit institutions accounted for approximately $3.5 billion. The U.S.
Department of Education estimates that by 2001 the number of students enrolled
in higher education institutions will increase by more than 1.5 million to over
16 million students. The Company believes that the demand for postsecondary
career-oriented education will increase over the next several years as a result
of certain demographic, economic and social trends. The U.S. Department of
Education estimates that the number of new high school graduates is expected to
increase by approximately 20% from 2.5 million graduates in 1994 to 3.0 million
graduates in 2005. In addition, the U.S. Department of Education expects
significant growth to result from increased enrollment of students over the age
of 24 seeking to enhance their skills or retrain for new technologies. The
Company believes that the industry will also benefit from increasing recognition
of the income premium attributable to postsecondary degrees, with individuals
holding an associate's degree earning on average approximately 30% more per year
than a comparable worker with only a high school diploma and individuals holding
a bachelor's degree earning an average of 70% more per year than a comparable
worker with only a high school diploma.
Two significant segments in the U.S. postsecondary education market are
international students enrolling in U.S. institutions and U.S. students studying
abroad. According to the Institute of International Education, international
student enrollment at U.S. colleges and universities reached a record high of
over 450,000 for the 1995-1996 academic year. Business and management lead as
the most popular fields of study among foreign students studying in the U.S.,
capturing approximately 20% of the international enrollment in the U.S. and
students studying fine and applied arts accounts for approximately 6% of
international enrollment in the U.S. The most popular U.S. city for
international students was Los Angeles, which hosted over 20,000 international
students in the 1995-1996 academic year. One of the most popular international
locations for students was the
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United Kingdom, which hosted over 88,000 international students in 1992. In
addition, the number of U.S. students studying abroad has risen from
approximately 48,000 in the 1985-1986 academic year to approximately 84,000 in
the 1994-1995 academic year. The leading host country for U.S. students studying
abroad is the United Kingdom, which received approximately 23% of U.S. students
studying abroad in the 1994-1995 academic year according to the Institute for
International Education.
GROWTH STRATEGY
The Company intends to become a leading provider of career-oriented,
internationally focused higher education designed to prepare students to compete
in the global marketplace. To accomplish this objective, the Company employs the
following strategies:
ENHANCING GROWTH AT EXISTING CAMPUSES. The University intends to enhance
growth at existing campuses through the following measures:
- Integrated Marketing Program. Management believes that it can
significantly increase total enrollment at AIU through its implementation
of an integrated marketing program which utilizes direct response, direct
sales to high school counselors and other referral sources and a public
relations program to increase awareness of the University among potential
applicants in a cost-effective manner. Both domestically and
internationally, the University intends to use a direct sales force to
participate in college fairs and visit guidance counselors and selected
teachers in targeted high schools as well as contact embassy and consulate
personnel who refer international students. Using direct response marketing
campaigns in its key markets, AIU also intends to develop and target a
demographic profile of students with both the motivation and the ability to
successfully complete the programs offered by the University. In addition,
the Company recently retained a public relations firm to institute a public
relations program intended to maximize media exposure to build the AIU
brand as a quality educational institution.
- Retention and Job Placement. To increase student retention, AIU plans to
improve faculty training and implement a new "First Year Experience" course
to assist new students in adjusting to college life. In addition, to
improve graduate placement, management intends to integrate job search
training into the curriculum, provide placement and competency assessments,
and increase the number as well as improve the quality of its career
planning and placement staff.
- Competitive Financing Programs. Management believes that it can attract
additional students and retain more currently enrolled students by
providing comprehensive education financing programs that provide students
greater flexibility in financing their education. By providing an
institutional scholarship program targeted to selected high schools and
prospective students, management believes that it will increase total
enrollment by attracting and retaining highly motivated students. The
University also recently has obtained eligibility to participate in the
Georgia HOPE Scholarship and Tuition Equalization Grants programs (each
funded by the State of Georgia) which management believes will make the
Atlanta campus more competitive in attracting high-quality students
residing in the State of Georgia.
EXPANDING EDUCATION PROGRAM OFFERINGS. The University intends to continue
to expand program offerings through the following measures:
- Information Technology Management. To meet the increasing demand for
information technology professionals, the University plans to offer the AIT
program, which is specifically designed for university graduates from a
broad range of disciplines with little or no background in information
technology. See "-- Applied Information Technology Program." The AIT
program trains students to become proficient with such tools as Microsoft
Office, Windows NT(R), Visual Basic(R), PowerBuilder(R), Oracle(R), Access
and the Internet. Management anticipates implementing the AIT program into
the University's Atlanta campus curriculum by January 1998, the Los Angeles
campus curriculum by June 1998 and the London campus curriculum by January
1999.
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- Corporate Education. The Company seeks to develop corporate education
programs that add significant educational value to major corporations and
that have well-established positions in high-growth niche markets. In 1996,
the Company formed a strategic partnership with Target Marketing Systems,
Inc. ("TMS"), a leading provider of advanced corporate education programs
in sales process and sales management to high technology companies
worldwide. In addition, management plans to capitalize on its ability to
offer accredited corporate education programs for university credit and
customized degree programs for corporate clients.
- University Programs. AIU currently offers education programs in a
variety of fields and continually seeks to optimize its program offerings
to meet the needs of its students and the employment market. During the
1997-1998 academic year, the University intends to offer a B.S. degree in
multimedia communications and a master's degree in professional sales.
CAPITALIZING ON AIU'S INTERNATIONAL EDUCATIONAL CAPABILITIES. The
University intends to capitalize on its ability to deliver an authentic
American-style education to international students as well as an international
educational experience to U.S. students.
- International Student Recruiting. The University actively seeks
international students and management believes that expanding AIU's
international direct sales force responsible for visiting international
high schools and college fairs and contacting embassy and consulate
personnel who refer international students will result in significant
increases in international student enrollment.
- Study Abroad Program. By capitalizing on the University's international
locations, management believes that the University's SAP program is
well-positioned to capture a greater share of the growing study abroad
market. AIU intends to continue to increase enrollment in the SAP program
by increasing the number of direct sales personnel visiting selected
university professors and foreign study advisors and by establishing
alliances with targeted U.S. universities that are unable to provide their
students with campus-based education overseas. In addition, management
intends to establish alliances with international universities in order to
increase the number of locations available for the University's SAP program
students.
PROGRAMS OF STUDY
AIU delivers practical, career-oriented educational programs for students
seeking an alternative to traditional institutions. Because the University
believes that the educational needs of students are better served through
industry-relevant curricula and a learning model that promotes problem-solving,
interpersonal and team skills, each student at AIU receives an education
designed to integrate academic theory and professional practice for practical
workplace application. The University serves students through a faculty composed
primarily of working professionals, a low student-faculty ratio and an
interactive learning methodology emphasizing the development of professional
skills and competencies. Classes at the University are scheduled throughout the
year at five term start dates for the convenience of students. AIU currently
offers both associate's and bachelor's degrees in the areas of international
business administration, visual communications, fashion design, fashion
marketing, interior design and video production, and a master's degree in
business administration. Of the 463 students graduating in May 1997, 9.5%
graduated with an associate's degrees, 86.4% graduated with a bachelor's degrees
and 4.1% graduated with a master's degree. In addition, AIU is the only
proprietary institution of higher education that is accredited by SACS to award
master's degrees. By virtue of its Level III SACS accreditation, AIU also is
qualified to offer MBA degrees at each of its campuses. The University's
interior design program at the Atlanta and Los Angeles campuses is accredited by
the Foundation for Interior Design Education Research ("FIDER").
The goals of the University's program development process are to provide
new program opportunities based upon student interest and employer requirements
and to revise existing programs to be consistent with changing industry needs.
Most new programs at the University are approved on a system-wide basis and are
made available to each of the University's campuses. Faculty, industry experts,
industry literature and
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employers are the most common source of ideas for new program offerings. As a
part of the program development process, faculty members and internal analysts
may be retained to determine student interest in proposed new programs and the
skills and competencies required of a graduate for employment upon program
completion. In conjunction with industry experts and industry research, faculty
members from all campuses periodically review and update curricula to be
consistent with changing industry needs.
The following table indicates the number of students studying within each
academic discipline, the degrees offered, the degree programs within each
academic discipline and the number of students studying in each degree program.
Unless otherwise noted, each of the academic disciplines and their corresponding
concentrations are offered at all of AIU's campuses.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
ACADEMIC DISCIPLINE DEGREE PROGRAMS
(FALL 1996 ENROLLMENT) DEGREE OFFERED (FALL 1996 ENROLLMENT)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
International Business (816 students) A.A., B.S. International Business (785)
M.B.A. International Business(1) (31)
International Design (1,153 students) A.A., B.A. Fashion Design (218)
Fashion Marketing (245)
Fashion Design and Marketing (238)
Interior Design (456)
Multimedia Communications (538 A.A., B.A. Visual Communications (399)
students) Video Production(2) (139)
</TABLE>
- ---------------
(1) Offered only at AIU's campuses in London and Dubai
(2) Offered only at AIU's campuses in Atlanta and London
International Business. The international business program provides
students with the experience and education necessary for careers in national as
well as international organizations. The associate's degree program introduces
students to the dynamics of business and provides a thorough foundation in the
basic elements of a business environment. The bachelor's degree program provides
students with a broad exposure to business from the basic elements through the
technical and functional areas. Students may follow the general business program
or choose advanced classes leading to a concentration in such areas as computer
systems management, marketing and management. The master's degree program in
international business, which was introduced at the University's London campus
in 1994 and the Dubai campus in 1995, considers the business environment on a
global scale, focusing on such areas as the multi-national and international
banking and monetary system, business ethics and international law, as well as
accounting, information technology, management, marketing and business strategy.
The University also plans to offer a master's degree in professional sales
during the 1997-1998 academic year.
International Design. The international design program trains students in
the fields of fashion design and marketing as well as commercial and residential
interior design. The fashion design program offers students a solid foundation
in designing as well as the opportunity to develop their own line or design
collection. The fashion marketing program is designed to prepare students for
executive careers in the retail and wholesale fashion industry and related
businesses. The residential and commercial interior design programs provide
students with a thorough understanding of the fundamentals and advanced
principles of interior design.
Multimedia Communications. The field of multimedia communications includes
such areas as production advertising art, graphic design, photography,
illustration and video production. Taught by working professionals, the
curriculum offers a balance of practical experience and theoretical concepts.
The program takes into consideration the student's need to have a firm grounding
in the business aspects of the multimedia communications industry. The video
production program, first introduced in 1993 in London and expanded to Atlanta
in 1995, has grown to an enrollment of nearly 160 students in the 1997 Spring
term and generated tuition revenues of approximately $1.5 million for the
1996-1997 academic year. Through an arrangement
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with Image Master Productions, AIU opened a full-service, state-of-the-art video
postproduction facility on the Atlanta campus in March 1997. Students have
access to this facility, and many will serve as interns, working directly with
corporate clients. Management believes that this capability will further
accelerate the growth of the program in Atlanta.
APPLIED INFORMATION TECHNOLOGY PROGRAM
Recognizing the growing demand for information technology professionals, on
June 11, 1997 the Company entered into a letter of intent with ITI pursuant to
which ITI will, subject to the execution of a definitive agreement, license its
AIT program to the Company for use at AIU's campuses in Atlanta, Los Angeles and
London. It is anticipated that under the licensing agreement, the Company will
pay ITI a one-time licensing and implementation fee to implement the program in
the Atlanta campus curriculum, a one-time licensing fee for each additional
campus that implements the program and royalties of a percentage of revenues
derived from AIU students enrolled in the AIT program. The AIT program is an
intensive nine month post-graduate program designed to train and certify
students in the growing field of information technology management. The AIT
program, which is specifically designed for university graduates from a broad
range of disciplines with little or no background in information technology,
trains students to become proficient with such tools as Microsoft Office,
Windows NT(R), Visual Basic(R), PowerBuilder(R), Oracle(R), Access and the
Internet. Students enrolled in the AIT program will work and study in project
teams to develop professional and problem-solving skills in situations that
reflect real workplace challenges.
The Company believes that by adding the AIT program to the University's
curriculum, AIU will be able to offer its students the training required by
employers in today's technology-intensive workplace and enable its graduates to
acquire the necessary information technology knowledge and skills to obtain
employment in industries that rely on information technology. As the
knowledge-based world economy grows and the skills gap between what employers
require and the skills university graduates currently have to offer widens,
demand for information technology professionals is rapidly increasing. Industry
experts predict that 190,000 information technology jobs in the U.S. will remain
unfilled by the end of 1997. Accordingly, management believes that by offering
the AIT program as part of its curriculum, AIU will be able to train students
for the growing number of such information technology careers as software
developers and engineers, programmers and programmer analysts, consultants,
facilitators and validation specialists. ITI has reported to the Company that
more than 95% of its AIT program graduates have found careers in their chosen
field within six months of completing the program and that the demand for
graduates has been so great that a number of students beginning the nine-month
program will have been pre-hired by key employers. Based on such demonstrated
success and the growing demand for information technology professionals,
management believes that implementing the AIT program will improve AIU's
graduate placement rate. However, there can be no assurances that AIU's
graduates from the AIT program will experience the same level of success as ITI
graduates have experienced in finding information technology careers.
Management perceives the demand for information technology professionals in
Atlanta and Los Angeles to be particularly strong. Accordingly, the University
intends to implement the AIT program into the University's Atlanta and Los
Angeles campus curricula by January 1998 and June 1998, respectively. The
University anticipates that it will implement the AIT program into its London
campus curriculum by January 1999.
STUDY ABROAD PROGRAM
The SAP program provides students from U.S. universities with the
opportunity to earn a degree from their home university by studying
international business, liberal arts and applied art at AIU's international
campuses. The University's SAP program provides students with an opportunity to
study and live in a truly international environment. Students in the SAP program
typically design their own course schedules, choosing from among nearly 300
courses, and have the ability to participate in internship programs which
provide an opportunity to obtain international work experience under the
supervision of AIU faculty with professional experience in the field.
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Over the past eight years, the number of U.S. students studying abroad has
risen from approximately 48,000 in 1985-1986 to approximately 84,000 in the
1994-1995 academic year. AIU's London campus is strategically located in the
leading host country for U.S. students studying abroad, the United Kingdom,
which received approximately 23% of U.S. students studying abroad in the
1994-1995 academic year, according to the Institute for International Education.
The SAP program was established through a marketing program combining
direct sales to selected university professors and foreign study advisors with
telemarketing support. Although recognizing the value now placed on an
international education, traditional universities often lack the flexibility to
offer integrated international programs. Since the program's inception in Fall
1989, nearly 300 U.S. universities have "outsourced" international education to
AIU. The U.S. institutions sending the most students to AIU's London campus in
the 1996 Fall term were: University of Wisconsin, University of Massachusetts,
Washington State University, University of Rhode Island, Ohio State University,
University of Denver, Philadelphia College, University of California -- Santa
Barbara, Western Michigan University, Ohio University, University of Colorado
and Purdue University. Participation in the SAP program has increased by
approximately 30% per year since 1994. During fiscal 1997, the University
anticipates that nearly 500 students will participate in the SAP program. To
increase student enrollment in the SAP program, the University intends to enter
into credit recognition agreements with additional universities as well as
develop relationships with international universities in locations outside of
London and Dubai where students participating in the SAP program can study. In
addition, AIU plans to hire a new SAP program director with extensive experience
in operating study abroad programs at the university level.
CORPORATE EDUCATION
The Company licenses, acquires, develops and implements programs
specifically designed to meet corporate education requirements. The Company
seeks to develop corporate education programs that add significant educational
value to major corporations and that have well established positions in
high-growth niche markets. Unlike most corporate training firms, through AIU,
the Company has the capability to offer accredited corporate education programs
for university credit and customized degree programs for corporate clients.
Management believes that employers will increasingly require
certification/accreditation as a way of determining expertise in a given field.
Through its strategic joint venture partnership with TMS, the Company has an
exclusive license to market TMS's revenue growth curriculum for three major
industry groups: industrial/chemical, consumer products and financial services.
The Company's TMS programs, which are typically delivered at hotel conference
rooms or at the customer's site, range from one to three days in length with
prices ranging from between $15,000 and $32,000. Since the program's inception
in April 1996, the Company has provided corporate education programs to six
corporations, including Federal Express and Crown Zellerbach. One of the
Company's customers has recently committed to certify 400 of its global sales
force in the Company's licensed sales processes. The Company intends to utilize
distance learning technologies, including videoconferencing, in offering its
corporate education programs. The Company also intends to license, acquire or
develop additional corporate education curricula in accordance with employer
needs.
INTERNATIONAL ENVIRONMENT
Management believes that U.S. higher education is highly valued abroad.
According to the Institute of International Education, international enrollment
at U.S. colleges and universities reached a record high of over 450,000 for the
1995-1996 academic year. Business and management lead as the most popular fields
of study among foreign students studying in the U.S., capturing approximately
20% of the international enrollment in the U.S., and students studying fine and
applied arts accounts for approximately 6% of the international enrollment in
the U.S. AIU's campuses are strategically located in some of the most popular
locations for international students including the United Kingdom, which hosted
over 88,000 international students in 1992, and Los Angeles, which hosted over
20,000 international students in the 1995-1996 academic year. In addition, AIU's
campus in Dubai is the only accredited American university in the United Arab
Emirates, which graduates approximately 40,000 high school students annually.
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International student enrollment at AIU has increased from 1,243 in the
1994 Fall term to 1,628 in the 1996 Fall term, with students representing over
100 countries including the United Arab Emirates, the United Kingdom, Thailand,
Turkey and India. AIU's programs accommodate students with varying levels of
preparation. For example, international students with minimal English skills can
improve their language skills in the "English as a Second Language" program
before entering as a regular student. Additionally, the curriculum is
standardized across campuses to allow a seamless transfer of credits, providing
a consistent, high-quality "American-style" education for international
students. The University's flexible admissions policy enables students to
matriculate throughout the calendar year and permits students to change programs
easily, in contrast to institutions in many foreign countries which often force
students to commit to a career track in the first year.
Management believes that its base of international students also provides
several direct economic benefits to AIU. Because international students are not
eligible to participate in U.S. government-sponsored student loan programs, AIU
is far less dependent on Title IV Programs than its peer institutions, with only
27% of revenues derived from Title IV Programs. See "-- Regulatory Environment."
According to the Institute of International Education, nearly two-thirds of
international students enrolled in U.S. institutions receive a majority of their
funding from personal and family resources. As a result, international students
have proved less likely to withdraw from school for financial reasons, resulting
in higher retention rates. Most international students are full-time students
enrolled in four-year programs, thus increasing the University's retention and
cash flow per student. Finally, many of the University's international students
participate in accelerated degree programs through "overloads," which are
additional courses beyond the standard course load. Because such students occupy
empty seats in a classroom in which a course is already offered, overload
tuition is almost entirely incremental profit.
Management believes that technological advances and the advent of the
global economy have resulted in increased value being placed by U.S. employers
on an international education. With campuses in London and Dubai, and students
from over 100 countries, AIU provides its U.S. students with an integrated
international curriculum in a global setting. Management views the resulting
cultural diversity as a resource for providing U.S. students with critical
international experience to benefit them in their careers and personally. The
University seeks to enhance this international experience by attracting new
international students to its current locations and by opening campuses in
targeted international locations. See "-- Study Abroad Program" and "-- Growth
Strategy."
TUITION AND FEES
AIU's tuition is competitively priced between the tuition levels of
non-profit private universities and the comparatively lower tuition charged
resident students at public universities. The University's tuition is also
competitive with the tuition of public universities for non-resident and
international students. AIU's tuition ranges between $3,450 and $4,125 per
academic term, or $10,350 and $12,375 per full academic year, depending on the
campus location.
AIU offers a number of institutional scholarships for selected students.
The scholarships are awarded to entering and enrolled students who meet specific
eligibility standards and range from $1,800 to full-tuition scholarships. In
accordance with higher education custom and practice, full tuition scholarships
are available for the immediate family members of employees. In fiscal 1996,
institutional scholarships had a value of $199,941, or 0.7% of the Company's net
revenues.
The University bills students for their tuition and other institutional
fees by the term of instruction, typically an academic term. The University's
refund policies must meet the requirements of the U.S. Department of Education
and of SACS as well as the requirements of each state or country in which the
University's campus is located. Generally, if a student ceases attendance prior
to the expiration of the first 60% of his or her first term, the University will
refund a portion of tuition and fees based upon the number of weeks remaining in
that term. After a student has attended 60% of that term, the University will
retain 100% of tuition and fees. Following the student's first term, the
University refunds tuition and fees based upon the
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number of weeks attended in the term in which the student withdraws. Generally,
after six weeks of a term, the University will retain 100% of tuition and fees
for that term.
Historically, AIU has increased its tuition and fees without resistance
from the marketplace. The University increased its tuition and fees by 5.7% and
6.7% for the 1995-1996 and the 1996-1997 academic years, respectively, and AIU
has implemented an increase in tuition and fees of approximately 5.0% for the
1997-1998 academic year. In the past, the Company has raised its tuition by
amounts which exceeded the rate of inflation. For the foreseeable future, the
Company anticipates that tuition increases will keep pace with inflation.
FACULTY
Faculty members are hired in accordance with criteria established by AIU,
accreditation organizations and applicable federal, state and regulatory
authorities. Faculty members are hired based on academic background, prior
educational experience and prior work experience and the University is
continually in the process of upgrading and hiring additional qualified faculty
members. Of the University's faculty members, 92% of its 62 full-time faculty
members and 82% of its 175 part-time faculty members hold degrees equivalent to
or higher than a master's degree. An important difference between AIU and more
traditional institutions of higher learning is reflected in the concept of
education by professionals rather than professional educators. The University
recruits as a main component of its faculty working professionals who are
experts in their fields. Management believes that such faculty members provide a
valuable "real world" perspective to the students. AIU's faculty focuses on
providing students with a practical education that can be applied directly to
their chosen careers.
Most faculty members are employed on a contractual basis with compensation
tied to the number of courses taught. Because academic research is not a
performance criteria, the faculty emphasizes practices that best serve students
in career environments. Low student-to-faculty ratios (approximately 14:1, 15:1,
15:1 and 14:1 for the 1996-1997 academic year for each of AIU's campuses in
Atlanta, Los Angeles, London and Dubai, respectively) and the absence of a
faculty tenure track promote an environment focused on the student. Faculty
members are evaluated each academic term based on student comments and
observation by the administrative staff, principally on the basis of their
teaching abilities and demonstrated technical knowledge. The average length of
employment for faculty members is approximately four and one-half years.
STUDENT RECRUITMENT
AIU's primary source of new students are its general reputation and
referrals from current students, alumni and employers. To inform potential
students and their parents about the University's programs, AIU has focused its
marketing efforts on admissions representatives, direct sales, and print
advertising in national and international magazines and newspapers and
directories. The goal of the University's recruitment efforts is to increase
awareness of AIU and its programs among potential applicants in a cost-effective
manner.
Admissions Representatives. The University employs over 20 admissions
representatives who pursue leads generated from the University's advertising
efforts and referrals as well as make visits and presentations to various
organizations. Admissions representatives primarily pursue direct responses to
interest from potential students by arranging for interviews either at the
school or a prospective student's home and generally assist students in the
application process. The interview is designed to establish the student's
qualifications, academic background and employment goals. In fiscal 1996,
admissions representatives also made presentations at 140 high schools and the
University's marketing efforts generated 41,000 inquiries. The University's
inquiry-to-application ratio was approximately 10:1, and the application-to-new
student ratio was 2:1. Recruitment policies are coordinated centrally but are
implemented at the campus level. Each campus employs a Director of Admissions
who generally reports to the Campus President. The Director of Admissions is
responsible for, among other things, coordinating the efforts of the school to
recruit qualified students, determining recruiting policies and procedures (in
accordance with Company directives) and standards for hiring and training
representatives.
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Direct Sales. The University seeks to attract students with both the
motivation and ability to complete the educational programs offered by AIU. AIU
is in the process of implementing a marketing program utilizing a direct sales
effort aimed at high school counselors and other referral sources. Domestically,
the direct sales force will participate in college fairs and visit guidance
counselors in high schools and community colleges. During fiscal 1998, AIU plans
to increase the number of direct salespeople focusing on the U.S. market from
one to seven individuals. Internationally, the University's direct salespeople
will recruit students by visiting international high schools and college fairs
and contacting embassy and consulate personnel who refer students. In order to
increase international enrollment, the University intends to increase the number
of direct salespeople focused on international recruiting from two to three
individuals. Management believes that the success of the SAP program is
primarily due to continuing referrals from those that have influence over
prospective students' college selection decision. Accordingly, in marketing the
SAP program, the University currently employs one direct salesperson who visits
selected university professors and study abroad advisors. AIU also has begun
testing a direct mail campaign focused on high school students in their junior
and senior years which is designed to develop and target a demographic profile
of students with both the motivation and the ability to successfully complete
the programs offered by the University.
Print Advertising. Historically, the majority of AIU's marketing
expenditures were allocated to print advertising in national and international
magazines and newspapers in order to generate inquiries from prospective
students. Students requesting information received a brochure describing the
University and its campuses and personal telephone calls from one of the
University's representatives. In the future, AIU intends to focus its print
advertising in trade publications and other publications directed towards
individuals with influence over prospective students' college selection in order
to generate a greater number of qualified student inquiries. In order to
generate awareness of its SAP program, AIU will continue to use print
advertising in student newspapers at targeted universities as well as mail
advertising materials, including posters and brochures, to select universities.
AIU has also recently launched a general public relations campaign that focuses
on building the AIU brand and attracting recruits and referral sources to AIU's
campuses.
Corporate Education. The Company utilizes the services of six direct
salespeople to market the Company's TMS corporate education programs. Utilizing
a sophisticated methodology to identify and qualify prospective corporate
customers based upon customer requirements, potential value added by the
Company's curriculum and account revenue potential, a salesperson calls on that
entity's senior sales executives who make the final purchasing decision. The
salespeople employ TMS's advanced sales process to develop sales strategies,
track progress and measure the results of their sales and marketing efforts.
ADMISSIONS AND STUDENT RETENTION
The University seeks to ensure that incoming students have the necessary
background to complete their chosen programs of study. Each applicant for
admission to AIU is required to have a high school diploma or a recognized
equivalent, demonstrate a satisfactory level of English competence, and submit
two letters of reference. Students interested in the MBA degree program are
required to have completed an undergraduate degree. Prospective students are
interviewed to assess their qualifications, their interest in the degree
programs offered by the University and their commitment to their education. In
addition, the curricula, student services, education cost, available financial
resources and student housing are reviewed during interviews, and tours of the
facilities are conducted for prospective students.
AIU students come from international and U.S. high schools and community
colleges. In the 1996 Fall term, approximately 30% of AIU's enrollment were
first-time freshmen coming directly from high schools, approximately 70% were
transfers from community colleges and universities, and approximately 58% were
international students. Approximately 72% of AIU's students are full-time and
approximately 28% are part-time. At May 31, 1997, 30% of the students had some
prior postsecondary educational experience. Approximately 15% of the students
were under 20 years of age, 50% were between 20 and 24 years of age, and 35%
were 25 years of age or older. Female students accounted for 62% of AIU's total
enrollment as of May 31, 1997.
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The University recognizes that the ability to retain students until
graduation is an important indicator of a school's success and that early
academic intervention is crucial to improving student completion rates. However,
as with other postsecondary institutions, many of AIU's students fail to
complete their programs for a variety of personal, financial or academic
reasons. In the 1996-1997 academic year (excluding the Summer terms), the
University's average net quarterly persistence rate, measured as the percentage
of non-graduating students who are enrolled during an academic term and then
advance to the next, was 83.4%. To minimize student withdrawals, AIU devotes
staff and other resources to assist and advise its students regarding academic
and financial matters, part-time employment and housing. Beginning in the 1997
Fall term, AIU also intends to implement a program where students are assigned a
guidance counselor to advise the student during their four-years at the
University. Tutoring is encouraged for students experiencing academic
difficulties. In addition, because the University bills students for their
tuition and other institutional fees by the term of instruction, many students
who have enrolled at AIU do not matriculate because they have difficulty making
the full tuition payment at the beginning of the term. Accordingly, the
University plans to implement a monthly payment program, with initial payments
beginning in advance of the beginning of the term, which management believes
will result in increased enrollment from recruited students, while preserving
the Company's cash flow.
GRADUATE PLACEMENT
Management believes that the successful placement of graduates in
occupations related to their fields of study is critical to the ability of AIU
to continue to recruit students successfully. The University seeks to obtain
data on the number of students employed following graduation and has implemented
a program to monitor students' career progression. The reliability of such data
is largely dependent on information students and employers report to the
University. Based on the information received from graduating students and
employers, management believes that 76% of U.S. students graduating from AIU in
1996 obtained employment within approximately six months.
The approximate average starting salary of 1996 graduates of AIU was
$24,000 for students graduating with a bachelor's degree. AIU employs a
placement staff to provide placement assistance services to students and
graduates and to solicit appropriate employment opportunities from employers. By
hiring individuals with significant experience in the field of career placement,
the University intends to expand its career placement staff by three individuals
during the 1997-1998 academic year. In addition, students receive instruction
during their program of study on basic job search skills, including the
identification of potential employment opportunities, the composition of resumes
and letters of introduction and preparation for interviews. To assist graduates
in identifying career opportunities which are compatible with their
personalities and skills, the University also intends to provide placement and
competency assessments as well as hire additional personnel at each campus to
assist students in developing individualized career plans, selecting classes to
further such career plans, obtaining internships and forming job search
strategies.
OPERATING STRATEGY
AIU has centralized at its main campus in Atlanta the administrative
functions of the various campuses, including marketing, accounting, recruiting,
human resources, program development, information systems, financial aid and
regulatory compliance. The Company believes that centralizing such functions
leaves local campus management, under the direction of a Campus President, the
flexibility to react to the needs of its students and changing job markets
promptly and effectively. In addition, the Company is implementing an integrated
information system to assist in maximizing internal efficiency and integrating
acquisitions and newly established campuses into the Company's operations. The
University has also implemented a total quality management program in all areas
of AIU in order to assess the current quality of the academic programs and
services at all campuses and initiate quality improvement processes where
needed.
COMPETITION
The postsecondary education market is highly fragmented and competitive
with no private or public institution having a significant market share. In the
U.S. and London, AIU competes for students primarily
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with not-for-profit public and private colleges and proprietary institutions
which offer degree and/or non-degree granting programs, many of which have
greater financial and other resources than the Company. Competition among
educational institutions is believed to be based on the quality of the
educational program, the perceived reputation of the institution, the cost of
the program and the employability of graduates. Competing institutions are often
able to charge lower tuition than AIU due in part to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial resources not available to proprietary institutions. Tuition at
private, non-profit institutions is, on average, higher than tuition at AIU. The
University's campus in Dubai is currently the only U.S.-accredited postsecondary
institution offering degree programs in the United Arab Emirates and competes
with numerous institutions in the Persian Gulf region, certain of which are
government sponsored and charge lower tuition than the University.
The information technology training and the corporate education markets are
highly fragmented, with low barriers to entry and no single competitor
accounting for a dominant market share. The University's competitors in the
information technology training market include computer systems vendors, other
independent education and training companies, systems integrators and software
vendors, as well as certain of the Company's own customers that maintain
internal training departments. The Company's primary competitors in the
corporate education market include other independent education and training
companies as well as many of the Company's own customers that maintain internal
training departments. Some of these competitors offer, at lower prices, courses
and programs similar to those the Company offers in its corporate education
program as well as those that the University intends to offer in its AIT
program. In addition, some competitors have greater financial and other
resources than the Company. There can be no assurance that the Company will be
successful against such competition.
REGULATORY ENVIRONMENT
Accreditation
Accreditation is a process for evaluating educational institutions and the
professional programs offered by those institutions for a level of quality that
entitles them to the confidence of the educational community and the public they
serve. In the United States, accreditation is a nongovernmental process through
which an institution submits itself to qualitative review by an organization of
peer institutions. The three types of accrediting agencies in the United States
are: (i) regional accrediting associations, of which there are six, which
accredit degree-granting institutions located within their geographic areas,
(ii) national accrediting agencies, which accredit institutions on the basis of
the overall nature of the institutions without regard to their locations, and
(iii) specialized accrediting agencies, which accredit specific programs within
an institution. Accrediting agencies primarily examine the academic quality of
the instructional programs of an institution, and a grant of accreditation is
generally viewed as certification that an institution's programs meet generally
accepted academic standards. Accrediting agencies also review the administrative
and financial operations of the institutions they accredit to ensure that each
institution has the resources to perform its educational mission.
Accreditation is an important strength of AIU, providing significant
advantages over most other for-profit educational institutions. College and
university administrators depend on the accredited status of an institution in
evaluating transfers of credit and applications to graduate schools. Employers
rely on the accredited status of an institution when evaluating a candidate's
credentials, and parents and high school counselors look to accreditation for
assurance that an institution meets quality educational standards. Moreover,
accreditation is necessary for students to qualify for eligibility for federal
financial assistance. Also, most scholarship commissions restrict their awards
to students attending accredited institutions.
Pursuant to provisions of the HEA, the U.S. Department of Education relies
on accrediting agencies to determine whether institutions' educational programs
qualify them to participate in Title IV Programs. The HEA specifies certain
standards that all recognized accrediting agencies must adopt in connection with
their review of postsecondary institutions. Accrediting agencies that meet U.S.
Department of Education standards are recognized as the arbiters of the quality
of the education or training offered by an institution. Each of AIU's campuses
is accredited by SACS, an accrediting agency recognized by the U.S. Department
of
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Education. AIU is the only proprietary institution of higher education that is
accredited by SACS, a regional association, to award masters degrees. In
addition, AIU's interior design programs in Atlanta and Los Angeles are
accredited by FIDER.
The HEA requires each recognized accrediting agency to submit to a periodic
review of its procedures and practices by the U.S. Department of Education as a
condition of its continued recognition. SACS, the University's accreditor for
purposes of participation in Title IV Programs, has been reviewed within the
past 18 months and has had its recognition extended.
An accrediting agency may place an institution on "reporting" status in
order to monitor one or more specified areas of a school's performance. An
institution placed on reporting status is required to report periodically to its
accrediting agency on that school's performance in the specified areas. While on
reporting status, an institution may not open and commence teaching at new
locations without first receiving a waiver from its accrediting agency. Failure
to demonstrate compliance with accrediting standards could result in the loss of
accreditation. None of AIU's campuses have been placed on reporting status by
their respective accrediting agencies. See "Risk Factors -- Potential Adverse
Effects of Regulation; Impairment of Federal Funding -- Accreditation."
Student Financial Assistance
Students attending AIU finance their education through a combination of
family contributions, individual resources, financial aid and tuition
reimbursement from their employers. As is the case at most other postsecondary
institutions, many students enrolled at AIU must rely, at least in part, on
financial assistance to pay the cost of their education. The largest source of
such support for the University's U.S. students is the federal programs of
student financial assistance under Title IV of the HEA. Additional sources of
funds include other federal grant programs, state grant and loan programs,
private loan programs and institutional grants and scholarships. Because
international students attending AIU are not eligible to participate in U.S.
government-sponsored student loan programs, the majority of their funding is
derived from personal and family resources. In addition, less than 1% of the
international students enrolled at AIU receive funding from their home
government.
To provide students access to financial assistance resources available
through Title IV Programs, a school must be (i) authorized to offer its programs
of instruction by the relevant agency of the state in which it is located, (ii)
accredited by an accrediting agency recognized by the U.S. Department of
Education, and (iii) certified as an eligible institution by the U.S. Department
of Education. In addition, that school must ensure that Title IV Program funds
are properly accounted for and disbursed in the correct amounts to eligible
students. See "Risk Factors -- Potential Adverse Effects of Regulation;
Impairment of Federal Funding."
Under the HEA and its implementing regulations, AIU must comply with
certain standards on an institutional basis. For purposes of these standards,
the Regulations define an institution as a main campus and its additional
locations (formerly called branch campuses), if any. Under this definition, all
of AIU's campuses are treated as one institution for purposes of complying with
the HEA.
NATURE OF FEDERAL SUPPORT FOR POSTSECONDARY EDUCATION
While the states support public colleges and universities primarily through
direct state subsidies, the federal government provides a substantial part of
its support for postsecondary education in the form of grants and loans to
students who can use this support at any institution that has been certified as
eligible by the U.S. Department of Education. Title IV Programs have provided
aid to students for more than 30 years and, since the enactment of the HEA in
1965, the scope and size of such programs have steadily increased. Since 1972,
Congress has expanded the scope of the HEA to provide for the needs of the
changing national student population by, among other things, providing that
students at proprietary schools are eligible for assistance under Title IV
Programs, establishing a program for loans to parents of eligible students,
opening Title IV Programs to part-time students, increasing maximum loan limits
and eliminating the requirement that students demonstrate financial need to
obtain unsubsidized federally guaranteed student loans. Most recently, the
Direct Loan program was enacted, enabling students to obtain loans from the
federal government rather
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than from commercial lenders. In recent years, federal funds appropriated for
Title IV Programs have increased from $8.6 billion for the federal fiscal year
ending September 30, 1994 to $10.5 billion for the federal fiscal year ending
September 30, 1996. The volume of federally guaranteed student loans (and, more
recently, loans issued under the Direct Loan program) has increased from $17.9
billion in the federal fiscal year ending September 30, 1993 to $29.1 billion in
the federal fiscal year ending September 30, 1996.
Students at AIU participate in the following Title IV Programs.
Pell. The Federal Pell Grant ("Pell") program is the principle means by
which the U.S. Department of Education makes Pell grants to students who
demonstrate financial need. Every eligible student is entitled to receive a Pell
grant; there is no institutional allocation or limit. Grants presently range
from $400 to $2,470 per year. Amounts received by students enrolled in AIU in
fiscal 1996 under the Pell program equaled approximately $589,000 or 2.2% of the
Company's net revenues.
FSEOG. Federal Supplemental Educational Opportunity Grant ("FSEOG")
program awards are designed to supplement Pell grants for the neediest students.
FSEOG grants generally range in amount from $100 to $4,000 per year. The maximum
amount of FSEOG grants may be increased to as much as $4,400 for a student
participating in a program of study abroad that is approved for credit by the
student's home educational institution. The availability of FSEOG awards,
however, is limited by the amount of those funds allocated to an institution
under a formula that takes into account the size of the institution, its costs
and the income levels of its students. FSEOG awards at AIU generally do not
exceed $1,200 per eligible student per year. The Company is required to make, at
a minimum, a 25% matching contribution for all FSEOG program funds disbursed.
Resources for this institutional contribution may include institutional grants
and scholarships and, in certain states, portions of state scholarships. In
fiscal 1996, the Company's institutional match was approximately $29,000.
Amounts received by students enrolled in AIU under the FSEOG program in fiscal
1996 equaled approximately $85,000 or 0.3% of the Company's net revenues.
Federal Family Education Loans and Federal Direct Student Loans. The 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 loans in default 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 Direct Loan program is substantially the same as the FFEL program in
providing Stafford and PLUS loans. Under the Direct Loan program, 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
Direct Loan program replaces the FFEL program (unless the participation in both
programs is permitted by the U.S. Department of Education), although loans are
made on the same general terms and conditions.
Direct and FFEL Stafford Loan Program. Undergraduate students may borrow
an aggregate of $2,625 for their first undergraduate academic year, $3,500 for
their second academic year and $5,500 for their third and fourth academic years
under the FFEL Stafford Loan or Direct Stafford Loan program. Graduate students
may borrow up to $8,500 each academic year. If the student 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 to $10,000 a
year in unsubsidized Stafford loans.
In fiscal 1996, AIU participated in both the FFEL and Direct Loan programs.
FFEL and Direct Stafford loans amounted to approximately $4.7 million and $1.1
million, respectively, or approximately 17.7% and 4.2%, respectively, of the
Company's net revenues in fiscal 1996.
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Direct and FFEL PLUS Loan Program. Parents of dependent students may
receive loans under the FFEL PLUS Loan Program or the Direct PLUS Loan 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. 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 ten year period.
The FFEL PLUS loans are made by lending institutions and guaranteed by the
federal government. The Direct PLUS Loan Program provides PLUS loans issued
directly by the federal government on the same general terms as the FFEL PLUS
loans. FFEL PLUS loans and Direct PLUS loans amounted to approximately $936,000
and $21,000, respectively, or approximately 3.5% and 0.1%, respectively, of the
Company's net revenues in fiscal 1996.
Federal Work-Study. Under the Federal Work-Study ("FWS") program, federal
funds are made available to pay up to 75% of the cost of part-time employment of
eligible students, based on their financial need, to perform work for the
institution or for off-campus public or non-profit organizations. At least 5% of
an institution's FWS allocation must be used to fund student employment in
community service positions. In fiscal 1996, FWS funds amounted to approximately
$23,000 or 0.1% of the Company's net revenues.
AVAILABILITY OF LENDERS
Five lending institutions currently provide over 85% of all federally
guaranteed loans to students attending AIU. While the Company believes that
other lenders would be willing to make federally guaranteed student loans to its
students if loans were no longer available from its current lenders, there can
be no assurance in this regard. In addition, the HEA requires the establishment
of lenders of last resort in every state to make loans to students at any school
that cannot otherwise identify lenders willing to make federally guaranteed
loans to its students. Moreover, because AIU is a participant in the Direct Loan
program, students are able to obtain loans directly from the federal government.
One student loan guaranty agency currently guarantees over 85% of all
federally guaranteed student loans made to students enrolled at AIU. The Company
believes that other guaranty agencies would be willing to guarantee loans to the
University's students if that agency ceased guaranteeing those loans or reduced
the volume of those loans guaranteed.
FOREIGN SOURCES OF FINANCIAL AID
In fiscal 1996, 41 international students, or less than 1% of total
enrollment, received financial assistance from their respective foreign
governments in the form of either loans or grants. The foreign governments
providing loans to AIU's students were Iceland and Sweden and the foreign
governments awarding grants to AIU's students were Saudi Arabia, Aba Dhabi,
Bahrain, Botswana, Libya and the United Arab Emirates.
OTHER FINANCIAL ASSISTANCE SOURCES
Students at AIU participate in state grant programs, including most
recently Georgia's HOPE Scholarship and Tuition Equalization Grant programs. In
fiscal 1996, $52,065 or .2% of the Company's net revenues was derived from state
grant programs. In addition, certain students attending AIU receive financial
aid provided by the United States Department of Veterans Affairs, the United
States Department of the Interior (Bureau of Indian Affairs) and the
Rehabilitative Services Administration of the U.S. Department of Education
(vocational rehabilitation funding). In fiscal 1996, financial assistance from
such federal programs equaled less than .2% of the Company's net revenues. AIU
also provides institutional scholarships to qualified students. In fiscal 1996,
institutional scholarships had a value equal to $199,941 or .7% of the Company's
net revenues.
FEDERAL OVERSIGHT OF TITLE IV PROGRAMS
The substantial amount of federal funds disbursed through Title IV Programs
coupled with the large numbers of students and institutions participating in
them have led to instances of fraud, waste and abuse. As a result, the United
States Congress has required the U.S. Department of Education to increase its
level of
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regulatory oversight of schools to ensure that public funds are properly used.
Therefore, to obtain and maintain eligibility to participate in the Title IV
Programs described above, AIU must comply with the rules and regulations set
forth in the HEA and the Regulations thereunder. An institution must obtain
certification by the U.S. 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 U.S. 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 Program 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. 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 U.S. Department of Education may
provisionally certify a school to participate in Title IV Programs. Provisional
certification may be imposed when a school undergoes a change in ownership
resulting in a change of control or when a school is reapplying for
certification, 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 U.S.
Department of Education may impose such further conditions on a provisionally
certified institution's eligibility to continue participating in the Title IV
Programs as the Department deems necessary. In connection with the Company's
acquisition of American European in October 1996 which resulted in a change of
control of AIU, the Company has been provisionally certified to participate in
Title IV Programs. See "-- Change of Control."
Cohort Default Rates. A significant component of the Congressional
initiative aimed at reducing fraud, waste and abuse was the imposition of
limitations on participation in Title IV Programs by institutions whose former
students defaulted on the repayment of federally guaranteed student loans at an
"excessive" rate. Since the U.S. Department of Education began to impose
sanctions on institutions with cohort default rates above certain levels, more
than 600 institutions have lost their eligibility to participate in some or all
Title IV Programs for this reason. However, many institutions, including AIU,
have responded by implementing aggressive student loan default management
programs aimed at reducing the likelihood of students failing to repay their
loans in a timely manner.
A school's cohort default rate under the FFEL program is calculated on an
annual basis as the rate at which student borrowers scheduled to begin repayment
on their loans in one federal fiscal year default on those loans by the end of
the next federal fiscal year. Any institution whose FFEL cohort default rates
equal or exceed 25% for three consecutive years will no longer be eligible to
participate in that program or the Direct Loan program for the remainder of the
federal fiscal year in which the U.S. Department of Education determines that
such institution has lost its eligibility and for the two subsequent federal
fiscal years. In addition, an institution whose FFEL cohort default rate for any
federal fiscal year exceeds 40% may have its eligibility to participate in all
Title IV Programs limited, suspended or terminated. Since the calculation of
FFEL cohort default rates involves the collection of data from many
non-governmental agencies (i.e., lenders and private guarantors), as well as the
U.S. Department of Education, the HEA provides a formal process for the review
and appeal of the accuracy of FFEL cohort default rates before the U.S.
Department of Education takes any action against an institution based on its
FFEL cohort default rates. An institution may continue to participate in the
FFEL and Direct Loan programs during the pendency of the appeal process.
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AIU has had FFEL cohort default rates of less than 25% for three
consecutive federal fiscal years. AIU had a published 1994 FFEL cohort default
rate and a preliminary 1995 rate below 25%. For federal fiscal 1993 and 1994,
the FFEL cohort default rate for all borrowers at AIU was 14.3% and 14.8%,
respectively. The average FFEL cohort default rate for all proprietary
institutions for federal fiscal 1993 and 1994 was 26.5% and 21.1%, respectively.
For federal fiscal year 1995, the preliminary FFEL cohort default rate for all
borrowers at AIU was 18.5%. Preliminary cohort default rates are subject to
revision by the U.S. Department of Education based on information that schools
and guaranty agencies identify and submit to the U.S. Department of Education
for review, in order to correct any errors in the data previously provided to
the U.S. Department of Education. Any such adjustment will be made by the U.S.
Department of Education at the time that final rates are officially published.
In connection with AIU's preliminary default rate issued for the federal fiscal
year 1994, the University submitted a default rate of 14.5% and received a
preliminary default rate of 17.5%. However, after submitting corrections, AIU's
default rate was adjusted to a final rate of 14.8%. Accordingly, AIU has
submitted such corrections for its 1995 preliminary cohort default rate. The
Company understands that the U.S. Department of Education anticipates issuing
official 1995 FFEL cohort default rates in October 1997, and the Company expects
preliminary 1996 FFEL cohort default rates to be issued in early calendar year
1998.
If an institution's FFEL cohort default rate equals or exceeds 25% in any
of the three most recent federal fiscal years, that institution may be placed on
provisional certification status for up to four years. Provisional certification
does not limit an institution's access to Title IV Program funds; however, an
institution with provisional status is under closer review by the U.S.
Department of Education and may be subject to summary adverse action if it
commits violations of Title IV Program requirements. To the Company's knowledge,
the U.S. Department of Education reviews an institution's compliance with the
cohort default rate thresholds described in this paragraph only when that school
is otherwise subject to a U.S. Department of Education certification review. AIU
has not had a FFEL cohort default rate of 25% or greater during any of the last
three fiscal years.
Increased Regulatory Scrutiny. The 1992 reauthorization of the HEA
contained a three-part initiative, referred to as the Program Integrity Triad,
intended to increase regulatory scrutiny of postsecondary education
institutions. Part one of that initiative required each state to establish a
State Postsecondary Review Entity ("SPRE") to review certain institutions within
that state to determine their eligibility to continue participating in Title IV
Programs. However, the United States Congress has declined to provide funding
for SPREs in appropriations legislation that has been signed into law, the U.S.
Department of Education has not requested any future funding for SPREs, and the
United States House of Representatives has passed legislation repealing SPRE
authority.
Part two of the Program Integrity Triad expanded the role of accrediting
agencies in the oversight of institutions participating in Title IV Programs. As
a result, the accrediting agencies of which the University's campuses are
members have increased the depth and intensity of reviews and have expanded
examinations in such areas as financial responsibility and timeliness of student
refunds. The Program Integrity Triad provisions also require each accrediting
agency recognized by the U.S. Department of Education to undergo comprehensive
periodic reviews by the U.S. Department of Education to ascertain whether such
accrediting agency is adhering to required standards. No accrediting agency or
association may be approved by the U.S. Department of Education for a period of
more than five years. SACS, the University's primary accrediting agency, has
been reviewed by the U.S. Department of Education under the Program Integrity
Triad provisions and reapproved for continued recognition by the U.S. Department
of Education.
Part three of the Program Integrity Triad tightened the standards to be
applied by the U.S. Department of Education in evaluating the financial
responsibility and administrative capability of institutions participating in
Title IV Programs, and mandated that the U.S. Department of Education
periodically review the eligibility and certification to participate in Title IV
Programs of every such eligible institution. By law, all institutions are
required to undergo such a recertification review by the U.S. Department of
Education by 1997 and every four years thereafter. Under these standards, AIU
would be evaluated by the U.S. Department of Education more frequently than in
the past. A denial of recertification would preclude the University from
continuing to participate in Title IV Programs.
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<PAGE> 50
Financial Responsibility Standards. All institutions participating in
Title IV Programs must satisfy a series of specific standards of financial
responsibility. Institutions are evaluated for compliance with those
requirements as part of the U.S. Department of Education's quadrennial
recertification process and also annually as each institution submits its
audited financial statements to the U.S. Department of Education. One standard
requires each institution to demonstrate an acid test ratio (defined as the
ratio of cash, cash equivalents and current accounts receivable to current
liabilities) of at least 1:1 at the end of each fiscal year. Another standard
requires that each institution have a positive tangible net worth at the end of
each fiscal year. A third standard prohibits any institution from having a
cumulative net operating loss during its two most recent fiscal years that
results in a decline of more than 10% of that institution's tangible net worth
as measured at the beginning of that two-year period. An institution that is
determined by the U.S. Department of Education not to meet the standards of
financial responsibility on the basis of failing to meet one or more of the
specified numeric indicators is nonetheless entitled to participate in Title IV
Programs if it can demonstrate to the U.S. Department of Education that it is
financially responsible on an alternative basis. An institution may do so by
demonstrating, with the support of a statement from a certified public
accountant, proof of prior compliance with the numeric standards and other
information specified in the regulations and that its continued operation is not
jeopardized by its financial condition. Alternatively, an institution may post
surety either in an amount equal to one-half of the total Title IV Program funds
received by students enrolled at such institution during the prior year or in an
amount equal to 10% of such prior year's funds and agree to disburse those funds
only on an "as-earned" basis. The U.S. Department of Education has interpreted
this surety condition to require the posting of an irrevocable letter of credit
in favor of the U.S. Department of Education. See "Risk Factors -- Potential
Adverse Effects of Regulation; Impairment of Federal Funding -- Financial
Responsibility Standards."
Since AIU began participating in Title IV Programs, the U.S. Department of
Education has evaluated the financial condition of AIU on a consolidated basis
at the level of the Company, and prior to its acquisition in October 1996, at
the level of American European. Based on the consolidated financial statements
of the Company as of February 28, 1997, AIU does not satisfy either the acid
test ratio or the tangible net worth test. As of February 28, 1997, the
Company's acid test ratio was .13 and the Company had a negative tangible net
worth of approximately $35 million. Notwithstanding such non-compliance, the
Company has maintained AIU's eligibility to continue participating in the Title
IV Programs by posting an irrevocable letter of credit in the amount of $3.75
million in favor of the U.S. Department of Education, which amount is
approximately 50% of the Company's 1996 Title IV Program funds received by
students enrolled at AIU. The letter of credit was posted on March 19, 1997 and
will expire on March 31, 1998. Because the size of the letter of credit is based
on the amount of Title IV Program funds received by AIU's students, to the
extent that such funds have increased during 1997, the Company may be required
to increase the letter of credit on or around June 30, 1997, the date the U.S.
Department of Education re-evaluates the University's compliance with the
financial responsibility standards.
In addition to the financial responsibility standards, an institution is
required to make timely refunds when a student who receives Title IV Program
funds withdraws from an institution. Depending on when during the academic term
the student withdraws, the institution is required to refund all or a portion of
the Title IV Program funds paid by the withdrawing student. Beginning with the
1995-1996 award year, an institution that has failed to make all Title IV
Program refunds on a timely basis during the previous two years is required to
post a letter of credit in favor of the U.S. Department of Education equal to
25% of the Title IV Program refunds that the institution was required to make
for the previous year. During the past two years the University has made all
Title IV Program refunds on a timely basis.
In 1996, the U.S. Department of Education proposed regulations that would
establish new measures of financial responsibility. The Department has extended
the period for comment on the proposed regulations three times because of
concerns expressed by members of the higher education community about the
proposed standards. It is not possible to predict the outcome of this rule
making proceeding at this time. See "Risk Factors -- Potential Adverse Effects
of Regulation; Impairment of Federal Funding -- Financial Responsibility
Standards."
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<PAGE> 51
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 have cohort default rates
not equal to or in excess of 25% for any one of the three most recent fiscal
years. See "-- Cohort Default Rates."
Failure to satisfy any of the criteria may lead the U.S. 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 U.S. 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.
Restrictions on Operating Additional Campuses. The HEA generally requires
that certain institutions, including proprietary schools, be in full operation
for two years before applying to participate in Title IV Programs. However,
under the HEA and the Regulations, an institution that is certified to
participate in Title IV Programs may establish an additional location within a
state or selected territory of the United States (as identified in the
Regulations) and apply to participate in Title IV Programs at that location
without reference to the two-year requirement, if such additional location
satisfies all other applicable requirements. In addition, a school which
undergoes a change in ownership resulting in a change of control must be
reviewed and recertified for participation in Title IV Programs under its new
ownership. See "-- Change of Control." Pending recertification, the U.S.
Department of Education suspends Title IV Program funding to that school's
students. If a school is recertified, it will be on a provisional basis. During
the time a school is provisionally certified, it may be subject to summary
adverse action for violations of Title IV Program requirements, but provisional
certification does not otherwise limit an institution's access to Title IV
Program funds. The Company's expansion plans are based, in part, on its ability
to add additional locations and acquire schools that can be recertified.
Certain of the state authorizing agencies and accrediting agencies with
jurisdiction over AIU also have requirements that may, in certain instances,
limit the ability of the Company to open a new school, acquire an existing
school or establish an additional location of an existing school. The Company
does not believe that those standards will have a material adverse effect on the
Company or its expansion plans.
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, AIU 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 AIU's campuses. If a
corporation is not publicly traded but qualifies as a closely held corporation
under the laws of its state of incorporation, such as the Company, the
Regulations provide that a change in ownership resulting in a change of control
would occur (i) if any person acquires ownership or control of more than 50% of
such corporation's total outstanding voting stock, or (ii) if a person having
ownership or control of more than 50% of such corporation's total outstanding
stock ceases to hold or control more than 50% of such corporation's total
outstanding stock. If the Offering were determined to constitute a change in
ownership resulting in a change of control, the Company would be required to
reestablish the state authorization and accreditation of AIU and apply to the
U.S. Department of Education to reestablish the certification of AIU to
participate in Title IV Programs. See "Risk Factors -- Potential Adverse Effects
of Regulation; Impairment of Federal Funding -- Regulatory Consequences of a
Change in Ownership or Control."
In connection with the Company's acquisition of American European in
October 1996, AIU was required to be recertified by the U.S. Department of
Education as well as obtain the reaccreditation of SACS. In addition, AIU's
campus in Los Angeles was required to be reauthorized by the State of
California. The U.S.
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<PAGE> 52
Department of Education has granted AIU provisional certification to participate
in Title IV Programs which provisional certification will expire in December
1999. Because the acquisition of American European was found to be an excluded
transaction under the Regulations, however, AIU's Title IV Program funding was
not suspended during the U.S. Department of Education's review of its
recertification application. On August 5, 1996 the change of control was
approved by SACS and following a Substantive Change Visit to AIU in April 1997,
as required to ensure compliance with accreditation standards following a change
of control, on April 18, 1997 SACS issued a final report on AIU with no
recommendations. On August 14, 1996, AIU's Los Angeles campus was reapproved by
the State of California's Council for Private Postsecondary and Vocational
Education (the "California Council").
The U.S. 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 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 effected. 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. See "Risk Factors -- Anti-Takeover
Provisions."
The "85/15 Rule." Under a provision of the HEA commonly referred to as the
"85/15 Rule," a proprietary institution, such as AIU, would cease being eligible
to participate in Title IV Programs if, on a cash accounting basis, more than
85% of its revenues for the prior fiscal year was derived from Title IV
Programs. Any school that violates the 85/15 Rule immediately becomes ineligible
to participate in Title IV Programs and is unable to apply to regain its
eligibility until the following fiscal year. Each year, every institution
participating in the Title IV Programs must submit consolidated financial
statements demonstrating compliance with this standard. The Company has
calculated that, since this requirement took effect in fiscal 1995, AIU has not
derived more than 27% of its revenues from Title IV Programs for any fiscal
year, and during fiscal 1996, approximately 27% of AIU's revenues were derived
from Title IV Programs. For fiscal 1996, the Company's independent auditors
examined management's assertion that AIU complied with these requirements and
opined that such assertion was fairly stated in all material respects. The
Company regularly monitors compliance with this requirement in order to minimize
the risk that AIU would derive more than 85% of its revenues from Title IV
Programs for any fiscal year. If AIU appears likely to approach the 85%
threshold, the Company would evaluate the appropriateness of making changes in
student funding and financing to ensure compliance. See "Risk
Factors -- Potential Adverse Effects of Regulation; Impairment of Federal
Funding -- General."
Branching and Classroom Locations. The Regulations contain specific
requirements governing the establishment of new main campuses, branch campuses
and classroom locations at which any student receives not less than 50% of his
or her instruction. In addition to classrooms at campuses, locations affected by
these requirements include the business facilities of client companies used by
AIU. The University has obtained approval for all locations required to be
approved by the Regulations. Should the U.S. Department of Education change its
regulations with respect to this approval process, or delay approvals of new
locations beyond the current approval time rate, the Company's business strategy
may be impacted negatively.
Restrictions on Payment of Bonuses, Commissions or Other
Incentives. Schools participating in Title IV Programs are prohibited from
providing any commission, bonus or other incentive payment based directly or
indirectly on success in securing enrollments or financial aid to persons
engaged in any student recruitment, admission or financial aid awarding activity
(the "Incentive Compensation Rule"). The U.S. Department of Education has not
provided specific regulations with respect to this requirement. If the U.S.
Department of Education were to determine that AIU's methods of compensation do
not comply with the Incentive Compensation Rule, the University could be
required to modify its compensation system, repay certain previously disbursed
Title IV Program funds, pay administrative fines or lose its eligibility to
participate in Title IV Programs. The Company believes AIU's compensation
policies do not violate the Incentive Compensation Rule.
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<PAGE> 53
State Authorization
AIU's campuses in Atlanta and Los Angeles are authorized to offer education
programs and grant degrees or diplomas by the States of Georgia and California,
respectively. In addition, because AIU's campus located in London is operated
under a corporation whose parent corporation is organized under the laws of the
District of Columbia, the London campus is authorized to offer education
programs and grant degrees or diplomas by the District of Columbia. The level of
regulatory oversight varies substantially from state to state. In some states,
campuses are subject to licensure by the state education agency and also by a
separate higher education agency. State laws establish standards for
instruction, qualifications of faculty, location and nature of facilities,
financial policies and responsibility and other operational matters. State laws
and regulations may limit the ability of the Company to obtain authorization to
operate in certain states or to award degrees or diplomas or offer new degree
programs. As discussed below, California prescribes standards of financial
responsibility that are different from those prescribed by the U.S. Department
of Education. The Company believes that the University's campuses in Atlanta,
Los Angeles and London are in substantial compliance with state authorizing and
licensure laws. See "Risk Factors -- Potential Adverse Effects of Regulation;
Impairment of Federal Funding -- State Authorization."
California. In January 1991, the State of California adopted legislation
that requires private, postsecondary educational institutions to meet certain
fiscal tests in order to continue operating in the state. These fiscal tests
include three requirements: (i) not having an operating loss in each of an
institution's two most recent fiscal years; (ii) having positive net worth in
its latest fiscal year; and (iii) maintaining a ratio of current assets to
current liabilities of 1.25:1 or greater. For the year ended May 31, 1996, the
University's Los Angeles campus had satisfied each of these tests. The
California Council also has discretion under this statute to allow an
educational institution to continue operating if it does not satisfy the fiscal
tests, if the institution can demonstrate that it has maintained sufficient
financial resources to sustain all of its promised educational services.
Accordingly, if AIU's campus in Los Angeles fails to meet one of the
above-described tests, the Company has the opportunity to demonstrate to the
California Council its financial strength and ability to continue to operate. In
connection with granting authority for continued operations, California law also
requires an on-site visit to all postsecondary institutions having accreditation
from a regional accrediting association other than the Western Association of
Colleges and Schools. The California Council conducted a visit to AIU's campus
in Los Angeles in June 1996 and recently issued its report, granting approval
for continued degree-granting operation for the maximum four-year period.
Georgia. Until May 1, 1997, AIU's campus in Atlanta was exempt from the
regulatory oversight of the State of Georgia. AIU recently agreed, however, to
subject its operations to the oversight of the State of Georgia in order to
become eligible to participate in Georgia's HOPE Scholarship and Tuition
Equalization Grant programs as well as to use the term "University" as part of
its name. In the State of Georgia, for-profit institutions such as the
University are reviewed by the Georgia Nonpublic Postsecondary Education
Commission ("NPEC"). NPEC regulations require for-profit institutions to meet
minimum standards relating to educational quality, ethical business practices,
health and safety and fiscal responsibility. These standards include, but are
not limited to, requirements that the institution demonstrate that it has
adequate facilities and equipment, that its instructors and administrators have
the requisite education and experience, and that the quality and content of each
program meet stated objectives. Other NPEC standards address such areas as the
institution's library resources, catalog disclosures, support services, student
complaints, advertising, admissions, recruitment, student refunds and student
records. In order to demonstrate fiscal responsibility, NPEC requires that the
institution have sufficient resources to support its operation for at least the
length of its degree program, funds to operate which are not limited to current
tuition and accounts receivable and funds available to operate the institution
for at least the quarter or semester, as the case may be. NPEC recently
determined that AIU satisfied its requirements and issued a certificate of
authorization for the period of May 1, 1997 through April 30, 1998. The
University must seek renewal of this authorization on a yearly basis. Prior to
renewal of the authorization, an NPEC representative will revisit AIU to ensure
the University remains in compliance with NPEC standards.
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<PAGE> 54
District of Columbia. AIU's campus in London is subject to the regulatory
oversight of the District of Columbia Education Licensure Commission (the
"Licensure Commission"). The Licensure Commission's standards governing degree
granting institutions address such areas as administration, the adequacy of the
institution's finances, faculty qualifications, curricula, admissions,
procedures for assessing student outcomes, student services, the adequacy of the
library and equipment, maintenance of student records and advertising.
Additionally, in connection with conferring degree-granting status, the
Licensure Commission requires an on-site visit to all post-secondary
institutions with accreditation under the laws of the District of Columbia. The
Licensure Commission conducted a visit to AIU's campus in London in November
1990 and granted the University a three year provisional license which, due to
the Licensure Commission's inability to schedule a second site visit for
permanent licensing, has been renewed through September 1998. The Licensure
Commission currently has a site visit planned for the Fall of 1997 at which time
the Licensure Commission is expected to review the University's operations. If
the Licensure Commission finds the University to be in full compliance with its
licensing requirements, the University will be granted a permanent license which
will remain in effect indefinitely, subject to periodic review under various
circumstances including a change in ownership and changes in accreditation
status, location, and degrees or certificates offered. AIU anticipates being
granted a permanent license in the Fall of 1997.
DUBAI CAMPUS MANAGEMENT AGREEMENT
On October 1, 1995, AEMEC entered into an Agreement with Middle East
Colleges, Ltd. ("MEC") pursuant to which AEMEC and MEC established the
University's campus in Dubai. Pursuant to the terms of the Agreement, MEC (i)
provided the cash capital contributions for the physical premises and other
items necessary for the establishment of the University's campus in Dubai, (ii)
arranged for all required government licenses and approvals and (iii) secured a
leasehold of the physical premises and facilities used by the campus. Under the
terms of the Agreement, MEC is also required to provide funds to operate and
maintain the campus and AEMEC is to have exclusive control of the operations and
management of the campus's business and the administration of its academic
programs. In return for its services, AEMEC is entitled to 35% of net operating
cash flow. However, because the Company's membership interest in AEMEC is 85%,
the Company receives approximately 30% of net operating cash flow. The Agreement
has a term of 20 years, is renewable for successive five year terms and may be
terminated by either party upon 90 days written notice for "cause," as such term
is defined in the Agreement.
FACILITIES
The Company leases all of its administrative and educational facilities.
The table below sets forth certain information regarding the Company's
facilities as of May 31, 1997:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE EXPIRATION
- -------- -------------- ----------
<S> <C> <C>
Atlanta, Georgia
-- AIU 60,800 January 31, 2009
-- Headquarters 18,400 December 31, 1999
Los Angeles, California 31,800 From September 30, 1998 to May 31,
1999
London, England 46,000 From March 1, 1998 to November 27,
2005
Dubai, United Arab Emirates 34,300 Leased by MEC
</TABLE>
Typically, the University's facilities occupy an entire building or several
floors or portions of floors in a building. Leases typically have terms of six
months to ten years, with zero to five year renewal options. The Company also
leases facilities for student parking and housing. Annual rent for
school-sponsored housing arrangements range from approximately $117,000 to
$822,000, depending on the number of units and local market conditions.
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<PAGE> 55
The Company leases approximately 18,400 square feet of office space for its
headquarters in Atlanta, Georgia at a rate of $27,600 per month. The
headquarters lease expires on December 31, 1999.
The Company actively monitors facility capacity in light of current
utilization and projected enrollment growth. Management believes that in order
to accommodate projected increases in student enrollment at each of its campuses
over the next two years, the University may be required to acquire additional
space. The Company believes that it can acquire additional capacity on
acceptable terms.
EMPLOYEES
As of May 31, 1997, the Company employed 203 persons on a full-time basis
and 246 persons on a part-time basis, including 62 full-time and 175 part-time
faculty members. No employee is party to any collective bargaining arrangement
and the Company believes its relationship with employees is good.
LEGAL PROCEEDINGS
The Company is subject to litigation in the ordinary course of its
business. While there can be no assurance as to the ultimate outcome of any
litigation involving the Company, management does not believe any pending legal
proceeding will result in a judgment or settlement that will have a material
adverse effect on the Company's financial position, results of operations or
cash flow.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the Company's
executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steve Bostic........................... 53 Chairman of the Board and Chief Executive
Officer
Stephen G. Franklin, Sr................ 49 Executive Vice President, Chief Academic
Officer and Director
Paul D. Beckham........................ 53 Director
Fred C. Davison........................ 67 Director
Gaylen D. Kemp......................... 44 Director
Eric P. Anderson....................... 34 Chief Revenue Officer
Donald J. Blankers..................... 58 Chief Financial Officer
Barbara S. Butterfield................. 56 Senior Vice President, Human Resources
Douglas C. Chait....................... 33 Vice President, Corporate Development and
Secretary
Eric R. Fliegel........................ 35 Chief Information Officer and General
Manager, ITI Program
Phillip J. Markert..................... 48 President, American European Corporation
</TABLE>
Steve Bostic has served as Chairman of the Board and Chief Executive
Officer of the Company since its inception in July 1996. Since October 1996, Mr.
Bostic has also served on AIU's Governing Board, and since June 1997, Mr. Bostic
has served as the President of AIU. Prior to founding the Company in 1996, from
1993 to 1996 Mr. Bostic was the Chairman of the Board of EduTrek Systems, Inc.
and, from 1989 to 1993, Mr. Bostic was the Chairman of the Board of Delphi
Technology, Inc., a company specializing in the scientific development and
application of cognitive-based learning systems. Mr. Bostic was the principal
owner and Chairman of American Photo Group, an operator of consumer photo
processing labs, from 1981 to 1987. In addition, Mr. Bostic serves as a member
of the Board of Trustees of Presbyterian College, the Dean's Advisory Council of
the Indiana University School of Business, and the Board of the School of Public
Policy at Georgia Institute of Technology. Mr. Bostic has more than ten years of
experience in the educational arena.
Stephen G. Franklin, Sr. has served as the Executive Vice President and
Chief Academic Officer since April 1997 and as a member of the Board of
Directors of the Company since June 13, 1997. Since October 1996, Dr. Franklin
has also served on AIU's Governing Board. Prior to joining the Company, Dr.
Franklin served as the Associate Dean of Executive Education at the Goizueta
Business School of Emory University from 1995 to 1997 where he developed and
delivered executive education programs for companies. Prior to serving as
Associate Dean, Dr. Franklin was a tenured professor of Business Administration
of the Goizueta Business School of Emory University from 1978 to 1984. At Emory,
Dr. Franklin focused his academic research on change management, team-based
anticipating learning strategies and entrepreneurship in organizations and has
co-authored two management textbooks. Dr. Franklin established and, from March
1988 to 1995, owned Global Access Learning, Inc., an international executive
education and management development firm specializing in developing custom
management programs for global companies. Prior to that time, from 1984 to 1988,
Dr. Franklin was the Executive Vice President and principal shareholder in
Financial Service Corporation, an independent financial planning broker-dealer.
Paul D. Beckham has served as a Director of the Company since June 13,
1997. Mr. Beckham currently serves as a consultant to Wireless Communications,
Inc. and since 1993 has been the co-owner of Hope-Beckham, Inc., a sports
marketing firm. From 1970 to 1993, Mr. Beckham served in various capacities with
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<PAGE> 57
Turner Broadcasting System, Inc., including most recently, President of Turner
Cable Sales, a wholly-owned subsidiary of Turner Broadcasting System, Inc.
Fred C. Davison has served as a Director of the Company since June 13, 1997
and has served on AIU's Governing Board since October 1996. Dr. Davidson has a
Ph.D. in biochemistry and pathology and has served as the President and Chief
Executive Officer of the National Science Foundation, Augusta, Georgia since
1988. From July 1967 through June 1986, Dr. Davison served as the President of
the University of Georgia. Dr. Davison is currently a member of the Board of
Trustees of Presbyterian College as well as a member of the Board of Directors
of First Union Bank of Georgia, the Augusta Chamber of Commerce and the Business
Higher Education Forum.
Gaylen D. Kemp has served as a Director of the Company since June 13, 1997
and has served on AIU's Governing Board since October 1996. Ms. Kemp has been Of
Counsel in the Atlanta, Georgia office of the law firm of Dow, Lohnes &
Albertson since January 1996. From 1987 to December 1995, Ms. Kemp was a partner
in the law office of Dow, Lohnes & Albertson practicing with a focus on mergers
and divestitures, financial transactions and public and private securities
offerings. Ms. Kemp has been a member of the Executive Committee of the
Corporate and Banking Law Section of the State Bar of Georgia since 1989 and
served as Chairperson of the Section from 1993 to 1994. Ms. Kemp is currently a
member of the Executive Committee of the Board of Directors of the Atlanta Legal
Aid Society of which she has been a member since 1989.
Eric P. Anderson has served as the Chief Revenue Officer of the Company
since May 1997. Prior to joining the Company, from 1995 to 1997, Mr. Anderson
served in various capacities at ExecuTrain Corporation, including most recently,
the Vice President of Sales and Marketing where, among other responsibilities,
he developed accounts and sales support programs. From 1993 to 1995, Mr.
Anderson served as Regional Sales Manager for Dade International, Inc. and from
1989 to 1993, Mr. Anderson served in various positions with Baxter Diagnostics
Inc., including as Product Manager, Sales Manager and Sales Representative.
Donald J. Blankers has served as the Chief Financial Officer of the Company
since September 1996, and is a member of the American Institute of Certified
Public Accountants and Financial Executives. Prior to joining the Company, from
1995 to 1996, Mr. Blankers served as Acting Chief Financial Officer for Alcott
Staff Leasing, Inc. From 1994 to 1995, Mr. Blankers was a consultant for CFO
Consulting and, from 1993 to 1994, Mr. Blankers served as Vice President and
Chief Financial Officer for Cryolife, Inc. From 1991 to 1993, Mr. Blankers
served as an independent consultant and, from 1983 to 1991, Mr. Blankers served
in various capacities with National Data Corporation, including Senior Vice
President and Chief Financial Officer from 1987 to 1991 and Vice President,
Controller and Treasurer from 1983 to 1987.
Barbara S. Butterfield is the Senior Vice President of Human Resources, a
position she has held since May 1997. Prior to joining the Company, from 1991 to
1997, Dr. Butterfield was the Vice President of Human Resources and Vice
President of Faculty and Staff Services at Stanford University, Palo Alto,
California where she provided long-range planning, analysis and strategies in
such areas as risk management, environmental health and safety, faculty/staff
housing, and human resources. Prior to Stanford University, Dr. Butterfield was
the Vice President of Human Resources at the University of Pennsylvania from
1987 to 1991. From 1986 to 1987, Dr. Butterfield was the Director of Human
Resources Administration at Duke University and from 1983 to 1986, was the
Director of Personnel Administration at Michigan State University.
Douglas C. Chait has served as the Vice President, Corporate Development
and Secretary since October 1996. Prior to joining the Company, Mr. Chait was
the Director of Corporate Development for EduTrek Systems, Inc. from May 1994 to
October 1996 where he was responsible for identifying and pursuing joint venture
and acquisition opportunities in the corporate training and education
industries. From September 1992 to May 1994, Mr. Chait attended the Graduate
Business School at Emory University where he graduated with an M.B.A. in finance
and strategy.
Eric R. Fliegel has served as the Chief Information Officer since April
1997 and as General Manager, ITI Program since June 1997. Prior to joining the
Company, from 1995 to 1997, Mr. Fliegel served as the
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<PAGE> 58
Executive Director of Information Services for Emory Healthcare where he was
responsible for providing information services to such Emory Healthcare entities
as Emory University Hospital, Crawford Long Hospital and the Emory Clinic. From
1988 to 1995, Mr. Fliegel served as the Assistant Dean of Information Services
for the Roberto C. Goizueta Business School of Emory University where he managed
the school's information systems and, from January 1981 to April 1988, Mr.
Fliegel was the Associate Director of Computing for the William E. Simon
Graduate School of Business Administration.
Phillip J. Markert, age 48, has served as the President of American
European since 1979.
CERTAIN SIGNIFICANT EMPLOYEES OF THE COMPANY AND AIU
Set forth below is information with respect to certain other significant
employees of the Company and AIU:
Valarie Bridges, age 36, is the Vice President of Institutional
Effectiveness, a position she has held since March 1997. Prior to joining the
Company, from January 1996 to March 1997 Ms. Bridges worked as an independent
management consultant, and from 1995 to 1996, Ms. Bridges worked with The
Atlanta Consulting Group where she advised and educated executives, quality
councils and process improvement teams on cultural transformation and developed
a business process reengineering methodology. From 1990 to 1995, Ms. Bridges
served in various capacities with Confederation Life Insurance Company,
including most recently, Manager, Operations Support.
Cindy Crain, age 46, has served as the Vice-President, Corporate Planning
since December 1996. Prior to joining the Company, Ms. Crain served as the
Director of Admissions for The American College in London, Ltd., U.S. from
February through October 1996 and the Director of College Relations for The
American College in Atlanta from 1995 to 1996 where she primarily handled alumni
relations. From 1992 to 1995, Ms. Crain served in various positions at the
University of Georgia's Terry College of Business including Director of College
Relations and Director of Development.
Lance Edward De Masi, age 47, is the Interim President of the University's
Dubai campus, a position he has held since June 1, 1997. From March 1997 to June
1997, Mr. De Masi served as the Academic Dean of the University's campus in
Dubai. Prior to joining the University, Mr. De Masi served in various capacities
with BBDO Worldwide, an advertising agency located in Dubai, including most
recently Executive Vice President and Chief Operating Officer from June 1991 to
March 1997.
Joseph H. Houghton, age 47, served as Campus President of AIU's campus in
London from 1981 to 1988, as the Dean and Chief Academic Officer of the London
campus from 1989 to 1995 and, since 1995, has resumed the position of Campus
President of the University's campus in London.
Rafael Lago, age 48, is the President of the University's Atlanta campus, a
position he has held since 1982. Mr. Lago has also served as the Chancellor of
the University since 1988.
Kevin L. Martin, age 41, is the President of the University's Los Angeles
campus, a position he has held since July 1996. From June 1993 to July 1996, Mr.
Martin served as the Vice President, Director of Admissions for the University's
London campus, and from May 1990 to June 1993, Mr. Martin served as the Director
of Admissions at the University's campus in Los Angeles.
BOARD OF DIRECTORS
The number of directors of the Company is currently fixed at five. The
Company's By-Laws provide that the Board of Directors shall consist of not less
than one person, the precise number to be determined from time to time by the
shareholders of the Company. The Company intends to enlarge the Board by one or
more independent directors following the Offering. The directors are elected
annually by the shareholders of the Company and serve for a term of one year, or
until their earlier resignation, removal from office or death. In addition,
under the terms of the Stratford Subordinate Loan Agreement, so long as the
Subordinate Debt remains outstanding or the holders of the warrants issued to
Stratford hold more than 5% of the Company's Common Stock, Stratford is entitled
to elect one person to the Company's Board of Directors. The individuals
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<PAGE> 59
currently serving on the Board of Directors will continue to serve until
thereafter reelected or replaced at the first annual meeting of shareholders of
the Company, or until their earlier resignation, removal from office or death.
The executive officers of the Company serve at the discretion of the Board of
Directors.
The Board of Directors has established the Compensation Committee and the
Audit Committees. The Compensation Committee, which is composed of Gaylen D.
Kemp and Paul D. Beckham, reviews and makes recommendations to the Board of
Directors regarding salaries, compensation and benefits of executive officers
and key employees of the Company. In addition, the Compensation Committee
administers the Company's 1997 Incentive Plan. The Audit Committee is composed
of Paul D. Beckham and Fred C. Davison. Among other duties, the Audit Committee
reviews the internal and external financial reporting of the Company, reviews
the scope of the independent audit and considers comments by the auditors
regarding internal controls and accounting procedures and management's response
to these comments. The Board of Directors does not have a nominating committee.
EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
year ended May 31, 1997 concerning compensation paid or accrued by the Company
to or on behalf of the Company's Chief Executive Officer and the other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
during the year ended May 31, 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
---------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- ----- ------------
<S> <C> <C> <C>
Steve Bostic................................................ $166,667 -- --
Chairman and Chief Executive Officer
Phillip J. Markert.......................................... $225,895 -- $7,950(2)
President, American European
</TABLE>
- ---------------
(1) For the period from July 1, 1996 to May 31, 1997.
(2) Includes $4,200 representing matching contributions paid by the Company
under the AIU 401(k) Profit Sharing Plan and $3,750 representing premiums
paid by the Company for term life insurance.
No stock options, stock appreciation rights, shares of restricted stock or
other forms of equity-based compensation have been granted as compensation to
the Named Executive Officers.
EMPLOYMENT AGREEMENTS
The Company and Stephen G. Franklin, Sr. have entered into an Employment
Agreement which provides that Dr. Franklin will serve as the Executive Vice
President and Chief Academic Officer of the Company and will be appointed to
serve as a member of the Company's Board of Directors. The Employment Agreement
has a five year term and provides for a base annual salary of $165,000. Under
the terms of the Employment Agreement, Dr. Franklin's salary for successive
years may be increased at the discretion of the Company, provided that each year
Dr. Franklin's salary must be increased by an amount not less than the
percentage increase in the consumer price index. Dr. Franklin is further
entitled to receive certain performance bonuses based on the performance of
AIU's business schools, the Company's financial performance and Dr. Franklin's
achievement of certain business objectives. The Employment Agreement also
provides that Dr. Franklin be granted an option to purchase 105,000 shares of
the Company's Class A Common Stock to vest in equal increments over a period of
five years beginning on the date of grant. In addition, the Employment Agreement
provides that Dr. Franklin is to be granted options to purchase up to an
additional 35,000 shares of Class A Common Stock, the vesting of which shall be
contingent on the Company's obtaining certain financial goals.
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<PAGE> 60
Upon termination of the Employment Agreement (other than voluntarily by Dr.
Franklin, or by the Company for cause or upon the death, incapacity or illness
of Dr. Franklin), Dr. Franklin is entitled to continue to receive his base
salary until the earlier of (i) twelve months after the date of termination or
the second anniversary of the date of the Employment Agreement, (ii) the date of
Dr. Franklin's death or (iii) the date that Dr. Franklin breaches any
post-engagement covenants as set forth in the Employment Agreement.
American European and Phillip J. Markert have entered into an Employment
Agreement which provides that Mr. Markert will serve as the President of
American European. Mr. Markert's Employment Agreement has a five year term and
provides for an annual base salary of $200,000. Upon termination of his
Employment Agreement (other than voluntarily by Mr. Markert, or by the Company
for cause or upon the death, incapacity or illness of Mr. Markert), Mr. Markert
is entitled to continue to receive his salary until the earlier of (i) 24
months, (ii) the date of Mr. Markert's death or (iii) the date that Mr. Markert
breaches any post-engagement covenants as set forth in the Employment Agreement.
Each Employment Agreement contains additional provisions restricting Dr.
Franklin's and Mr. Markert's ability to compete with the Company and solicit its
employees. The Employment Agreements further obligate Dr. Franklin and Mr.
Markert to protect the confidentiality of the Company's information following
termination of their employment.
1997 INCENTIVE PLAN
On March 1, 1997, the Company's Board of Directors and shareholders adopted
the 1997 Incentive Plan, as amended (the "Incentive Plan"), designed to enable
the Company to attract and retain employees and directors who contribute to the
Company's success and to enable such employees and directors to participate in
the long-term success and growth of the Company through an equity interest in
the Company. The Incentive Plan provides for awards of up to an aggregate of
829,388 shares of Class A Common Stock which may be represented by (i) incentive
or nonqualified stock options, (ii) stock appreciation rights ("SARs"), (iii)
restricted stock or (iv) performance awards of Class A Common Stock or cash. The
Incentive Plan may be administered by the Board of Directors or the Compensation
Committee of the Board of Directors (the "Committee"). Incentive stock options
granted pursuant to the Incentive Plan are nontransferable and have an exercise
price of not less than 100% (110% in the case of a holder of 10% or more of the
Common Stock) of the fair market value of the stock on the date of the grant and
the options are exercisable by the holder thereof in full at any time prior to
their expiration in accordance with the terms of the Incentive Plan. Incentive
stock options granted pursuant to the Incentive Plan will expire on or before
(1) the date which is the tenth anniversary of the date the option is granted,
or (2) the date which is the fifth anniversary of the date the option is granted
in the event that the option is granted to an individual who owns more than 10%
of the total combined voting power of all classes of stock of the Company or any
subsidiary of the Company.
SARs may be granted under the Incentive Plan in conjunction with incentive
or nonqualified stock options or in tandem with nonqualified stock options
granted under the Incentive Plan, or may be granted alone. SARs granted in
conjunction or in tandem with stock options generally are exercisable only at
such time and to the extent that the stock options to which they relate are
exercisable. Upon exercise of an SAR, a participant shall be entitled to receive
an amount in cash or shares of Class A Common Stock equal in value to the excess
of the fair market value of one share of Class A Common Stock over the exercise
price per share specified in the related option or SAR, multiplied by the number
of shares in respect of which the SAR is exercised.
The Committee or Board of Directors may condition the grant of restricted
shares of Class A Common Stock upon the attainment of specified performance
goals. Recipients of restricted stock have the right to vote the shares and
receive dividends on such shares, but are not permitted to transfer such shares
until termination of all restrictions or six months after the date of the award,
or such longer period as may be set by the Board of Directors or the Committee.
The Incentive Plan provides that in the event of a change in control of the
Company (as defined in the Incentive Plan) any stock options or SARs awarded
under the Incentive Plan which were not previously exercisable and vested, but
which have been outstanding for at least six months, shall immediately fully
vest
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<PAGE> 61
and become exercisable and any restrictions applicable to restricted stock shall
lapse. As of June 19, 1997, options to purchase a total of 395,500 shares of
Class A Common Stock had been granted at an exercise price of $0.77 per share.
401(K) PROFIT SHARING PLAN
The Company maintains the AIU 401(k) Profit Sharing Plan (the "401(k)
Plan") which is intended to be a tax-qualified defined contribution plan under
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). In
general, all employees of the Company who have completed one year of service
(six months for administrative personnel) and have attained age 21 are eligible
to participate in the 401(k) Plan. The 401(k) Plan includes a salary deferral
arrangement pursuant to which participants may contribute, subject to certain
Code limitations, a minimum of 3.0% and a maximum of 15% of their salary on a
pre-tax basis (up to $9,500 per year). Subject to certain Code limitations, the
Company may make both matching and additional contributions at the discretion of
the Board of Directors of the Company each year. The Company presently matches
35% of the amount contributed by an employee up to 6.0% of the employee's
salary, but the Company's policy regarding matching contributions may be changed
annually in the discretion of the Board of Directors. A separate account is
maintained for each participant in the 401(k) Plan. The portion of a
participant's account attributable to his or her own contributions is 100%
vested. Distributions from the 401(k) Plan may be made in the form of a lump-sum
cash payment or in installment payments.
COMPENSATION OF DIRECTORS
Non-management Directors of the Company receive an annual retainer of
$5,000 and are entitled to receive awards under the Incentive Plan and, as of
June 19, 1997, each of the non-employee Directors of the Company had been
granted an option to purchase a total of 3,500 shares of Class A Common Stock.
Directors are not separately compensated for serving on Committees of the Board
of Directors and Directors who are also employees of the Company receive no
compensation for serving on the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Gaylen D. Kemp and Paul D.
Beckham. During the year ended May 31, 1997, the Company did not have a
Compensation Committee. Steve Bostic, the Chairman, Chief Executive Officer and
formerly the sole director of the Company, made all decisions concerning
executive compensation during the year ended May 31, 1997.
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<PAGE> 62
CERTAIN TRANSACTIONS
In connection with the AIU Acquisition, on October 8, 1996, the Company
paid Phillip J. Markert, a shareholder of the Company and the President of
American European, $1,369,507 for his shares of capital stock of American
European and issued 210,000 shares of Class A Common Stock as consideration for
Mr. Markert's capital stock of American College in London, Ltd., U.S. The
Company and Mr. Markert have entered into an anti-dilution rights agreement
pursuant to which the number of such shares owned by Mr. Markert is subject to
adjustment in the event that the Company grants rights or options (other than
with respect to the Company's Incentive Plan and the warrants owned by Stratford
and GMM) or issues or sells shares of Class A Common Stock for no consideration
or at a price below certain specified levels. Also in connection with the AIU
Acquisition, on October 8, 1996, American European entered into a Consulting
Agreement with The Phillip J. Markert Consulting Group, Inc. ("Consultant")
pursuant to which Consultant has agreed to provide American European (i)
consultation and opinions as to operational and procedural matters with respect
to the business in general and American European's ongoing operation in
particular; (ii) opinions regarding long-term and strategic planning and
direction for American European; and (iii) financial management services. The
Consulting Agreement has a five year term and provides for a base fee of $28,000
per year. Upon termination of Consultant's services (other than voluntarily by
Consultant, or by the Company for cause or upon the death, incapacity or illness
of Mr. Markert, as the Service Provider, as such term is defined in the
Consulting Agreement), Consultant is entitled to continue to receive its base
fee until the earlier of (i) 24 months after such termination, (ii) the date of
the Service Provider's death or (iii) the date that Consultant breaches any
post-engagement covenants as set forth in the Consulting Agreement. As of May
31, 1997, the Company had paid Consultant a total of $16,333 for services
rendered from October 8, 1996 through May 31, 1997. Mr. Markert, the President
of American European, owns and controls Consultant.
In connection with the acquisition of EduTrek Systems and in exchange for
their shares of EduTrek Systems capital stock, on October 8, 1996 the Company
issued (i) 42,000 shares of Class A Common Stock to Douglas C. Chait, the Vice
President, Corporate Development and Secretary of the Company; (ii) 14,007
shares of Class A Common Stock to Donald J. Blankers, the Company's Chief
Financial Officer; and (iii) 696,150 shares of Class B Common Stock to Steve
Bostic, the Chairman and Chief Executive Officer of the Company.
On October 8, 1996, Steve Bostic, the Chairman and Chief Executive Officer
of the Company, loaned $205,000 to the Company on an interest-free basis,
payable on demand. The Company utilized such funds to finance a portion of the
AIU Acquisition. The Company intends to repay this loan prior to the closing of
the Offering.
Mr. Bostic and Stephen G. Franklin, Sr., the Executive Vice President,
Chief Academic Officer and a Director of the Company, are both members of, and
serve as independent sales agents for, EduTrek Partners, LLC ("EduTrek
Partners"). The Company has engaged EduTrek Partners to assist it in marketing
and selling corporate education programs. The Company has agreed to pay EduTrek
Partners or the independent sales agents employed by EduTrek Partners, a
commission equal to 20% of net revenues derived from corporate education program
accounts secured by EduTrek Partners or the independent sales agents on behalf
of the Company. The Company currently owes EduTrek Partners an aggregate of
$207,000 in commissions in connection with services provided by EduTrek Partners
during the period from January 1996 through January 1997.
The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey"), one of the
Representatives of the Underwriters of this Offering, acted as the financial
advisor for the Company in connection with the AIU Acquisition. As compensation
for such financial advisory services and in lieu of Robinson-Humphrey's $500,000
advisory fee, the Company issued 350,000 shares of Class A Common Stock to
Robinson-Humphrey on October 8, 1996. Robinson-Humphrey is a subsidiary of Smith
Barney Inc., the other Representative of the Underwriters of this Offering.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of the Company's Class A Common Stock and Class B Common
Stock as of June 19, 1997, and as adjusted to reflect the sale of the shares
offered hereby, with respect to (i) the Selling Shareholder; (ii) each director
of the Company; (iii) each of the Named Executive Officers; (iv) each person
known by the Company to own beneficially more than 5.0% of the outstanding
shares of the Common Stock; and (v) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each shareholder has sole voting
and investment power with respect to the indicated shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
-------------------------------- --------------------------------
CLASS A CLASS B CLASS A SHARES CLASS A CLASS B
COMMON COMMON TO BE SOLD IN COMMON COMMON
NAME OF BENEFICIAL OWNER(1) STOCK STOCK PERCENT(2) THE OFFERING STOCK STOCK PERCENT(2)
- --------------------------- ------- --------- ---------- -------------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Steve Bostic(3)................... -- 6,335,000 87.3% -- -- 6,335,000 66.0%
Stratford Capital Partners,
L.P.(4)......................... 444,318 -- 5.8 -- 444,318 -- 4.4
The Robinson-Humphrey Company
Inc.(5)......................... 350,000 -- 4.8 -- 350,000 -- 3.6
Atlantic Equity Corporation(6).... 257,110 -- 3.5 257,110 -- -- --
Phillip J. Markert(7)............. 210,000 -- 2.9 -- 210,000 -- 2.2
GMM Investors SBIC, L.P.(8)....... 177,723 -- 2.4 -- 177,723 -- 1.8
Stephen G. Franklin, Sr.(9)....... 21,000 -- * -- 21,000 -- *
Paul D. Beckham................... -- -- -- -- -- -- --
Fred C. Davison................... -- -- -- -- -- -- --
Gaylen D. Kemp.................... -- -- -- -- -- -- --
All executive officers and
directors as a group (11
persons)(10).................... 287,007 6,335,000 91.0% -- 287,007 6,335,000 68.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Pursuant to the rules of the Commission, certain shares of the Company's
Class A Common Stock or Class B Common Stock that a beneficial owner has
the right to acquire within 60 days pursuant to the exercise of stock
options or warrants are deemed to be outstanding for the purpose of
computing the percentage ownership of such owner but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) The percentages are based upon the aggregate number of shares of Class A
and Class B Common Stock issued and outstanding as of June 19, 1997 and as
adjusted for the Offering which amounts were 922,110 and 3,265,000 shares
of Class A Common Stock as of June 19, 1997 and as adjusted for the
Offering, respectively, and 6,335,000 shares of Class B Common Stock as of
June 19, 1997 and as adjusted for the Offering.
(3) Includes 2,866,150 shares of Class B Common Stock owned by Mr. Bostic's
wife and 602,700 shares of Class B Common Stock owned by the Bostic Family
Limited Partnership over which Mr. Bostic exercises voting and investment
power. The beneficial ownership indicated represents 100% of the Class B
Common Stock prior to and after the Offering. The business address of Mr.
Bostic is 3340 Peachtree Road, Suite 2000, Atlanta, Georgia 30326.
(4) Represents shares issuable pursuant to presently exercisable warrants. The
beneficial ownership indicated represents 32.5% and 12.0% of the Class A
Common Stock prior to the Offering and after the Offering, respectively.
The business address of Stratford is 200 Crescent Court, 16th Floor,
Dallas, Texas 75201.
(5) The Company and Robinson-Humphrey have entered into an anti-dilution rights
agreement pursuant to which the number of shares owned by Robinson-Humphrey
is subject to adjustment in the event that the Company grants rights or
options (other than with respect to the Company's Incentive Plan and the
warrants owned by Stratford and GMM) or issues or sells shares of Class A
Common Stock for no consideration or at a price below certain specified
levels. The beneficial ownership indicated represents 38.0% and 10.7% of
the Class A Common Stock prior to the Offering and after the Offering,
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<PAGE> 64
respectively. The business address of Robinson-Humphrey is 3333 Peachtree
Road, Northeast, Atlanta, Georgia 30326.
(6) Atlantic Equity Corporation is a wholly-owned subsidiary of NationsBank
Corporation. The beneficial ownership indicated represents 27.9% and 0% of
the Class A Common Stock prior to the Offering and after the Offering,
respectively. The business address of Atlantic Equity Corporation is
NationsBank Corporate Center, 100 North Tryon Street, NC1-007-23-01,
Charlotte, North Carolina 28255.
(7) The Company and Mr. Markert have entered into an anti-dilution rights
agreement pursuant to which the number of shares owned by Mr. Markert is
subject to adjustment in the event that the Company grants rights or
options (other than with respect to the Company's Incentive Plan and the
warrants owned by Stratford and GMM) or issues or sells shares of Class A
Common Stock for no consideration or at a price below certain specified
levels. The beneficial ownership indicated represents 22.8% and 6.4% of the
Class A Common Stock prior to the Offering and after the Offering,
respectively. The business address of Mr. Markert is 3340 Peachtree Road,
Suite 2000, Atlanta, Georgia 30326.
(8) Represents shares issuable pursuant to presently exercisable warrants. The
beneficial ownership indicated represents 16.2% and 5.2% of the Class A
Common Stock prior to the Offering and after the Offering, respectively.
The business address of GMM is 70 Walnut Street, Wellesley, Massachusetts
02181.
(9) Represents shares issuable pursuant to presently exercisable stock options.
The beneficial ownership indicated represents 2.2% and 0.6% of the Class A
Common Stock prior to the Offering and after the Offering, respectively.
(10) The beneficial ownership indicated represents 100% of the Class B Common
Stock prior to and after the Offering and represents 30.4% and 8.7% of the
Class A Common Stock prior to the Offering and after the Offering,
respectively. Includes outstanding options to purchase 21,000 shares of
Class A Common Stock held by a director which are, by their terms,
exercisable within 60 days.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 40,000,000 shares of Class A
Common Stock and 10,000,000 shares of Class B Common Stock, and up to 5,000,000
shares of preferred stock. As of the date hereof, 922,110 shares of Class A
Common Stock and 6,335,000 shares of Class B Common Stock are issued and
outstanding, held by ten shareholders of record. No shares of preferred stock
have been issued.
CLASS A AND CLASS B COMMON STOCK
Voting. Holders of Class A Common Stock are entitled to one vote per
share. Holders of Class B Common Stock are entitled to ten votes per share. All
actions submitted to a vote of shareholders are voted on by holders of Class A
and Class B Common Stock voting together as a single class, except as otherwise
set forth below or provided by law.
Conversion. Class A Common Stock has no conversion rights. A holder of
Class B Common Stock may convert Class B Common Stock into Class A Common Stock,
in whole or in part, at any time and from time to time on the basis of one share
of Class A Common Stock for each share of Class B Common Stock. If at any time
any shares of Class B Common Stock are transferred of record or beneficially to
any person or entity other than Steve Bostic, Alice Jane Bostic, the Bostic
Family Limited Partnership or a Permitted Transferee, such shares shall
automatically be converted into an equal number of shares of Class A Common
Stock.
Dividends. Holders of Class A Common Stock are entitled to receive cash
dividends on at least an equal per share basis as holders of Class B Common
Stock if and when such dividends are declared by the Board of Directors of the
Company from funds legally available therefor. In the case of any dividend paid
in stock, holders of Class A Common Stock are entitled to receive the same
percentage dividend (payable in shares of Class A Common Stock) as the holders
of Class B Common Stock receive (payable in shares of Class B Common Stock).
Liquidation. Holders of Class A and Class B Common Stock share with each
other on a ratable basis as a single class in the net assets of the Company
available for distribution in respect of Class A and Class B Common Stock in the
event of liquidation.
Limitation on Issuances of Additional Shares of Class. The Articles of
Incorporation prohibit the Company from issuing additional Class B Common Stock
to any person or entity other than Steve Bostic, Alice Jane Bostic, the Bostic
Family Limited Partnership or a Permitted Transferee.
Limitation on Changes to Relative Rights of Shareholders. The Articles of
Incorporation limit the Company's authority to alter or change the relative
rights, preferences, restrictions, dividend rights, voting powers and other
powers given to the holders of the Class A and Class B Common Stock pursuant to
the Articles of Incorporation. Any such alteration or change may be made only
with the approval of 66 2/3% of the votes entitled to be voted by the holders of
each class of stock to be adversely affected thereby, voting separately as
classes. In the event that the Board of Directors declares a dividend or
distribution payable in the Common Stock and there are an insufficient number of
authorized Class B Common Stock shares available for such stock dividend or
distribution, the holders of Class B Common Stock may vote to increase the
authorized number of shares of Class B Common Stock to the number sufficient to
permit the issuance of the stock dividend or distribution, without submitting
such vote for approval by shareholders of the Class A Common Stock.
Other Terms. Shares of the Class B Common Stock may not be subdivided,
consolidated, reclassified or otherwise changed unless contemporaneously
therewith the shares of Class A Common Stock are subdivided, consolidated,
reclassified or otherwise changed in the same proportion and in the same manner.
The rights, preferences and privileges of holders of both classes of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future.
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PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the shareholders of the Company, to issue up to 5,000,000 shares of preferred
stock in classes or series and to fix the voting powers, designations,
preferences or other rights of the shares of each such class or series and
qualifications, limitations and restrictions thereon. Such preferred stock may
rank prior to both classes of Common Stock as to dividend rights, liquidation
preferences or both and may have full or limited voting rights.
The Company has no present plans to issue any shares of the preferred
stock.
WARRANTS TO PURCHASE CLASS A COMMON STOCK
Pursuant to the financing provided in connection with the AIU Acquisition,
on October 8, 1996 the Company issued warrants to purchase an aggregate of
622,041 shares of Class A Common Stock (the "Warrants"). The Warrants have an
exercise price of $.01 per share, are presently exercisable, and expire five
years following the date that the Subordinate Debt is repaid in full. See "Use
of Proceeds." The number of shares subject to and the exercise price of the
Warrants are subject to adjustment under certain circumstances including, among
others, stock splits, dividends, distributions and combinations. A further
adjustment is provided in the event of the granting of rights or options (other
than with respect to the Company's Incentive Plan) or the issuance or sale by
the Company of shares of Class A Common Stock for no consideration or at a price
below that specified in the Warrant agreements. The holders of the Warrants also
have certain registration rights with respect to the shares of Class A Common
Stock underlying such Warrants. See "Shares Eligible For Future
Sale -- Registration Rights."
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
Authorized but Unissued Stock. The Articles of Incorporation provide the
Board of Directors the ability to issue additional shares of Class A Common
Stock and shares of preferred stock and to set the voting rights, preferences
and other terms of such preferred stock. This ability afforded to the Board of
Directors by the Articles of Incorporation may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved by
the Board of Directors (including takeovers which certain shareholders may deem
to be in their best interest). To the extent takeover attempts are discouraged,
temporary fluctuations in the market price of the Class A Common Stock, which
may result from actual or rumored takeover attempts, may be inhibited.
Indemnification. The Articles of Incorporation generally provide that
directors and officers of the Company will be indemnified by the Company to the
fullest extent authorized by Georgia law, as it now exists or may in the future
be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The Articles of
Incorporation also provide that the right of directors and officers to
indemnification is not exclusive of any other right now possessed or hereafter
acquired under any statute, agreement or otherwise.
Limitation of Directors' Liability. The Company's Articles of
Incorporation eliminate, subject to certain exceptions, the personal liability
of directors to the Company or its shareholders for monetary damages for
breaches of such directors' duty of care or other duties as a director. The
Articles of Incorporation do not provide for the elimination of or any
limitation on the personal liability of a director for (i) any appropriation, in
violation of the director's duties, of any business opportunity of the Company,
(ii) acts or omissions that involve intentional misconduct or a knowing
violation of law, (iii) unlawful corporate distributions or (iv) any transaction
from which the director received an improper benefit. In addition, the Company's
Bylaws provide broad indemnification rights to directors and officers so long as
the director or officer acted in a manner believed in good faith to be in or not
opposed to the best interests of the Company, and with respect to criminal
proceedings, if the director has no reasonable cause to believe his or her
conduct was unlawful. These provisions of the Articles of Incorporation and
Bylaws will limit the remedies available to a shareholder who is dissatisfied
with a Board decision protected by these provisions.
65
<PAGE> 67
TRANSFER AGENT AND REGISTRAR
SunTrust Bank, Atlanta, Georgia, will be the Transfer Agent and Registrar
for the Class A Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
3,265,000 shares of Class A Common Stock, assuming no exercise of the
Underwriters' over-allotment option, and 6,335,000 shares of Class B Common
Stock. See "Underwriting." Of these shares, all of the 2,600,000 shares of Class
A Common Stock sold in this Offering will be freely transferable without
restriction or limitation under the Securities Act except for any shares
purchased by affiliates of the Company within the meaning of Rule 144. The
remaining 665,000 shares of Class A Common Stock (including 6,335,000 shares of
Class A Common Stock into which the Class B Common Stock is convertible) are
"restricted" shares within the meaning of Rule 144 (the "Restricted Shares").
The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act and may not be sold except in compliance with the registration requirements
of the Securities Act or pursuant to an exemption from registration, such as the
exemption provided by Rule 144.
Beginning 90 days after the date of this Prospectus, approximately all of
the Restricted Shares will be eligible for sale in the public market pursuant to
Rule 144. In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated), including an affiliate of the Company, who
has held Restricted Shares for at least one-year (as computed under Rule 144),
and any affiliate of the Company who holds non-Restricted Shares, is entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (i) 1.0% of the then outstanding shares of the Company's Class A
Common Stock (approximately 32,650 shares after giving effect to this Offering)
and (ii) the average weekly trading volume in the Company's Class A Common Stock
during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the Commission. Sales under Rule 144 are also
subject to certain provisions relating to the manner of sale, the filing of a
notice of sale and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed an
affiliate of the Company at any time during the 90 days immediately preceding a
sale, and who has held Restricted Shares for at least two-years (as computed
under Rule 144), would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitation and other conditions described above. Rule 144A
under the Securities Act permits the immediate sale by the current holders of
Restricted Shares of all or a portion of their shares to certain qualified
institutional buyers as defined in Rule 144A.
Prior to this Offering, there has been no market for the Class A Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares or the availability of such shares for sale will have on the market
price of the Class A Common Stock. Nevertheless, sales of substantial amounts of
Class A Common Stock in the public market may have an adverse impact on such
market price.
The Company, the holders of warrants to purchase an aggregate of 622,041
shares of Class A Common Stock and the Company's executive officers, directors
and shareholders (other than the Selling Shareholder) (who beneficially own in
the aggregate 1,287,041 shares of Class A Common Stock and 6,335,000 shares of
Class B Common Stock) have agreed not to (i) sell, pledge, offer to sell,
solicit an offer to buy, contract to sell, grant any option, right or warrant to
purchase, sell any option or contract to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Class A Common Stock (other
than the shares offered by the Company and the Selling Shareholder in this
Offering), or any securities convertible into or exercisable or exchangeable for
Class A Common Stock, (ii) enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of the Class A Common Stock, or (iii) make any demand for or exercise
any right with respect to the registration of any shares of Class A Common Stock
or any securities convertible into or exercisable or exchangeable for Class A
Common Stock for a period of 180 days after the date of this Prospectus without
the prior consent of Smith Barney Inc. (the "Lock-up Period"). Following the
Lock-up Period, the shares of Class A Common Stock will be eligible for sale in
the public market, subject to the conditions and restrictions of Rule 144, as
described above.
66
<PAGE> 68
REGISTRATION RIGHTS
The holders of the Warrants and the 350,000 shares of Class A Common Stock
issued to Robinson-Humphrey (the "Robinson-Humphrey Shares") have certain rights
with respect to the registration under the Securities Act of shares of Class A
Common Stock owned by them from time to time (the "Registerable Securities").
Each holder of Registerable Securities has demand registration rights commencing
from and after the effective date of the first registration statement filed by
the Company in connection with the public offering of its securities. The
holders of a majority of each of the Robinson-Humphrey Shares and the Warrants
are entitled to request one long-form registration in which the Company pays all
registration expenses, except underwriting commissions and discounts, and an
unlimited number of short-form registrations on Form S-3 in which the holders of
Registerable Securities pay their pro-rata share of registration expenses,
provided that the Registerable Securities to be registered thereon are expected
to have an aggregate disposition price of at least $500,000. Each holder of
Registerable Securities also has piggyback registration rights, subject to
certain limitations, in the event the Company proposes to register any sale of
any of its securities for its own account or for the account of its
shareholders. The Company is obligated to bear all expenses in connection with
the registration of the Registerable Securities pursuant to its piggyback
registration obligations, except underwriting commissions and discounts.
67
<PAGE> 69
UNDERWRITING
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, each Underwriter named below has severally agreed to
purchase, and the Company and the Selling Shareholder have agreed to sell to
such Underwriter, the number of shares of Class A Common Stock set forth below
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Smith Barney Inc. ..........................................
The Robinson-Humphrey Company, Inc. ........................
Total............................................. 2,600,000
========
</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 Class A Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Robinson-Humphrey are
acting as Representatives, propose to offer part of the shares of the Class A
Common Stock directly to the public at the public offering price set forth on
the cover page of this Prospectus and part of the shares 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 certain other
dealers. After the initial public offering of the shares to the public, the
public offering price and such concessions may be changed by the Underwriters.
The Representatives have advised the Company that the Underwriters do not intend
to confirm sales of any shares of Class A Common Stock to any accounts over
which they exercise discretionary authority.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids for and purchases of the Class A Common Stock so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Class A Common Stock in the open market in
order to cover syndicate short positions. Syndicate short positions may also be
covered by exercise of the Underwriters' over-allotment option described below
in lieu of or in addition to open market purchases. Penalty bids permit the
Underwriters to reclaim a selling concession from a syndicate member when shares
of the Class A Common Stock originally sold by such syndicate member were
purchased in a stabilizing transaction or syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Class A Common
Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 390,000 additional
shares of Class A Common Stock at the price to the public set forth on the cover
page of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the shares of
Class A Common Stock offered hereby. To the extent such option is exercised, the
Underwriters will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Class A Common Stock set forth
68
<PAGE> 70
opposite such Underwriter's name in the preceding table bears to the total
number of shares of Class A Common Stock listed in such table.
Prior to this Offering, there has not been any public market for the Class
A Common Stock. The initial public offering price for the shares of Class A
Common Stock will be determined by negotiations between the Company and the
Representatives and will not be based upon any independent appraisal or
valuation of the Company. Among the factors to be considered in determining such
price are the history of, and the prospects for, the Company's business and the
industry in which it competes, an assessment of the Company's management and the
present state of the Company's development, the past and present revenues and
earnings of the Company, the prospects for growth of the Company's revenues and
earnings, the state of the economy in the United States and the level of
economic activity in the industry in which the Company competes and in related
or comparable industries at the time of the Offering, and prevailing conditions
in the securities markets at the time of the Offering, including market
valuations of publicly trade companies which the Company and the Representatives
believe to be comparable to the Company.
The Company, the holders of warrants to purchase an aggregate of 622,041
shares of Class A Common Stock and the Company's executive officers, directors
and shareholders (other than the Selling Shareholder), who beneficially own in
the aggregate 1,287,041 shares of Class A Common Stock and 6,335,000 shares of
Class B Common Stock (approximately 22.2% of the outstanding Class A Common
Stock and 100% of the Class B Common Stock) have agreed that, for a period of
180 days after the date of this Prospectus, they will not, without the prior
written consent of Smith Barney Inc. (i) sell, pledge, offer to sell, solicit an
offer to buy, contract to sell, grant any option, right or warrant to purchase,
sell any option or contract to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A Common Stock (other than the
shares offered by the Company and the Selling Shareholder in this Offering), or
any securities convertible into or exercisable or exchangeable for Class A
Common Stock, (ii) enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the ownership of the
Class A Common Stock, or (iii) make any demand for or exercise any right with
respect to the registration of any shares of Class A Common Stock or any
securities convertible into or exercisable or exchangeable for Class A Common
Stock.
From time to time in the ordinary course of their respective businesses,
Robinson-Humphrey and Smith Barney Inc., each a Representative of the
Underwriters in this Offering, have provided and may in the future provide
investment banking or other services to the Company. Robinson-Humphrey acted as
the financial advisor for the Company in connection with the AIU Acquisition. As
compensation for such financial advisory services and in lieu of
Robinson-Humphrey's $500,000 advisory fee, the Company issued 350,000 shares of
Class A Common Stock to Robinson-Humphrey on October 8, 1996. Robinson-Humphrey
is a subsidiary of Smith Barney Inc.
The Company has applied for listing of the Class A Common Stock on the
Nasdaq National Market.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.
Certain legal matters in connection with this Offering are being passed upon for
the Underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The consolidated balance sheet as of February 28, 1997 and the consolidated
statements of operations, shareholders' equity and cash flows for the period
from July 1, 1996 to February 28, 1997 of the Company and the consolidated
balance sheet as of May 31, 1996 and the consolidated statements of operations,
shareholders' deficit and cash flows for each of the three years ended May 31,
1996 and for the period from June 1, 1996
69
<PAGE> 71
to October 8, 1996 of the Predecessor have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the Prospectus and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Class A Common Stock offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Class A
Common Stock, reference is hereby made to the Registration Statement and such
exhibits and schedules filed as a part thereof, which may be inspected, without
charge, at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of all or any portion of the Registration Statement may be
obtained from the Public Reference Section of the Commission, upon payment of
prescribed fees. Such material also may be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are necessarily summaries of such
documents. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
70
<PAGE> 72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS FOR EDUTREK INTERNATIONAL,
INC.:
Independent Auditor's Report................................ F-2
Consolidated Balance Sheet as of February 28, 1997.......... F-3
Consolidated Statement of Operations -- Period from July 1,
1996 (Date of Formation) to February 28, 1997............. F-4
Consolidated Statement of Changes in Stockholders'
Equity -- Period from July 1, 1996 (Date of Formation) to
February 28, 1997......................................... F-5
Consolidated Statement of Cash Flows -- Period from July 1,
1996 (Date of Formation) to February 28, 1997............. F-6
Notes to Consolidated Financial Statements.................. F-7
CONSOLIDATED FINANCIAL STATEMENTS FOR AMERICAN EUROPEAN
CORPORATION AND SUBSIDIARIES:
Independent Auditors' Report................................ F-16
Consolidated Balance Sheet as of May 31, 1996............... F-17
Consolidated Statements of Operations -- Period from July 1,
1996 to October 8, 1996 and the Three Years Ended May 31,
1996...................................................... F-18
Consolidated Statements of Changes in Stockholders'
Equity -- Period from June 1, 1996 to October 8, 1996 and
the Three Years Ended May 31, 1996........................ F-19
Consolidated Statements of Cash Flows -- Period from June 1,
1996 to October 8, 1996 and the Three Years Ended May 31,
1996...................................................... F-20
Notes to Consolidated Financial Statements.................. F-21
</TABLE>
F-1
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
Board of Directors of Edutrek International, Inc.:
We have audited the accompanying consolidated balance sheet of Edutrek
International, Inc. ("the Company") and its subsidiaries as of February 28, 1997
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the period from July 1, 1996 (date of formation) to
February 28, 1997. 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 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 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Edutrek and its subsidiaries as
of February 28, 1997 and the results of their operations and their cash flows
for the period from July 1, 1996 (date of formation) to February 28, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
June 18, 1997
F-2
<PAGE> 74
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 184,573
Accounts receivable (less allowance for doubtful accounts
of $66,854)............................................ 309,549
Other receivable.......................................... 364,563
Deferred income taxes..................................... 195,408
Other..................................................... 503,625
-----------
Total current assets.............................. 1,557,718
PROPERTY, PLANT, AND EQUIPMENT -- Net of accumulated
depreciation.............................................. 4,621,518
GOODWILL -- Net of accumulated amortization of $423,056..... 40,380,193
DEFERRED FINANCING COSTS -- Net of accumulated amortization
of $98,382................................................ 1,089,534
OTHER....................................................... 372,659
-----------
$48,021,622
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 982,676
Accrued expenses.......................................... 1,276,425
Value-added tax payable................................... 260,845
Unearned revenues......................................... 6,069,462
Income taxes payable...................................... 1,193,361
Revolving loan payable.................................... 788,456
Current maturities -- long-term debt...................... 1,978,550
-----------
Total current liabilities......................... 12,549,775
LONG-TERM DEBT -- Less current maturities................... 27,546,256
DUE TO PRINCIPAL SHAREHOLDER................................ 205,041
OTHER LIABILITIES........................................... 661,116
REDEEMABLE COMMON STOCK WARRANTS............................ 676,946
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Common stock, Class A voting, one vote per share $0 par
value, 40,000,000 shares authorized, 665,000 issued and
outstanding............................................ 1,286,744
Common stock, Class B voting, ten votes per share, $0 par
value, 10,000,000 shares authorized, 6,335,000 issued
and outstanding........................................ 4,000,000
Foreign currency translation.............................. 125,622
Retained earnings......................................... 970,122
-----------
Total shareholders' equity........................ 6,382,488
-----------
$48,021,622
==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 75
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JULY 1, 1996 (DATE OF FORMATION) TO FEBRUARY 28, 1997
<TABLE>
<S> <C>
NET REVENUES................................................ $14,173,574
OPERATING EXPENSES:
Cost of education and facilities.......................... 5,278,954
Selling and promotional expenses.......................... 1,573,771
General and administrative expenses....................... 3,139,207
Amortization of goodwill.................................. 430,506
-----------
10,422,438
-----------
INCOME FROM CAMPUS OPERATIONS............................... 3,751,136
INCOME FROM MANAGEMENT AGREEMENT............................ 245,744
-----------
INCOME FROM OPERATIONS...................................... 3,996,880
INTEREST EXPENSE............................................ 1,572,288
OTHER INCOME -- Net......................................... 23,333
-----------
INCOME BEFORE INCOME TAXES.................................. 2,447,925
PROVISION FOR INCOME TAXES.................................. 1,240,617
-----------
NET INCOME.................................................. $ 1,207,308
==========
NET INCOME PER SHARE........................................ $ 0.15
==========
WEIGHTED AVERAGE COMMON SHARES AND COMMON EQUIVALENTS
OUTSTANDING............................................... 8,274,651
==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 76
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM JULY 1, 1996 (DATE OF FORMATION) TO FEBRUARY 28, 1997
<TABLE>
<CAPTION>
COMMON STOCK-- FOREIGN
NUMBER OF SHARES COMMON STOCK CURRENCY
------------------- ----------------------- TRANSLATION RETAINED
CLASS A CLASS B CLASS A CLASS B ADJUSTMENT EARNINGS TOTAL
------- --------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock -- July 1,
1996.............................. 2,240,000 $1,000,000 $1,000,000
Issuance of common stock in
connection with the acquisition of
Edutrek Systems................... 105,000 1,995,000 $ (237,186) (237,186)
Sale of common stock in connection
with acquisition of Predecessor... 2,100,000 3,000,000 3,000,000
Issuance of common stock in exchange
for certain fees.................. 350,000 $ 500,000 500,000
Issuance of common stock in exchange
for stock of the Predecessor...... 210,000 786,744 786,744
Foreign currency translation........ $125,622 125,622
Net income.......................... 1,207,308 1,207,308
------- --------- ---------- ---------- -------- ---------- ----------
BALANCE -- February 28, 1997........ 665,000 6,335,000 $1,286,744 $4,000,000 $125,622 $ 970,122 $6,382,488
======== ========= ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 77
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JULY 1, 1996 (DATE OF FORMATION) TO
FEBRUARY 28, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 1,207,308
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 837,985
Amortization of loan discount and accretion of
warrants.............................................. 124,280
Decrease in accounts receivable........................ 1,058,030
Decrease in prepaid expenses and other assets.......... 378,029
Increase in accounts payable and accrued liabilities... 387,461
Decrease in unearned revenues.......................... (4,436,598)
Decrease in value-added taxes payable.................. (667,756)
Increase in income taxes payable....................... 974,288
Decrease in deferred taxes............................. 218,020
Other.................................................. (173,275)
------------
Net cash used in operating activities............. (92,228)
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment............... (415,660)
Acquisition of predecessor................................ (30,746,448)
------------
Net cash used in investing activities............. (31,162,108)
FINANCING ACTIVITIES:
Proceeds from long-term borrowings........................ 28,938,457
Principal repayments on long-term debt.................... (14,675)
Net payments -- line-of-credit............................ (150,001)
Principal payments under capital lease obligations........ (146,956)
Proceeds from issuance of common stock.................... 4,000,000
Increase in deferred loan costs........................... (1,187,916)
------------
Net cash provided by financing activities......... 31,438,909
NET DECREASE IN CASH AND CASH EQUIVALENTS................... 184,573
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... --
------------
End of period............................................. $ 184,573
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (in
$000s):
Cash paid during the period for:
Interest............................................... $ 1,271
===========
Income taxes........................................... $ 49
===========
NONCASH INVESTING AND FINANCING TRANSACTIONS (in $000s):
Assumption of debt in connection with acquisition of the
predecessor............................................ $ 3,308
===========
Recording of aircraft and related assets in connection
with the acquisition of the majority interest in Flight
Enterprises LLC........................................ $ 1,511
===========
Assumption of aircraft-related debt....................... $ 1,565
===========
Investment banker's fees paid with Company stock.......... $ 500
===========
Stock exchanged for predecessor stock..................... $ 787
===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 78
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FOR THE PERIOD FROM
JULY 1, 1996 (DATE OF FORMATION) TO FEBRUARY 28, 1997
1. ORGANIZATION AND BUSINESS
Formation and Acquisition -- Edutrek International, Inc. (the "Company"),
formerly known as E. Holdings, Inc. was formed on July 1, 1996 for the purpose
of acquiring and operating American European Corporation ("American European")
and its affiliates and until October 1996 its operations were not significant.
On October 8, 1996, the Company acquired all of the outstanding stock of
American European, its subsidiary American College in London, Ltd. U.S., as well
as 85% of the membership interest of the American European Middle East
Corporation ("AEMEC"), a Georgia limited liability company. American European,
American College in London, Ltd. U.S., and AEMEC are collectively referred to
herein as the "Predecessor." Subsequent to the acquisition of the Predecessor,
the American College was renamed American Intercontinental University (the
"University"). The University is an international postsecondary educational
institution with campuses in Atlanta, Los Angeles, London, and Dubai, United
Arab Emirates. The College is accredited by the Commission on Colleges of the
Southern Association of Colleges and Schools. The Atlanta and Los Angeles
campuses are approved by the U.S. Department of Education for participation in
Title IV student financial assistance programs and are approved by the U.S.
Department of Justice to accept foreign students. The Colleges' business is
seasonal in nature with the majority of revenues being earned between October
and May. The accompanying financial statements include the operating results of
the University from the date of acquisition. On October 8, 1996, the Company
also acquired the outstanding shares of Edutrek Systems for 105,000 and
1,995,000 shares of Edutrek International Class A and B common stock,
respectively. The acquisition of Edutrek Systems was accounted for in a manner
similar to a pooling-of-interests as the Company and Edutrek Systems were under
common control by virtue of ownership by the same individual. The results of
operations of the Company include losses arising from the operation of Edutrek
Systems of approximately $321,000 for the period July 1, 1996 to February 28,
1997. Financial information for Edutrek Systems is not included prior to July 1,
1996 because in 1994, 1995, and for the period ended October 8, 1996, Edutrek
Systems incurred losses of $312,954, $584,627, and $819,430, respectively. Such
amounts are not considered to be material. The Company, through its subsidiary
Edutrek Systems, also licenses, acquires, develops, and implements corporate
education programs.
The purchase price of approximately $38 million (including $1.8 million of
fees and other costs directly associated with the acquisition) was funded
primarily through capital contributions in the amount of $4.5 million and
proceeds from borrowings of $21,000,000 under a senior credit agreement and
$7,000,000 under a subordinated note payable. Proceeds from the capital
contributions and borrowings were also used to retire existing indebtedness of
the Predecessor at closing in the amount of $2,615,416. Certain previous
shareholders of the Predecessor received 210,000 shares of Class A Common Stock
in the acquisition and certain lenders in the transaction received 879,151
warrants to acquire shares of Class A Common Stock in the future. (See Note 5.)
The Company's acquisition of the Predecessor has been accounted for as a
purchase. Accordingly, the purchase price has been allocated to the
Predecessor's identifiable assets and liabilities based on estimated fair values
at the acquisition date. The excess of the purchase price over the fair value of
the Predecessor's identifiable net assets has been classified as goodwill.
F-7
<PAGE> 79
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price, net of noncash items totaling approximately $1.5
million, of the Predecessor has been allocated as follows (in millions):
<TABLE>
<S> <C>
Current assets.............................................. $ 3.9
Property, plant, and equipment.............................. 3.1
Goodwill.................................................... 40.4
Other assets................................................ 2.1
Liabilities assumed......................................... 13.0
</TABLE>
Also in connection with the purchase, AEC entered into consulting and
employment agreements with the selling stockholders and an officer of American
European.
Edutrek Systems owned a 50% interest in Flight Enterprises LLC which was
accounted for under the equity method of accounting. On October 15, 1996, the
Company acquired the remaining 50% interest in the LLC by assuming a note
payable in the amount of $1,535,000 (see Note 4). The Company, through the LLC,
owns an aircraft and an interest in a partnership which controls a hangar.
Government Regulation -- The Company and AIU are subject to extensive
regulation by federal, state, and foreign governmental agencies, and accrediting
agencies. In particular, the Higher Education Act of 1965, as amended, and the
regulations promulgated thereunder by the U.S. Department of Education set forth
numerous standards that schools must satisfy in order to participate in the
various federal student financial assistance programs under Title IV of the HEA
("Title IV Programs"). For example, the Company is required to: (i) establish
certain financial responsibility and administrative capability standards, (ii)
establish maximum acceptable rates of default by students on federally
guaranteed or funded student loans, (iii) restrict the ability of a school or
its parent corporation to engage in certain types of transactions that would
result in a change in ownership and control of that school or corporation, (iv)
limit the proportion of school revenues that may be derived from Title IV
Programs, and (v) prohibit the payment of certain types of incentives to
personnel engaged in student recruiting and admissions activities.
The failure by AIU to comply with applicable federal, state, or accrediting
agency requirements could result in the limitation, suspension, or termination
of the ability of AIU's campuses to participate in Title IV Programs or the loss
of state licensure or accreditation. Given that approximately 27% of the
Company's revenues are indirectly derived from Title IV Programs, the loss of or
a significant reduction in Title IV Program funds would have a material adverse
effect on the Company's revenues and cash flow because AIU's student enrollment
would likely decline as a result of its students' inability to finance their
education without the availability of Title IV Program funds.
The financial responsibility standards are applied to the Company on a
consolidated basis in evaluating the financial condition of AIU. Based on the
consolidated financial statements of the Company as of February 28, 1997, AIU
does not satisfy either the acid test ratio of 1:1 or the positive tangible net
worth test, as defined. As of February 28, 1997, the Company's acid test ratio
was .13 and the Company had a negative tangible net worth of approximately $35
million. Notwithstanding such noncompliance, the Company has maintained AIU's
eligibility to continue participating in Title IV Programs by posting an
irrevocable letter of credit in the amount of $3.75 million in favor of the U.S.
Department of Education, which amount is approximately 50% of the Company's 1996
Title IV Program funds received by students enrolled at AIU. The letter of
credit was posted on March 19, 1997, and will expire on March 31, 1998. Because
the amount of the letter of credit is based on the amount of the Title IV
Program funds received by AIU's students, to the extent that such funds have
increased during 1997, the Company may be required to increase the letter of
credit on or around June 30, 1997, the date the U.S. Department of Education
reassesses the University's compliance with the financial responsibility
standards.
F-8
<PAGE> 80
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company, American European, the American College in
London Ltd. U.S., AEMEC (85% owned by the Company and 15% owned by an affiliate
of the Predecessor's majority stockholder), and the American College in London,
Ltd., a registered British corporation that is wholly owned by the American
College in London, Ltd. U.S. Significant intercompany accounts and transactions
have been eliminated in consolidation.
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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- The Company considers cash equivalents to be
all demand deposits and highly liquid unrestricted investments with an original
maturity of three months or less which can be readily converted to cash on
demand without penalty.
Cash at February 28, 1997 includes approximately $31,914, which is
restricted to expenditures for scholarships and other awards to students. A
corresponding liability has been recorded for these funds until they are
disbursed.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Depreciation on furniture, fixtures, and equipment is
computed using the straight-line method over the estimated useful lives of the
assets, which range from seven to ten years. Amortization of leasehold
improvements and leasehold interest is computed using the straight-line method
over the various lease terms. Amortization of capital leases, computed using the
straight-line method is included in depreciation and amortization expense.
Textbooks are amortized using the straight-line method over a three to six year
period, their anticipated useful lives. The aircraft is depreciated over 10
years on the double declining balance method.
Intangible Assets -- Goodwill is amortized over 40 years using the
straight-line method. Debt issue costs are amortized over five years. The
Company periodically assesses the recoverability of goodwill based on judgments
as to future undiscounted cash flows from operations.
Impairment of Long-Lived Assets -- The Company adopted the provisions of
Statement of Financial Accounting Standard ("SFAS") 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of."
Under this method, the Company is required to review long-lived assets and
certain identifiable intangibles to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. All long-lived assets to be disposed of will be reported
at the lower of carrying amount or fair value less cost to sell.
Unearned Revenues -- Unearned revenues represent the portion of student
tuition, fees, and dorm payments received in advance of services being
performed.
Income Taxes -- Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying currently enacted statutory
rates to differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in the results of operations in the period
that includes the enactment date.
Net Income Per Share -- Net income per share is computed by dividing net
income by the number of weighted average common shares outstanding. In
accordance with the rules of the Securities and Exchange Commission, all shares
of common stock issued prior to the Company's initial public offering and all
options and warrants outstanding are included in weighted average shares
outstanding as if they were issued at the Company's formation on July 1, 1996.
F-9
<PAGE> 81
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Financial Accounting Standards Board has issued SFAS 128, "Earnings Per
Share." This statement simplifies the standards for computing earnings per share
previously found in APB 15, "Earnings Per Share". SFAS 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share and requires the presentation of diluted earnings per share for all
entities with complex capital structures. The statement is not effective for the
Company until the year ended May 31, 1998.
Stock-Based Compensation -- SFAS 123, "Accounting for Stock-Based
Compensation," establishes financial accounting and reporting standards for
stock-based compensation plans. SFAS 123 is effective for the Company's fiscal
year ending May 31, 1997 and includes fair value recognition provisions for
stock-based compensation which are elective for employee arrangements and
required for nonemployee transactions. For the employee arrangements, management
has elected to apply the intrinsic value method in accordance with APB 25 and,
accordingly, has elected to disclose net income and earnings per share as if the
fair value method of accounting defined in SFAS 123 had been applied. There are
no nonemployee arrangements.
Common Stock Warrants -- Common stock warrants are classified as redeemable
securities due to certain put and call provisions and are not included as a
component of permanent capital. The warrants are valued based upon the put
feature until such time that the put rights expire.
Foreign Currency Translation -- Assets and liabilities of the Company's
United Kingdom operations are translated from Pounds Sterling into U.S. dollars
at the rate of currency exchange at the end of the fiscal period. Revenues and
expenses are translated at average monthly exchange rates prevailing during the
period. Resulting translation differences are recognized as a component of
stockholders' equity. Foreign currency transaction gains and losses are
immaterial to the accompanying financial statements.
Fair Value of Financial Instruments -- Management has reviewed the various
assets and liabilities of the Company in accordance with SFAS 107, "Disclosures
About Fair Values of Financial Instruments." Management has concluded that all
of the Company's financial instruments have terms such that their book value
approximates fair value.
3. OTHER CURRENT ASSETS
Other current assets at February 28, 1997 consist of the following:
<TABLE>
<S> <C>
Prepaid rent................................................ $134,233
Prepaid taxes and property taxes............................ 94,412
Other....................................................... 274,980
--------
$503,625
========
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at February 28, 1997 is summarized as
follows:
<TABLE>
<S> <C>
Furniture, fixtures, and equipment.......................... $2,128,469
Aircraft and related assets................................. 1,510,455
Leasehold improvements...................................... 846,094
Library and textbooks....................................... 543,979
----------
5,028,997
Less accumulated depreciation and amortization.............. 407,479
----------
$4,621,518
=========
</TABLE>
Depreciation expense for property, plant, and equipment was $407,479 for
the period from July 1, 1996 to February 28, 1997.
F-10
<PAGE> 82
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT AND REVOLVING LOAN PAYABLE
Long-term debt at February 28, 1997 is summarized as follows:
<TABLE>
<S> <C>
Senior Credit Agreement -- Term loan (net of debt discount
of $160,970).............................................. $20,839,030
Subordinate Loan (net of debt discount of $391,697)......... 6,608,303
Loan Secured by Aircraft.................................... 1,565,000
Capital Lease Obligations................................... 475,784
Other....................................................... 36,689
-----------
29,524,806
Less current portion........................................ 1,978,550
-----------
$27,546,256
==========
</TABLE>
During October 1996, the Company entered into various borrowing
arrangements in connection with its acquisition of the Predecessor. The
principal terms of such arrangements are summarized as follows:
SENIOR CREDIT AGREEMENT
The Company has a Senior Credit Agreement with a bank which provides for
term loans of $21,000,000 and $500,000: revolving loans up to $2,500,000
(through September 1997), $1,750,000 (from October 1997 through September 1988),
and $1,000,000 (from October 1998 through October 8, 1999); and letters of
credit not to exceed the lesser of $4,000,000 or 50% of aggregate amount of U.S.
Department of Education Title IV Program funds received by the Company during
the most recent complete award year.
The term loan of $21,000,000 is payable as to interest only through July
31, 1997 and in twenty-two quarterly principal payments of $875,000 plus
interest beginning October 31, 1997 with a final principal payment of $1,750,000
plus accrued interest due March 31, 2003. The principal payments are due on
January 31, April 30, July 31 and October 31. The principal balance of the loan
is recorded net of discount of $160,970 at February 28, 1997. The loan was
discounted at issuance date by $172,148, which represents the fair value of
warrants issued in connection with this debt (see Note 5).
The term loan of $500,000 may be funded in up to six advances of no less
than $50,000 each during the period October 8, 1996 through October 30, 1997.
The term loan is payable as to interest only on a quarterly basis through July
1997 and in twenty equal quarterly principal payments plus interest during the
period October 31, 1997 through October 31, 2002.
If certain conditions are met by the Company, the term loans are
convertible by the Company into Base Rate Loans (which bear interest at the
bank's base rate plus 1.25%) or LIBOR Loans (which bear interest at the adjusted
LIBOR rate plus 4.2%) or Treasury Rate Loans (which bear interest at the
Treasury Rate plus 4.5%). Outstanding term loans were $21,000,000 which bear
interest at 9.5% at February 28, 1997.
The Agreement provides that the Company have no outstanding revolving loans
for two periods of thirty consecutive days during each full calendar year that
the agreement is in effect. Revolving loans bear interest at the bank's rate
plus 1% payable quarterly. Revolving loan borrowings under the revolving loan
agreement at February 28, 1997 were $788,456.
Issued letters of credit bear usage fees of 4% per annum. No letters of
credit were outstanding at February 28, 1997.
Borrowings under the Senior Credit Agreement are secured by all assets of
the Company and all of the issued and outstanding common stock of the
Predecessor.
The Senior Credit Agreement contains financial covenants which include
limits on annual capital expenditures, purchase money indebtedness and operating
lease payments. Additionally, the Company is
F-11
<PAGE> 83
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required to maintain a debt to equity ratio, a minimum total capitalization
amount and debt service coverage, and interest coverage ratios. At February 28,
1997, the Company was not in compliance with certain provisions of its loan
agreements. Such non-compliance was subsequently waived by the lender in June,
1997.
SUBORDINATE LOAN AND WARRANT PURCHASE AGREEMENT
In connection with the acquisitions discussed in Note 1, the Company
entered into a Subordinate Loan and Warrant Purchase Agreement (the "Subordinate
Loan Agreement") with a Small Business Investment Company ("SBIC"). The SBIC
loaned $7,000,000 to the Company under a subordinated note payable by the
Company. The principal balance of the loan is recorded net of discount of
$391,697 at February 28, 1997. The loan was discounted at issuance date by
$416,488, the fair value of warrants issued in connection with this debt (see
Note 6).
Interest on the subordinate note is payable at 13% on a quarterly basis
beginning December 1996 until October 2003 when the principal balance is payable
in full. Optional principal prepayments in multiples of $500,000 are permitted;
however, penalties are provided if such prepayments are made prior to October
2001. Mandatory prepayments are required should certain future events, as
defined, occur.
The Subordinate Loan Agreement contains financial covenants which include
limits on annual capital expenditures and operating lease payments, maximum debt
to equity ratio and minimum total capitalization amount and debt service
coverage and interest coverage ratios. At February 28, 1997, the Company was not
in compliance with certain provisions of its loan agreements. Such
non-compliance was subsequently waived by the lender in June, 1997.
LOAN SECURED BY AIRCRAFT
The acquisition of the aircraft was financed via a bank note which is
payable as to interest only through January 31, 1998. Thereafter, a 5% principal
paydown is due and the balance of the note is converted to an amortizing term
loan payable in 76 monthly installments. Interest is computed at a rate based on
LIBOR plus 2.8%. The rate of interest at February 28, 1997 was 8.36%.
Future maturities of long-term debt excluding capital lease obligations for
years ending May 31 are as follows:
<TABLE>
<S> <C>
1997 (three months ended May 31)............................ $ 11,007
1998........................................................ 2,768,058
1999........................................................ 2,859,756
2000........................................................ 2,859,756
2001........................................................ 2,859,756
2002........................................................ 2,859,756
Thereafter.................................................. 15,383,600
-----------
$29,601,689
==========
</TABLE>
6. REDEEMABLE COMMON STOCK WARRANTS
In connection with the Senior Credit Agreement, a bank received warrants to
purchase 257,110 shares of the Company's Class A common stock. The warrants are
exercisable in whole or in part until October 2006 at an exercise price of
$.0014 per share, which is subject to adjustment should future events, as
defined, occur. Warrants and future shares issued under warrants can be "put" to
the Company at any time between October 2003 and October 2006 at a "put" price
defined in the Agreement. The put rights expire upon the completion of a
"qualified offering," as defined, of the Company's stock. The Company currently
intends to make a qualified offering (see Note 13).
F-12
<PAGE> 84
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Similarly, the SBIC received warrants to purchase 622,041 shares of the
Company's Class A common stock. The warrants are exercisable in whole or in part
until October 2008 at a per share price of $.0014, which is subject to
adjustment should future events, as defined, occur. Warrants and future shares
issued under warrants can be "put" to the Company at any time after October 2003
at a "put" price defined in the Agreement. The put rights expire upon the
completion of a "qualified offering," as defined, of the Company's stock. The
Company intends to make a qualified offering (see Note 13). The warrants have
been recorded at fair value of $588,636 and will be revalued based on the
estimated value of the put feature at future reporting dates.
7. EMPLOYEE BENEFIT PLAN
The Company maintains a qualified 401(K) Plan available to full-time
employees who meet the Plan's eligibility requirements. This Plan, which is a
defined contribution plan, contains a profit sharing component, with
tax-deferred contributions to each employee based on an allocated portion of a
discretionary annual contribution. Company contributions to the Plan for
matching of employee contributions were approximately $20,772 for the period
from October 8, 1996 to February 28, 1997, respectively.
8. LEASES
The Company leases office and college space, dormitories, and various items
of equipment under lease agreements with varying expiration dates through
November 2005. Many of the lease agreements contain renewal clauses with various
terms; however, none of the leases contain any significant restrictions. Several
of the lease agreements contain provisions for rent escalations which are either
tied to the Consumer Price Index or require a specific percentage increase
annually. These leases are classified as operating leases.
The Company also leases various other assets under agreements which are
classified as capital leases. The net book value of these assets at February 28,
1997 was as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment........................... $727,801
Less accumulated amortization............................... 28,917
--------
$698,884
========
</TABLE>
For years ending May 31, future minimum lease payments and present value of
net minimum lease payments at February 28, 1997 under capital leases and future
minimum lease payments under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- -----------
<S> <C> <C>
Period from February 28, to May 31, 1997.................... $ 70,834 $ 641,158
1998........................................................ 226,077 2,299,360
1999........................................................ 141,212 2,177,304
2000........................................................ 87,994 1,891,838
2001........................................................ 50,657 1,576,850
2002........................................................ 1,560,375
Thereafter.................................................. 7,935,464
-------- -----------
Total minimum lease payments...................... 576,774 $18,082,349
==========
Less amount representing interest........................... 100,990
--------
Present value of net minimum lease payments................. $475,784
========
</TABLE>
F-13
<PAGE> 85
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. CONSULTING AND EMPLOYMENT AGREEMENTS
In connection with the acquisition of the Predecessor, the Company entered
into consulting and employment agreements with the selling stockholders and
other officers of American European. For the period ended February 28, 1997,
such payments, which were charged to operations, totaled $440,611. Future
payments under these agreements for the years ending May 31 are as follows:
<TABLE>
<S> <C>
1997........................................................ $705,000
1998........................................................ 705,000
1999........................................................ 656,000
2000........................................................ 588,000
2001........................................................ 196,000
</TABLE>
10. INCOME TAXES
Income tax expense for the period from July 1, 1996 (date of formation) to
February 28, 1997 consists of:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 824,263
State..................................................... 198,334
----------
Total current provision........................... 1,022,597
Deferred:
Federal................................................... 187,974
State..................................................... 30,046
----------
Total deferred provision.......................... 218,020
----------
Total provision................................... $1,240,617
=========
</TABLE>
The following is a reconciliation of the statutory tax rate to the
Company's effective tax rate for the period from July 1, 1996 (date of
formation) to February 28, 1997:
<TABLE>
<S> <C>
Statutory rate.............................................. 34.0%
State income taxes (net of federal benefit)................. 6.2
Permanent differences (primarily nondeductible goodwill).... 10.5
----
Effective rate.............................................. 50.7%
====
</TABLE>
The effects of temporary differences which gave rise to the deferred tax
asset and liability at February 28, 1997 are as follows:
<TABLE>
<CAPTION>
CURRENT LONG-TERM
-------- ---------
<S> <C> <C>
Deferred tax arising from:
Unearned revenue.......................................... $156,023
Other current............................................. 70,523
Deferred rent............................................. $301,785
Deferred tax liabilities arising from:
Other..................................................... 31,138
</TABLE>
11. U.S. AND FOREIGN OPERATIONS
The Company's operations are located in the United States, the United
Kingdom, and Dubai, United Arab Emirates. The Company's operations in Dubai
represent management fees from a management agreement which generates operating
profits only. Net revenues and income (loss) from campus operations by
F-14
<PAGE> 86
EDUTREK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
geographic area for the period from October 8, 1996 (date of acquisition of the
predecessor) to February 28, 1997 and identifiable assets by geographic area at
February 28, 1997 is as follows:
<TABLE>
<S> <C>
Net revenues:
United States............................................. $ 7,933
United Kingdom............................................ 6,241
Home Office............................................... --
-------
Total............................................. $14,174
=======
Income (loss) from continuing operations:
United States............................................. $ 4,012
United Kingdom............................................ 2,883
Dubai, U.A.E. ............................................ 245
Home Office............................................... (3,144)
-------
$ 3,751
=======
Identifiable assets
United States............................................. $46,527
United Kingdom............................................ 1,495
-------
$48,022
=======
</TABLE>
12. CONTINGENCIES
The Company is a party to lawsuits incidental to its business. Management
believes that the ultimate resolution of these matters will not have a material
adverse impact on the financial condition, operations or cash flows of the
Company.
13. SUBSEQUENT EVENTS
Stock Option Plan -- The Company has a stock incentive plan for key
employees and directors under which it may grant incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock, or
performance awards of Class A common stock or cash. The maximum number of Class
A common stock which can be issued through awards granted under this plan is
829,388. Incentive stock options granted under the plan expire on the tenth
anniversary of the date the option is granted or, the fifth anniversary of the
date the option is granted in event that the individual grantee owns more than
10% of the total voting power of all classes of stock of the Company.
In March 1997, 395,500 incentive stock options were granted to officers and
employees of the Company, exercisable at $.77 per share. These options vest over
a five-year period beginning on the date of grant. Of these options, 35,000 vest
contingent on the Company meeting certain financial goals.
Common Stock Split -- On June 17, 1997, the Board of Directors declared a
seven-for-one split of both Class A and Class B Common Stock. The number of
shares issued and outstanding after giving effect to the split was 665,000 Class
A shares and 6,335,000 Class B shares. All share and per share data, including
stock option information, has been adjusted to reflect the split. Concurrently,
the Company increased the authorized shares from 7,000,000 Class A and 7,000,000
Class B shares to 40,000,000 and 10,000,000 Class A and B Shares, respectively.
Exercise of Warrants -- On June 18, 1997, the lender under the senior
credit agreement exercised its option to acquire 257,110 shares for
approximately $367.
Filing of Registration Statement -- The Company plans to file Form S-1
registration statement under the Securities Act of 1933 in connection with its
intention to sell shares of Class A common stock in an initial public offering.
The proceeds of a successful offering will be used primarily to pay off the
senior and subordinated debt outstanding.
F-15
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
Board of Directors of Edutrek International, Inc.:
We have audited the accompanying consolidated balance sheet of American
European Corporation (the "Predecessor") and its subsidiaries as of May 31, 1996
and the related consolidated statements of operations, changes in stockholders'
deficit, and cash flows for the period from June 1, 1996 to October 8, 1997 and
the three years ended May 31, 1996. These financial statements are the
responsibility of the Predecessor's management. Our responsibility is to express
an opinion on these financial statements 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 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of American European Corporation
and its subsidiaries as of May 31, 1996 and the results of their operations and
their cash flows for the period from June 1, 1996 to October 8, 1997 and the
three years ended May 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
June 18, 1997
F-16
<PAGE> 88
AMERICAN EUROPEAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 452,606
Investments............................................... 500,000
Accounts receivable (less allowance for doubtful accounts
of $21,000)............................................ 203,247
Other..................................................... 589,155
-----------
Total current assets.............................. 1,745,008
PROPERTY, PLANT, AND EQUIPMENT -- Net of accumulated
depreciation........................................... 5,043,082
OTHER NONCURRENT ASSETS..................................... 465,028
-----------
$ 7,253,118
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... 1,012,415
Accrued expenses.......................................... 1,339,500
Borrowings under line-of-credit arrangement............... 352,825
Value-added tax payable................................... 703,329
Unearned revenues......................................... 5,596,786
Income taxes payable...................................... 240,222
Current maturities -- long-term debt...................... 1,195,936
-----------
Total current liabilities......................... 10,441,013
LONG-TERM DEBT.............................................. 3,559,618
OTHER LIABILITIES........................................... 539,839
STOCKHOLDERS' DEFICIT:
Common stock, $1 par value, 500,000 shares authorized, 874
issued and outstanding................................. 874
Paid-in capital........................................... 477,589
Translation Adjustment.................................... 102,268
Retained deficit.......................................... (3,308,642)
Stockholders notes........................................ (4,559,441)
-----------
Total stockholders' deficit....................... (7,287,352)
-----------
$ 7,253,118
==========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 89
AMERICAN EUROPEAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JUNE 1, 1996 TO ---------------------------------------
OCTOBER 8, MAY 31, MAY 31, MAY 31,
1996 1996 1995 1994
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES............................... $ 6,188,915 $26,493,464 $23,695,623 $20,654,408
OPERATING EXPENSES:
Cost of education and facilities......... 3,256,299 11,143,928 10,050,233 8,611,600
Selling and promotional expenses......... 1,335,081 3,614,462 3,083,231 3,165,079
Administrative expenses.................. 2,738,633 6,677,052 6,114,969 6,263,919
Rents paid to majority stockholders...... 49,496 150,000 145,000 146,000
----------- ----------- ----------- -----------
7,379,509 21,585,442 19,393,433 18,186,598
INCOME (LOSS) FROM CAMPUS OPERATIONS....... (1,190,594) 4,908,022 4,302,190 2,467,810
INCOME (LOSS) FROM MANAGEMENT AGREEMENT.... (20,664) 127,055
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS.............. (1,211,258) 5,035,077 4,302,190 2,467,810
INTEREST EXPENSE........................... 258,435 730,018 607,470 439,525
INTEREST INCOME -- Shareholder notes....... 97,554 361,000 153,400 183,000
OTHER INCOME............................... 66,929 72,267 24,746 482,559
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.......... (1,305,210) 4,738,326 3,872,866 2,693,844
PROVISION FOR INCOME TAXES................. -- 107,261 123,691 148,100
----------- ----------- ----------- -----------
NET INCOME (LOSS).......................... $(1,305,210) $ 4,631,065 $ 3,749,175 $ 2,545,744
=========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE> 90
AMERICAN EUROPEAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TRANSLATION
COMMON PAID-IN OF FOREIGN STOCKHOLDERS' RETAINED
STOCK CAPITAL CURRENCY NOTES DEFICIT TOTAL
------ --------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE -- June 1, 1993.......... $874 $ 368,405 137,817 $(2,207,084) $(1,865,664) $ (3,565,652)
Distribution to stockholders... (4,068,962) (4,068,962)
Capital contributed by
stockholder.................. 22,851 22,851
Net income..................... 2,545,744 2,545,744
Translation of foreign
currency..................... $ 39,658 39,658
Notes receivable and advances
from stockholders............ 149,365 149,365
---- --------- ------------- ----------- ----------- ------------
BALANCE -- May 31, 1994.......... 874 391,256 177,475 (2,057,719) (3,388,882) (4,876,996)
Distribution to stockholders... (3,800,000) (3,800,000)
Capital contributed by
stockholder.................. 43,167 43,167
Net income..................... 3,749,175 3,749,175
Translation of foreign
currency..................... (109,899) (109,899)
Notes receivable and advances
from stockholders............ (1,171,910) (1,171,910)
---- --------- ------------- ----------- ----------- ------------
BALANCE -- May 31, 1995.......... 874 434,423 67,576 (3,229,629) (3,439,707) (6,166,463)
Distribution to stockholders... (4,500,000) (4,500,000)
Capital contributed by
stockholder.................. 43,166 43,166
Net income..................... 4,631,065 4,631,065
Translation of foreign
currency..................... 34,692 34,692
Notes receivable and advances
from stockholders............ (1,329,812) (1,329,812)
---- --------- ------------- ----------- ----------- ------------
BALANCE -- May 31, 1996.......... 874 477,589 102,268 (4,559,441) (3,308,642) (7,287,352)
Distribution to stockholders... (1,889,694) (1,889,694)
Capital contributed by
stockholder.................. 1,238,542 1,238,542
Net income..................... (1,305,210) (1,305,210)
Translation of foreign
currency..................... (17,818) (17,818)
Notes receivable and advances
from stockholders............ (1,015,993) (1,015,993)
---- --------- ------------- ----------- ----------- ------------
BALANCE -- October 8, 1996....... $874 $ 477,589 $ 84,450 $(5,575,434) $(5,265,004) $(10,277,525)
======== ========== ============== ============ ============ =============
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE> 91
AMERICAN EUROPEAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD FROM ---------------------------------------
JUNE 1, 1996 TO MAY 31, MAY 31, MAY 31,
OCTOBER 8, 1996 1996 1995 1994
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $(1,305,210) $ 4,631,065 $ 3,749,175 $ 2,545,744
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 391,779 1,086,696 1,134,164 1,224,708
Gain (loss) on disposal of assets............... 155,889 (385,507)
Foreign currency translation.................... (17,818) 34,692 (109,900) 39,858
Net (increase) decrease in cash surrender value
of life insurance policies.................... (244,627) 33,900 18,757 (250,390)
(Decrease) increase in accounts receivable...... (123,423) (31,291) (72,238) 52,770
Decrease in prepaid expenses and other assets... (164,475) (325,580) (73,390) (69,292)
Increase (decrease) in accounts payable......... (226,066) 150,722 (64,278) 589,863
Increase (decrease) in accrued liabilities...... (233,956) 240,505 434,918 184,235
Increase in unearned revenues................... 3,134,948 30,013 311,269 366,399
Increase in value-added taxes payable........... 189,708 13,006 54,162 289,623
Decrease in income taxes payable................ -- (57,848) (23,270) (213,136)
----------- ----------- ----------- -----------
Net cash provided by operating
activities............................... 1,400,860 5,805,880 5,515,258 4,374,875
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment....... (118,387) (1,433,985) (488,958) (437,746)
Disposal of property, plant, and equipment........ 53,811 884,471
Net (increase) decrease in note receivable from
related parties and former stockholders......... (169,800) (1,228,216) (1,071,473) 278,067
----------- ----------- ----------- -----------
Net cash (used in) provided by investing
activities............................... (288,187) (2,662,201) (1,506,620) 724,792
FINANCING ACTIVITIES:
Proceeds from loans against life insurance cash
surrender value................................. 120,126 172,303
Proceeds from long-term borrowings................ 750,000 2,058,000 1,050,000
Principal repayments on long-term debt............ (233,594) (892,961) (905,283) (1,316,942)
Net receipts (payments) -- line-of-credit......... 150,840 (1,987) (147,325) 397,970
Principal payments under capital lease
obligations..................................... (93,965) (148,436) (156,609) (237,064)
Distributions to stockholders..................... (1,889,694) (4,500,000) (3,800,000) (4,068,962)
Capital contribution from stockholder............. -- 43,166 43,167 22,851
----------- ----------- ----------- -----------
Net cash used in financing activities...... (1,196,287) (3,442,218) (3,916,050) (5,029,844)
----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS....................................... (83,614) (298,539) 92,588 69,623
CASH AND CASH EQUIVALENTS:
Beginning of period............................... 452,605 751,144 658,556 588,933
----------- ----------- ----------- -----------
End of period..................................... $ 368,991 $ 452,605 $ 751,144 $ 658,556
============== ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................... $ 295,059 $ 729,947 $ 607,470 $ 442,271
============== ============ ============ ============
Income taxes............................... $ -- $ 107,261 $ 108,174 $ 126,847
============== ============ ============ ============
NONCASH INVESTING AND FINANCING TRANSACTIONS:
In the period from June 1, 1996 to October 8, 1996, the Company distributed property to a shareholder with a
book value of $1,640,488 subject to debts of $2,141,660.
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE> 92
AMERICAN EUROPEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 1996 AND FOR THE PERIOD
FROM JUNE 1, 1996 TO OCTOBER 8, 1996 AND
THE THREE YEARS ENDED MAY 31, 1996
1. ORGANIZATION AND BUSINESS
American European Corporation (the "Predecessor") operates a private,
coeducational, nondenominational institution, The American College, with
campuses in Atlanta, Los Angeles, and London. The College is accredited by the
Commission on Colleges of the Southern Association of Colleges and Schools. The
Atlanta and Los Angeles campuses are approved by the U.S. Department of
Education for participation in Title IV student financial assistance programs
and are approved by the U.S. Department of Justice to accept foreign students.
The Colleges' business is seasonal in nature with the majority of revenues being
earned between October and May.
In February 1995, the American European Middle East Corporation was formed
and entered into a management agreement with Middle East Colleges, Ltd. U.S., a
British Virgin Island company, to establish a branch campus in Dubai, United
Arab Emirates. The school is known as the American University in Dubai.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Predecessor. The American College in London Ltd.
U.S. (79.9% owned by the Predecessor and 20.1% owned by the Predecessor's
stockholders), the American European Middle East Corporation, LLC (85% owned by
the Predecessor and 15% owned by an affiliate of the Predecessor's majority
stockholder), and the American College in London, Ltd., a registered British
corporation that is wholly owned by the American College in London, Ltd. U.S.
Significant intercompany accounts and transactions have been eliminated in
consolidation. The minority ownership interest in The American College in
London, Ltd. U.S. is not recorded due to the common control nature of the stock
ownership.
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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- The Predecessor considers cash equivalents to
be all demand deposits and highly liquid unrestricted investments with an
original maturity of three months or less which can be readily converted to cash
on demand without penalty.
Cash at May 31, 1996 includes approximately $340,425, which is restricted
to expenditures for scholarships and other awards to students. A corresponding
liability has been recorded for these funds until they are disbursed.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Depreciation on furniture, fixtures, and equipment is
computed using the straight-line method over the estimated useful lives of the
assets, which range from seven to ten years. Amortization of leasehold
improvements and leasehold interest is computed using the straight-line method
over the various lease terms. Amortization of capital leases, computed using the
straight-line method is included in depreciation and amortization expense.
Textbooks are amortized using the straight-line method over a three to six year
period, their anticipated useful lives.
Impairment of Long-Lived Assets -- The Predecessor adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of as
of January 1, 1996." Under this method, the Predecessor is required to
F-21
<PAGE> 93
AMERICAN EUROPEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
review long-lived assets and certain identifiable intangibles to be held and
used for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. All long-lived assets to
be disposed of are reported at the lower of carrying amount or fair value less
cost to sell.
Unearned Revenues -- Unearned revenues represent the portion of student
tuition, fees, and dorm payments received in advance of services being
performed.
Income Taxes -- The Predecessor is organized under the Subchapter S
corporation provisions of the Internal Revenue Code. Accordingly, income taxes
are provided in the Predecessor's financial statements only for income subject
to taxation in certain state jurisdictions which do not recognize Subchapter S
corporation elections, and for The American College in London, Ltd., which is a
corporation of British registry subject to tax provisions of the United Kingdom.
Foreign Currency Translation -- Assets and liabilities of the Predecessor's
United Kingdom operations are translated from Pounds Sterling into U.S. dollars
at the rate of currency exchange at the end of the fiscal period. Revenues and
expenses are translated at average monthly exchange rates prevailing during the
year. Resulting translation differences are recognized as a component of
stockholders' equity. Foreign currency translation gains and losses are
immaterial to the accompanying financial statements.
Fair Value of Financial Instruments -- Management has reviewed the various
assets and liabilities of the Predecessor in accordance with SFAS 107,
"Disclosures About Fair Values of Financial Instruments." Management has
concluded that all of the Partnership's financial instruments have terms such
that their book value approximates fair value.
3. OTHER CURRENT ASSETS
Other current assets at May 31, 1996 consist of the following:
<TABLE>
<S> <C>
Prepaid rent................................................ $ 93,096
Prepaid deposit............................................. 364,563
Other....................................................... 131,496
--------
$589,155
========
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at May 31, 1996 is summarized as follows:
<TABLE>
<S> <C>
Furniture, fixtures, and equipment.......................... $ 9,062,904
Leasehold improvements...................................... 3,301,835
Leasehold interest.......................................... 218,582
Library and textbooks....................................... 1,702,067
-----------
14,285,388
Less accumulated depreciation and amortization.............. 9,242,306
-----------
$ 5,043,082
==========
</TABLE>
Depreciation expense for property, plant, and equipment was $390,983,
$1,224,711, $1,134,166, and $1,086,696 for the period from June 1, 1996 to
October 8, 1996 and for the three years ended May 31, 1996, respectively.
Prior to the sale of the Company on October 8, 1996 (see Note 11), certain
aircraft with a book value of $1,640,488 were transferred, subject to debt of
$2,141,660, to the majority stockholder for $737,370. The resulting difference
of approximately $1.2 million between the book value of assets received and the
debt assumed was treated as a contribution to capital.
F-22
<PAGE> 94
AMERICAN EUROPEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTE PAYABLE -- LINE OF CREDIT
The Predecessor has an agreement with a bank which provides for a line of
credit of up to L250,000 (approximately $380,000 at May 31, 1996), through
January 1997. Interest on any outstanding balance is charged at a fluctuating
rate based on the bank's base rate plus 3%, with an effective rate of 8.75% at
May 31, 1996. This line of credit is secured by the personal guarantee of the
majority stockholder and Chief Executive Officer of the Predecessor, along with
certain of the leasehold properties owned by the Predecessor in London, England.
At May 31, 1996, L231,361 or $352,825 had been drawn on this line of credit,
respectively. The note payable was repaid in full in connection with the sale of
the Predecessor (see Note 11).
6. LONG-TERM DEBT
Long-term debt at May 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Promissory note to a bank in the original principal amount
of $224,000, payable in 36 monthly installments of $6,980,
including interest at the bank's base rate plus 2.5% (8.25%
at May 31, 1996), through January 1997, when remaining
principal and accrued interest are due in full, secured by
guarantees of the majority stockholder and chief executive
officer of the Predecessor.................................. $ 73,506
Note payable to a leasing company in the original principal
amount of $210,513, payable in 60 monthly installments of
$4,444, including interest at 8%, through January 1999,
secured by certain leasehold improvements................... 126,326
Promissory note to a lending institution in the original
principal amount of $220,133, payable in 60 monthly
installments of $3,669, plus interest at the Federal
Reserve's commercial paper rate plus 2.5%, through December
1997, secured by certain computer equipment and furniture... 69,709
Note payable to a bank in the original principal amount of
$750,000, payable in monthly installments of $6,250,
including interest at prime plus 1% (an effective rate of
9.25% at May 31, 1995) through February 2000 and a balloon
payment of $381,250 at February 2000, secured by certain
property.................................................... 656,250
Note payable to a bank in the original principal amount of
$308,000, payable in monthly installments of $26,765,
including interest at the bank's base rate plus 3% (an
effective rate of 8.75% at May 31, 1996) through September
1996, secured by guarantees of the majority stockholder and
Chief Executive Officer of the Predecessor.................. 104,729
Note payable to a bank in the original principal amount of
$1,500,000 payable in quarterly principal installments of
$37,500 plus interest at prime plus 1% (an effective rate of
9.25% at May 31, 1996) until December 2000 and a balloon
payment of $787,500 at December 2000, secured by certain
property.................................................... 1,462,500
Note payable to a bank in the original principal amount of
$1,500,000 payable in monthly principal installments of
$25,000 plus interest at prime plus 1% (an effective rate of
9.25% at May 31, 1996) through January 2001, secured by
first security assignment of all Predecessor assets,
guarantees of the majority stockholder and Chief Executive
Officer of the Predecessor, student accounts receivable from
the Atlanta and Los Angeles campuses, and by certain life
insurance policies on the life of the majority
stockholder................................................. 1,400,000
</TABLE>
F-23
<PAGE> 95
AMERICAN EUROPEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Note payable to a bank in the original principal amount of
$500,000, payable in monthly installments of $20,833, plus
interest at prime plus 1% (an effective rate of 9.25% at May
31, 1996) through November 1996, secured by first security
assignment of all Predecessor assets, guarantees of majority
stockholder and Chief Executive Officer of the Predecessor,
student accounts receivable from the Atlanta and Los Angeles
campuses, and by certain life insurance policies on the life
of the majority stockholder................................. 145,833
----------
$4,038,853
=========
</TABLE>
Future maturities of long-term debt for years ending May 31 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 937,034
1998........................................................ 598,659
1999........................................................ 559,407
2000........................................................ 881,250
2001........................................................ 1,062,500
----------
$4,038,853
=========
</TABLE>
Substantially all of the aforementioned debt instruments were repaid in
full in connection with the sale of the Predecessor (see Note 11).
Interest expense incurred on the lines of credit, note payable, long-term
debt, and capital lease obligations during the period from June 1, 1996 to
October 8, 1996 and the three years ended May 1996 approximated $258,000,
$730,000, $608,000, and $302,000, respectively.
7. EMPLOYEE BENEFIT PLAN
The Predecessor maintains a qualified 401(K) Plan available to full-time
employees who meet the Plan's eligibility requirements. This Plan, which is a
defined contribution plan, contains a profit sharing component, with
tax-deferred contributions to each employee based on an allocated portion of a
discretionary annual contribution. Predecessor contributions to the Plan for
matching of employee contributions were approximately $44,000, $47,000, and
$41,000 for the three years ended May 31, 1996. There was no profit sharing plan
contribution made for the three years ended May 31, 1996.
8. LEASES
The Predecessor leases office and college space, dormitories, and various
items of equipment under lease agreements with varying expiration dates through
2005. Many of the lease agreements contain renewal clauses with various terms;
however, none of the leases contain any significant restrictions. Several of the
lease agreements contain provisions for rent escalations which are either tied
to the Consumer Price Index or require a specific percentage increase annually.
These leases are classified as operating leases.
The Predecessor also leases various other assets under agreements which are
classified as capital leases. The net book value of these assets at May 31, 1996
was as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment........................... $1,030,113
Less accumulated amortization............................... 244,432
----------
$ 785,681
=========
</TABLE>
F-24
<PAGE> 96
AMERICAN EUROPEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the years ending May 31, future minimum lease payments and the present
value of net minimum lease payments at May 31 1996 under capital leases and
future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- -----------
<S> <C> <C>
1997........................................................ $348,039 $ 2,156,164
1998........................................................ 255,616 1,844,450
1999........................................................ 157,503 1,738,334
2000........................................................ 83,016 1,605,948
2001........................................................ 50,657 1,531,179
Thereafter.................................................. 9,543,636
-------- -----------
Total minimum lease payments...................... 894,831 $18,419,711
==========
Less amount representing interest........................... 178,130
--------
Present value of net minimum lease payments....... $716,701
========
</TABLE>
Rent expense incurred during the period from June 1, 1996 to October 8,
1996 and the three years ended May 31, 1996 under all operating leases was
approximately $1,074,000, $4,015,000, $3,734,000, and $3,150,000, respectively.
9. INCOME TAXES
As a result of its election to be treated as an S Corporation for income
tax purposes, the Predecessor has not been subject to federal and most state
income taxes. Accordingly, the historical provision for income taxes includes
income taxes only for those jurisdictions that do not recognize S Corporation
status. Distributions in the form of cash dividends have been made principally
to assist the shareholders with their income tax obligations arising from the
Predecessor's S Corporation status. Such distributions amounted to $4,500,000,
$3,800,000, $4,068,962, and $1,889,694 for the fiscal 1994, 1995, and 1996 and
for the period from June 1, 1996 through October 8, 1996, respectively.
Deferred income taxes are provided with respect to certain items in the
United Kingdom which are recognized in one period for financial reporting
purposes and another period for income tax purposes.
Significant components of the Predecessor's deferred income tax asset at
May 31, 1996 are as follows:
<TABLE>
<S> <C>
Amortization and leasehold improvements..................... $240,000
Depreciation................................................ (136,000)
Operating lease payments.................................... 40,000
--------
$144,000
========
</TABLE>
Significant components of the provision for income taxes for the period
from June 1, 1996 to October 8, 1996 and the three years ended May 31, 1996 are
as follows:
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED MAY 31,
JUNE 1, 1996 TO ------------------------------
OCTOBER 1, 1996 1996 1995 1994
--------------- -------- -------- --------
<S> <C> <C> <C> <C>
Domestic.................................. $ -- $ 23,361 $ 25,492 $ 27,800
Foreign................................... -- 83,900 98,199 120,300
-------- -------- -------- --------
$ -- $107,261 $123,691 $148,100
=========== ======== ======== ========
</TABLE>
F-25
<PAGE> 97
AMERICAN EUROPEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Predecessor leases office space from a partnership owned by the
stockholders of the Predecessor under a five-year lease which expires in
December 1996. During the period from June 1, 1996 to October 8, 1996 and the
three years ended May 31, 1996, the Predecessor incurred rental expenses of
approximately $49,000, $150,000, $145,000, and $146,000, respectively, related
to this lease.
At May 31, 1996, the majority stockholder's indebtedness to the Predecessor
consisted of three notes payable bearing interest at 6.25% with balances of
$1,622,787, $1,393,520, and $1,018,526 maturing on May 31, 1999, May 31, 2000,
and May 31, 2001, respectively. During the three years ended May 31, 1996, the
Predecessor recognized interest income of $334,000, $149,000, and $176,300
related to these notes.
At May 31, 1996, the minority stockholder's indebtedness to the Predecessor
consisted of three notes payable bearing interest at 6.25%, with balances of
$58,487, $154,835, and $109,435 maturing on May 31, 1999, May 31, 2000, and May
31, 2001, respectively. During the three years ended May 31, 1996, the
Predecessor recognized interest income of $27,000, $4,400, and $6,700 related to
these notes.
During the year ended May 31, 1992, the majority stockholder of the
Predecessor acquired from the Predecessor a 20.1% interest in The American
College in London, Ltd. U.S., a subsidiary of the Predecessor and the parent
company of The American College in London, Ltd. The stockholder issued a
$406,267 promissory note to the Predecessor in exchange for this stock purchase.
The note bears interest at 10% and requires annual principal and interest
payments beginning October 1991 through December 1997. This note had a balance
of $203,133 at May 31, 1996, and has been eliminated in combination.
Certain aircraft were sold to the majority stockholder in 1996 (see Note
3).
11. U.S. AND FOREIGN OPERATIONS
The Company's operations are located in the United States, the United
Kingdom, and Dubai, United Arab Emirates. The Company's operations in Dubai
represent management fees from a management agreement. Net revenues and income
(loss) from campus operations by geographic area for the period June 1, 1996 to
October 8, 1996 and the three years ended May 31, 1996 and identifiable assets
by geographic area at May 31, 1996 are as follows (in $000s):
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JUNE 1, 1996 TO ------------------------
OCTOBER 8, 1996 1996 1995 1994
--------------- ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues:
United States................................. 3,431 14,630 13,001 11,248
United Kingdom................................ 2,758 11,864 10,695 9,406
Home Office................................... -- -- -- --
------ ------ ------ ------
Total................................. 6,189 26,494 23,696 20,654
=========== ====== ====== ======
Income (loss) from campus operations:
United States................................. 691 5,986 5,275 4,486
United Kingdom................................ 696 4,888 4,083 3,406
Dubai, UAE.................................... (21) 127
Home Office................................... (2,557) (6,093) (5,056) (5,424)
------ ------ ------ ------
Total................................. (1,191) 4,908 4,302 2,468
=========== ====== ====== ======
Identifiable assets at May 31, 1996:
United States................................. 5,690
United Kingdom................................ 1,563
------
7,253
===========
</TABLE>
F-26
<PAGE> 98
AMERICAN EUROPEAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SALE OF THE COMPANY
On October 8, 1996 the two stockholders owning 100% of the common stock of
the Predecessor sold their entire interest in the Predecessor.
Among other things, the agreement provided for the sale of certain assets
of the Predecessor to one of the selling stockholders, the distribution of all
income from the operations of the Predecessor to the selling stockholders prior
to the sale, and the repayment of the outstanding balances at date of closing of
the notes receivable and advances to the selling stockholders.
F-27
<PAGE> 99
======================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY UNDERWRITER. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH AN OFFER OR
SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Acquisitions.......................... 7
Risk Factors.......................... 8
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Pro Forma Consolidated Financial
Data................................ 21
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 33
Management............................ 55
Certain Transactions.................. 61
Principal and Selling Shareholders.... 62
Description of Capital Stock.......... 64
Shares Eligible for Future Sale....... 66
Underwriting.......................... 68
Legal Matters......................... 69
Experts............................... 69
Additional Information................ 70
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all dealers effecting
transactions in the Class A Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
======================================================
======================================================
2,600,000 SHARES
EDUTREK
INTERNATIONAL, INC.
CLASS A COMMON STOCK
[EDUTREK LOGO]
------------
PROSPECTUS
, 1997
------------
SMITH BARNEY INC.
THE ROBINSON-HUMPHREY
COMPANY, INC.
======================================================
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions. All of the
amounts shown are estimated except for the registration fees of the Securities
and Exchange Commission and the National Association of Securities Dealers,
Inc.:
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID BY COMPANY
---------------
<S> <C>
SEC registration fee........................................ $ 13,591
NASD filing fee............................................. 4,985
Nasdaq National Market entry fee............................ 21,325
Blue sky qualification fees and expenses.................... 10,000
Printing and engraving expenses............................. 80,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 180,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 30,099
--------
Total..................................................... $500,000
==============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As provided under Georgia law, the Company's Articles of Incorporation
provide that a Director shall not be personally liable to the Company or its
shareholders for monetary damages, for breach of duty of care or any other
fiduciary duty owed to the Company as a Director, except that such provisions
shall not eliminate or limit the liability of a Director (a) for any
appropriation, in violation of his or her duties, of any business opportunity of
the Company; (b) for acts or omissions which involve intentional misconduct or
knowing violation of law; (c) for unlawful corporate distributions; or (d) for
any transaction from which the Director received an improper personal benefit.
If applicable law is amended to authorize corporate action further eliminating
or limiting the liability of Directors, the liability of each Director of the
Company shall be eliminated or limited to the fullest extent permitted by
applicable law. Article VI of the Company's Bylaws provides that the Company
shall indemnify a Director who has been successful in the defense of any
proceeding to which he or she was a party or in defense of any claim, issue or
matter therein because he or she is or was a Director of the Company, against
reasonable expenses incurred by him or her in connection with such defense.
The Company's Bylaws also provide that the Company may indemnify any
Director, officer, employee or agent made a party to a proceeding because he or
she is or was a Director, officer, employee or agent against liability incurred
in the proceeding if he or she acted in a manner he or she believed in good
faith to be in or not opposed to the best interests of the Company and, in the
case of any criminal proceeding, he or she had no reasonable cause to believe
his or her conduct was unlawful. Determination concerning whether or not the
applicable standard of conduct has been met can be made by (a) a disinterested
majority of the Board of Directors; (b) a majority of a committee of
disinterested Directors; (c) independent legal counsel; or (d) an affirmative
vote of a majority of shares held by disinterested shareholders. No
indemnification may be made to or on behalf of a Director, officer, employee or
agent (1) in connection with a proceeding by or in the right of the Company in
which such person was adjudged liable to the Company, or (2) in connection with
any other proceeding in which such person was adjudged liable on the basis that
personal benefit was improperly received by him or her.
The Company may, if authorized by its shareholders by a majority of votes
which would be entitled to be cast in a vote to amend the Company's Articles of
Incorporation, indemnify or obligate itself to indemnify a
II-1
<PAGE> 101
Director, officer, employee or agent made a party to a proceeding, including a
proceeding brought by or in the right of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On July 2, 1996, the Company issued 1,120,000 shares of Class B Common
Stock to each of Steve Bostic and Alice Jane Bostic for an aggregate purchase
price of $1,000,000. On October 7, 1996, incident to the merger of EduTrek
Acquisition Corporation, a wholly owned subsidiary of the Company, with and into
EduTrek Systems, the Company issued in exchange for shares of EduTrek Systems
(i) an aggregate of 105,000 shares of Class A Common Stock to four EduTrek
Systems shareholders, (ii) 696,150 shares of Class B Common Stock to R. Steven
Bostic, (iii) 696,150 shares of Class B Common Stock to Alice Jane Bostic, and
(iv) 602,700 shares of Class B Common Stock to the Bostic Family Limited
Partnership.
In addition, on October 8, 1996, the Company issued 350,000 shares of Class
A Common Stock to The Robinson-Humphrey Company, Inc. as consideration for
financial advisory services provided the Company in connection with the AIU
Acquisition. On October 8, 1996, the Company also issued 210,000 shares of Class
A Common Stock to Phillip J. Markert as consideration for the issued and
outstanding shares of capital stock of the American College in London, Ltd.,
U.S. owned by Mr. Markert. In a separate transaction also taking place on
October 8, 1996, the Company issued 1,050,000 shares of Class B Common Stock to
each of Steve Bostic and Alice Jane Bostic for an aggregate purchase price of
$3,000,000.
In connection with the execution of certain loan and credit agreements
between the Company and its lenders, on October 8, 1996 the Company issued
warrants to its lenders to purchase an aggregate of 879,150 shares of Class A
Common Stock. Following the exercise of a portion of such warrants by one
warrantholder, on June 17, 1997, the Company issued an aggregate of 257,110
shares of Class A Common Stock for an aggregate purchase price of $367.30. No
consideration, other than the agreement to enter into the respective loan and
credit agreements, was paid for the warrants.
Except as otherwise noted, all issuances of securities described above were
made in reliance on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933 as transactions by an issuer not involving a public
offering. All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In each
instance, the purchaser had a pre-existing relationship with the Company or its
founders, the offers and sales were made without any public solicitation, the
certificates bear restrictive legends and appropriate stop transfer instructions
have been or will be given to the transfer agent. No underwriter was involved in
the transactions and no commissions were paid.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<C> <C> <S>
1.1** -- Form of Underwriting Agreement
2.1* -- Stock Purchase Agreement dated July 25, 1996 by and between
EduTrek International, Ltd., Thomas J. Barnette and Phillip
J. Markert relating to the acquisition of the Predecessor
3(i)* -- Articles of Incorporation
3(i).1* -- Articles of Amendment to Articles of Incorporation, dated
September 6, 1996
3(i).2* -- Articles of Amendment to Articles of Incorporation, dated
June 17, 1997
3(ii)* -- Bylaws
4.1** -- Specimen Certificate of Class A Common Stock
5.1** -- Opinion of Smith, Gambrell & Russell, LLP
10.1* -- 1997 Incentive Plan
10.2* -- Amendment No. 1 to 1997 Incentive Plan
10.3* -- Form of Incentive Stock Option Agreement
10.4* -- Form of Non-qualified Stock Option Agreement
</TABLE>
II-2
<PAGE> 102
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<C> <C> <S>
10.5* -- Credit Agreement, dated October 8, 1996, by and between E
Holdings, Inc. and NationsBank, N.A. (South)
10.6* -- Subordinate Loan and Warrant Purchase Agreement, dated
October 8, 1996, by and among, E Holdings, Inc. and
Stratford Capital Partners, L.P.
10.7* -- Employment Agreement, dated March 21, 1997, by and between E
Holdings, Inc. and Stephen G. Franklin, Sr.
10.8* -- Employment Agreement dated October 8, 1996 by and between
American European Corporation and Phillip J. Markert.
10.9* -- Consulting Agreement, dated October 8, 1996, by and between
the Company and The Phillip J. Markert Consulting Group,
Inc.
10.10* -- Agreement, dated October 1, 1995, by and between American
European Middle East Corporation, LLC and Middle East
Colleges, Ltd., relating to the formation and operation of
the University's campus in Dubai
10.11* -- Financial Operations Agreement, dated October 1, 1995, by
and between American European Middle East Corporation, LLC
and Middle East Colleges, Ltd., relating to the operation of
the University's campus in Dubai
10.12* -- Memorandum of Understanding, dated January 24, 1996, by and
between American European Middle East Corporation, LLC and
Middle East Colleges, Ltd.
10.13* -- Registration and Anti-Dilution Rights Agreement, dated
October 8, 1996, by and between E Holdings, Inc. and The
Robinson-Humphrey Company, Inc.
10.14* -- Anti-Dilution Rights Agreement, dated October 8, 1996, by
and between E Holdings, Inc. and Phillip J. Markert
10.15** -- Agent Agreement, dated March 13, 1996, by and between Target
Marketing Systems, Inc. and EduTrek Systems, Inc.
21.1* -- Subsidiaries of the Registrant
23.1* -- Consent of Deloitte & Touche LLP
23.2* -- Consent of Deloitte & Touche LLP
23.3** -- Consent of Smith, Gambrell & Russell, LLP (included as part
of Exhibit 5)
24.1* -- Powers of Attorney (included on the signature page of this
Registration Statement)
27.1* -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
(b) The financial statements and schedules filed as a part of this
Registration Statement are as follows:
1. Financial Statements. See Index to Financial Statements on page
F-1 of the Prospectus included in this Registration Statement.
2. Financial Statement Schedules. Financial statement schedules have
been omitted because they are not applicable or are not required, as the
information required to be set forth therein is included in the
consolidated financial statements of the registrant.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 14, 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 that 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
II-3
<PAGE> 103
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) The undersigned Registrant hereby 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 of 1933 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.
(c) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, Georgia on June
18, 1997.
EDUTREK INTERNATIONAL, INC.
By: /s/ STEVE BOSTIC
------------------------------------
Steve Bostic
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steve Bostic, Douglas C. Chait and Donald J.
Blankers and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for him, in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including a Registration Statement filed under Rule 462(b) of the Securities Act
of 1933, as amended, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEVE BOSTIC Chairman and Chief Executive June 18, 1997
- ----------------------------------------------------- Officer (Principal Executive
Steve Bostic Officer)
/s/ STEPHEN G. FRANKLIN, SR. Executive Vice President, Chief June 18, 1997
- ----------------------------------------------------- Academic Officer and Director
Stephen G. Franklin, Sr.
/s/ PAUL D. BECKHAM Director June 18, 1997
- -----------------------------------------------------
Paul D. Beckham
/s/ FRED C. DAVISON Director June 18, 1997
- -----------------------------------------------------
Fred C. Davison
/s/ GAYLEN D. KEMP Director June 18, 1997
- -----------------------------------------------------
Gaylen D. Kemp
/s/ DONALD J. BLANKERS Chief Financial Officer June 18, 1997
- ----------------------------------------------------- (Principal Financial and
Donald J. Blankers Accounting Officer)
</TABLE>
II-5
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
2.1 -- Stock Purchase Agreement dated July 25, 1996 by and between
EduTrek International, Ltd., Thomas J. Barnette and Phillip
J. Markert relating to the acquisition of the Predecessor
3(i) -- Articles of Incorporation
3(i).1 -- Articles of Amendment to Articles of Incorporation, dated
September 6, 1996
3(i).2 -- Articles of Amendment to Articles of Incorporation, dated
June 17, 1997
3(ii) -- Bylaws
10.1 -- 1997 Incentive Plan
10.2 -- Amendment No. 1 to 1997 Incentive Plan
10.3 -- Form of Incentive Stock Option Agreement
10.4 -- Form of Non-qualified Stock Option Agreement
10.5 -- Credit Agreement, dated October 8, 1996, by and between E
Holdings, Inc. and NationsBank, N.A. (South)
10.6 -- Subordinate Loan and Warrant Purchase Agreement, dated
October 8, 1996, by and among, E Holdings, Inc. and
Stratford Capital Partners, L.P.
10.7 -- Employment Agreement, dated March 21, 1997, by and between E
Holdings, Inc. and Stephen G. Franklin, Sr.
10.8 -- Employment Agreement dated October 8, 1996 by and between
American European Corporation and Phillip J. Markert.
10.9 -- Consulting Agreement, dated October 8, 1996, by and between
the Company and The Phillip J. Markert Consulting Group,
Inc.
10.10 -- Agreement, dated October 1, 1995, by and between American
European Middle East Corporation, LLC and Middle East
Colleges, Ltd., relating to the formation and operation of
the University's campus in Dubai
10.11 -- Financial Operations Agreement, dated October 1, 1995, by
and between American European Middle East Corporation, LLC
and Middle East Colleges, Ltd., relating to the operation of
the University's campus in Dubai
10.12 -- Memorandum of Understanding, dated January 24, 1996, by and
between American European Middle East Corporation, LLC and
Middle East Colleges, Ltd.
10.13 -- Registration and Anti-Dilution Rights Agreement, dated
October 8, 1996, by and between E Holdings, Inc. and The
Robinson-Humphrey Company, Inc.
10.14 -- Anti-Dilution Rights Agreement, dated October 8, 1996, by
and between E Holdings, Inc. and Phillip J. Markert
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT dated as of July 25, 1996, is made and
entered into by and among EDUTREK INTERNATIONAL, LTD., a Georgia corporation
("Purchaser"), and THOMAS J. BARNETTE, an individual residing in the State of
Georgia ("Barnette") and PHILLIP J. MARKERT, an individual residing in the State
of Georgia ("Markert")(Barnette and Markert being sometimes hereinafter
individually referred to as a "Seller" and collectively as the "Sellers").
Capitalized terms not other-wise defined herein have the meanings set forth in
Section 13.1.
WHEREAS, each of Sellers owns the respective number of shares of common
stock, par value $1.00 per share, of American-European Corporation, a Georgia
corporation ("AEC"), hereinafter set forth, constituting all issued and
outstanding shares of capital stock of AEC (such shares being referred to herein
as the "AEC Shares"): Barnette - 786.60 and Markert - 87.40; and
WHEREAS, AEC and Mark Barnette ("MB") own the respective limited
liability company interests of American European Middle East Co., a Georgia
limited liability company ("AEMEC"), hereinafter set forth, constituting all of
the limited liability company equity interests of AEMEC (such limited liability
company equity interests being referred to herein as the "AEMEC Shares"): AEC -
85%, and MB - 15%; and
WHEREAS, AEC and each of Sellers owns the respective number of shares
of common stock, par value $1.00 per share, of American College in London, Ltd.,
U. S., a District of Columbia corporation ("ACIL"), hereinafter set forth,
constituting all issued and outstanding shares .of capital stock of ACIL (such
shares being referred to herein as the "ACIL Shares"): AEC - 799 Barnette -
180.9 and Markert - 20.1; and
WHEREAS, Purchaser desires to purchase all of the AEC Shares and all of
the ACIL Shares that are owned by either or both of the Sellers, thereby
acquiring directly or indirectly all of the issued and outstanding stock of AEC
and ACIL and eighty five percent (85%) of the limited liability company
interests in AEMEC, and each of the Sellers desires to effect the same, on the
terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
SALE OF SHARES, DISTRIBUTION OF INCOME,
AND OTHER AGREEMENTS
1.1 Purchase and Sale. At the Closing on the terms and subject to the
conditions set forth in this Agreement, each of Sellers agrees to sell to
Purchaser, and Purchaser agrees to purchase from Sellers, (i) all of the AEC
Shares, and (ii) all of the ACIL Shares that are not owned by AEC (the shares
referenced in clauses (i) and (ii) hereinafter collectively referred to as the
"Sellers' Shares").
1.2 Purchase Price. The aggregate purchase price for the Sellers'
Shares is $35,829,182 (the "Purchase Price") which will be dispersed to Barnette
and Markert in accordance with the "Total Cash To Be
<PAGE> 2
Received" column set forth in Schedule 1.2 of this Agreement. Any Purchase Price
funds to be dispersed to Sellers shall be payable in immediately available
United States funds in Atlanta, Georgia, at the Closing in the manner provided
in Section 1.4. The Purchase Price will increase an additional $146,500 per week
(prorated on a per diem basis for any partial week) if the Closing does not
occur on or prior to August 30, 1996, as a result of the Purchaser's election to
extend the Closing Date for any reason other than an extension (i) elected
pursuant to Section 4.16, or (ii) required solely as a result of the Sellers'
failure to fulfill, for any reason (other than as set forth in the following
sentence), all of the conditions precedent to Purchaser's obligation to close,
as expressly set forth in Article VI of this Agreement. The parties hereto
acknowledge and agree that clause (ii) of the preceding sentence shall not apply
under circumstances where, despite the Sellers' compliance with Section 4.1, a
condition precedent to Closing has not been fulfilled due to a third party's
refusal or failure to provide its required consent or to otherwise take any
action required to fulfill such condition precedent.
1.3 Tax Related Purchase Price Adjustments. If between the date hereof
and the Closing, the Code shall be amended to effect a reduction in the Tax
payable on capital gains, then the Purchase Price referenced in Section 1.2
above shall be reduced by the amount of all Tax savings resulting to the Sellers
from such capital gains tax reduction. Similarly, if after the Closing (but
effective no later than January 1, 1997) the Code is amended to reduce the
capital gains Tax applicable to the transactions effected pursuant to this
Agreement, the Purchase Price set forth in subparagraph (b) above shall be
reduced by one half of the amount of Tax savings resulting to the Sellers from
such capital gains Tax reduction, and the Sellers shall refund such amount to
Purchaser, without notice or demand, within ten (10) Business Days after the
effective date of such amendment. Any dispute regarding the implementation of
this Section 1.3(b) shall be settled by mutual agreement of the Purchaser's
accountants and the Sellers' accountants, and in the absence of such agreement,
in accordance with the procedures set forth in Section 13.14 hereof.
1.4 Closing. The Closing will take place at the offices of Smith,
Gambrell & Russell, 3343 Peachtree Road, N.E., Suite 1800, Atlanta, Georgia
30326, or at such other place as Purchaser and Sellers mutually agree, at 10:00
A.M. local time, on or before August 30, 1996, or such later date as may be
designated by Purchaser at its election (but no later than September 30, 1996);
subject, however, to such further extensions as may arise pursuant to Section
4.16 (the "Closing Date"). At the Closing, Purchaser will pay the Purchase Price
by wire transfer of immediately available funds to such account as Sellers may
reasonably direct by written notice delivered to Purchaser by Sellers at least
two (2) Business Days before the Closing Date. Simultaneously, Sellers will
assign and transfer to Purchaser good and valid title in and to the Sellers'
Shares, free and clear of all Liens, by delivering to Purchaser certificates
representing the AEC Shares and ACIL Shares, in genuine and unaltered form, duly
endorsed in blank. At the Closing, there shall also be delivered to Seller and
Purchaser the opinions, certificates and other Contracts, documents and
instruments to be delivered under Articles VI and VII. The parties will endeavor
in good faith to cause the Closing to occur by August 30, 1996.
1.5 Distributions.
(a) At the Closing, the parties shall cause the Companies to
sell to Barnette, and Barnette to purchase from the Companies, for $731,120 (as
reflected on Schedule 1.2 of the Agreement) those certain assets identified as
items 22-28 on Schedule 1.2 of this Agreement (and as more particularly
described on Schedule 1.5(a) of this Agreement). The parties acknowledge and
agree that the payment of $731,120 is inclusive of the sales tax, if any, that
is due with respect to such transaction. In addition, at the Closing, the
parties shall cause the Companies to distribute to Barnette the balance of any
other assets set forth on Schedule 1.5(a), together with an amount equal to one
half of that certain deposit maintained by AEC with the Internal Revenue Service
as required by Internal Revenue Code ss. 7519, and AEC shall retain all of such
-2-
<PAGE> 3
deposit upon its return by the Internal Revenue Service. All of the assets sold
or distributed to Barnette pursuant to this Section 1.5(a) shall be so sold or
distributed free and clear of any and all liens and encumbrances, except as set
forth on Schedule 1.2 or Schedule 1.5(a). Any distribution of a lease or other
contractual obligation referenced in Schedule 1.5(a) shall be effected pursuant
to an assignment of the same with (i) appropriate third party consent, if
required pursuant to such lease or other contractual arrangement, and (ii) to
the extent possible, upon the parties' use of their best efforts to obtain such
result, a release of the Companies from any continuing obligations under the
lease or other contract so assigned.
(b) For purposes of this Agreement, the Companies' net
operating profit for the period of October 1, 1995, through May 31, 1996 shall
be deemed to be $5,813,092 (the "Net Operating Profit") which amount shall be
binding on the parties hereto for purposes of this Agreement. On or prior to
Closing AEC shall distribute to Sellers all of the Net Operating Profit not
previously distributed to Sellers prior to the date hereof. The parties agree
that all distributions taken or received by either of the Sellers from any of
the Companies on or after October 1, 1995 shall be deemed distributions of the
Net Operating Profit. Set forth in Schedule 1.5(b) is a list of all of the Net
Operating Profit which has been distributed to either or both of the Sellers on
or prior to the date hereof. Each Seller represents and warrants that as to
himself, the distributions listed in Schedule 1.5(b) are accurate and complete
as of the date hereof, and that such distributions represent all of the
distributions that have been taken with respect to the Net Operating Profit.
Both of the Sellers agree that from the date hereof until the Closing, Sellers
shall make no further distributions of Net Operating Profit without promptly
providing Purchaser with all relevant information relating to such distribution,
including the account from which such distribution was taken, the amount of such
distribution and a copy of the relevant check. In no event shall Sellers take
any distributions in excess of the Net Operating Profit or any distribution of
Net Operating Profit within five (5) days of the Closing Date. At the Closing,
Sellers shall deliver to Purchaser an affidavit in form and substance reasonably
acceptable to Purchaser and its legal counsel in which each Seller sets forth,
and confirms the accuracy and completeness of, a list of all distributions of
Net Operating Profit taken by Sellers prior to the Closing. If despite the
prohibitions set forth herein it should be determined that the Sellers received
distributions in excess of the Net Operating Profit, then an amount equal to
such excess shall be deducted from the Purchase Price or, if such determination
occurs within thirty (30) days after the Closing (and the Sellers are so
notified within such thirty (30) day period), an amount equal to such excess
shall be refunded to AEC without application of the Basket Amount limitations
referenced in Section 10.4. The parties further acknowledge and agree that, as
described in Section 5.4 hereof, Barnette has initiated certain other business
ventures. The parties agree that the use of Company assets in connection with
these ventures (including, but not limited to, the use of AEC's airplanes), and
the value of any services provided by Company personnel in connection with such
ventures, shall not be considered as a "distribution" of Net Operating Profit or
otherwise for purposes of this Agreement. It is the intention of the parties
hereto that "distributions," for purposes hereof, shall only include cash
distributions from any of the Companies to either of the Sellers, distributions
of evidence of Indebtedness from any of the Companies to either of the Sellers,
and actual transfers of title or other ownership interest from any of the
Companies to either of the Sellers, in the case of assets other than cash.
(c) At the Closing, the Sellers shall pay to the Companies or
the appropriate third parties, as the case maybe, the amounts necessary to
discharge the Indebtedness or expenses reflected as items 12, 13, 14, 15 and 17
of Schedule 1.2 of this Agreement. The Sellers acknowledge that they are solely
responsible for paying to the appropriate governmental authority an amount
necessary to pay the taxes which are the subject of item 16 of Schedule 1.2 of
this Agreement. The parties acknowledge and agree that the amounts reflected in
Schedule 1.2 for such Indebtedness, expenses and taxes are only estimates and
are not a limitation on the Sellers' obligations with respect to the payment of
the same.
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1.6 NationsBank Loan. The parties hereto acknowledge and agree that
pursuant to that certain letter agreement, dated June 27, 1996, as amended by
that certain letter agreement, dated July 11, 1996, a copy of which is attached
hereto as Exhibit A, Steve Bostic, principal officer, director, and shareholder
of Purchaser, has arranged for NationsBank to loan AEC the sum of $500,000 (as
so amended, the "Letter Agreement"). The terms of the Letter Agreement are
hereby incorporated by this reference into this Agreement, and the parties
hereby confirm and ratify the Letter Agreement and hereby agree to comply fully
with the same.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller, severally and not jointly, represents and warrants to
Purchaser, as of the date hereof and as of the Closing Date, the matters set
forth below. Neither Seller makes any representation or warranty with regard to
the other Seller or the ownership interest in the Companies of the other Seller.
2.1 Authority of Sellers. Each Seller warrants and represents that he
has the full right, power, legal capacity, and authority to execute and deliver
this Agreement, to perform his obligations hereunder and to consummate the
transactions contemplated hereby, including without limitation to own, hold,
sell and transfer (pursuant to this Agreement) his Sellers' Shares; that he has
duly and validly executed and delivered this Agreement and constitutes, and upon
his execution and delivery of the Operative Agreements to which such Seller is a
party, such Operative Agreements will constitute legal, valid, and binding
obligations of such Seller enforceable against such Seller in accordance with
their terms.
2.2 Organization of AEC. AEC is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Georgia, and has
full corporate power and authority to conduct its business as and to the extent
now conducted and to own, use and lease its Assets and Properties. Schedule 2.2
of the Disclosure Schedule lists all lines of business in which AEC is
participating or is engaged. AEC is duly qualified, licensed or admitted to do
business and is in good standing in those jurisdictions specified in Schedule
2.2 of the Disclosure Schedule, which to the Knowledge of each Seller are the
only jurisdictions in which the ownership, use or leasing of its Assets and
Properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for those jurisdictions in which the
adverse effects of all such failures by AEC to be qualified, licensed or
admitted and in good standing can, in the aggregate, be eliminated without
material cost or expense by AEC becoming qualified or admitted and in good
standing. The name of each director and officer of AEC on the date hereof, and
the position with AEC held by each, are listed in Schedule 2.2 of the Disclosure
Schedule. Sellers have prior to the execution of this Agreement delivered to
Purchaser true and complete copies of the articles of incorporation and by-laws
or other comparable corporate charter documents of AEC as in effect on the date
hereof.
2.3 Organization of AEMEC. AEMEC is a limited liability company duly
organized, validly existing and in good standing under the Laws of the State of
Georgia, and has full power and authority to conduct its business as and to the
extent now conducted and to own, use and lease its Assets and Properties.
Schedule 2.3 of the Disclosure Schedule lists all lines of business in which
AEMEC is participating or is engaged. AEMEC is duly qualified, licensed or
admitted to do business and is in good standing only in the State of Georgia,
which to the Knowledge of each Seller is the only jurisdiction in the United
States in which the ownership, use or leasing of its Assets and Properties, or
the conduct or nature of its business, makes such qualification, licensing or
admission necessary, except for those in which the adverse effects of all such
failures by AEMEC to be qualified, licensed or admitted and in good standing
can, in the aggregate, be
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<PAGE> 5
eliminated without material cost or expense by AEMEC becoming qualified or
admitted and in good standing. The name of each member, manager and officer of
AEMEC on the date hereof, and the position with AEMEC held by each, are listed
in Schedule 2.3 of the Disclosure Schedule. Sellers have prior to the execution
of this Agreement delivered to Purchaser true and complete copies of the
Articles of Organization and Operating Agreement of AEMEC as in effect on the
date hereof.
2.4 Organization of ACIL. ACIL is a corporation duly organized, validly
existing and in good standing under the Laws of the District of Columbia, and
has full corporate power and authority to conduct its business as and to the
extent now conducted and to own, use and lease its Assets and Properties.
Schedule 2.4 of the Disclosure Schedule lists all lines of business in which
ACIL is participating or is engaged. ACIL is duly qualified, licensed or
admitted to do business and is in good standing in those jurisdictions specified
in Schedule 2.4 of the Disclosure Schedule, which to the Knowledge of each
Seller are the only jurisdictions in which the ownership, use or leasing of its
Assets and Properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for those jurisdictions
in which the adverse effects of all such failures by ACIL to be qualified,
licensed or admitted and in good standing can, in the aggregate, be eliminated
without material cost or expense by ACIL becoming qualified or admitted and in
good standing: The name of each director and officer of ACIL on the date hereof,
and the position with ACIL held by each, are listed in Schedule 2.4 of the
Disclosure Schedule. Sellers have prior to the execution of this Agreement
delivered to Purchaser true and complete copies of the articles of incorporation
and by-laws or other comparable corporate charter documents of ACIL as in effect
on the date hereof.
2.5 Capital Stock. The authorized capital stock of AEC consists solely
of five hundred thousand (500,000) shares of common stock, of which only the AEC
Shares have been issued. The authorized capital stock of ACIL consists solely of
One Million (1,000,000) shares of common stock, of which only the ACIL Shares
have been issued The AEC Shares and ACIL Shares are duly authorized, validly
issued, outstanding, fully paid and nonassessable. Except as set forth in
Schedule 2.5 of the Disclosure Schedule, each Seller owns the AEC Shares set
opposite his name, beneficially and of record, free and clear of all Liens. AEC
and each Seller owns the ACIL Shares, beneficially and of record, free and clear
of all Liens, as set forth in Schedule 2.5 of the Disclosure Schedule. Except
for the equity interests of MB in AEMEC and MB's rights as a member of AEMEC,
AEC owns all the AEMEC Shares, beneficially and of record, free and clear of all
Liens, as set forth in Schedule 2.5 of the Disclosure Schedule. Except for this
Agreement, there are no outstanding Options with respect to the Companies or
AEMEC.
2.6 Subsidiaries. Schedule 2.6 of the Disclosure Schedule lists the
name of each Subsidiary and all lines of business in which each Subsidiary is
participating or engaged. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the Laws of its jurisdiction of
incorporation identified in Schedule 2.6 of the Disclosure Schedule, and to the
Knowledge of each Seller has full corporate power and authority to conduct its
business as and to the extent now conducted and to own, use and lease its Assets
and Properties. To the Knowledge of each Seller each Subsidiary is duly
qualified, licensed or admitted to do business and is in good standing in those
jurisdictions specified in Schedule 2.6 of the Disclosure Schedule, which are
the only jurisdictions in which the ownership, use or leasing of such
Subsidiary's Assets and Properties, or the conduct or nature of its business,
makes such qualification, licensing or admission necessary, except for those
jurisdictions in which the adverse effects of all such failures by a Subsidiary
to be qualified, licensed or admitted and in good standing can, in the
aggregate, be eliminated without material cost or expense by such Subsidiary
becoming qualified, licensed or admitted and in good standing. Schedule 2.6
Disclosure Schedule lists for each Subsidiary the amount of its authorized
capital stock, the amount of its outstanding capital stock and the record owners
of such outstanding capital stock. Except as disclosed in Schedule 2.6 of the
Disclosure Schedule, all of the outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable, and
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<PAGE> 6
are owned, beneficially and of record, by AEC, ACIL or Subsidiaries wholly owned
by AEC, ACIL free and clear of all Liens. Except as disclosed in Schedule 2.6 of
the Disclosure Schedule, there are no outstanding Options with respect to any
Subsidiary. The name of each director and officer of each Subsidiary on the date
hereof, and the position with such Subsidiary held by each, are listed in
Schedule 2.6 of the Disclosure Schedule. Seller has prior to the execution of
this Agreement delivered to Purchaser true and complete copies of the
certificate or articles of incorporation and by-laws (or other comparable
corporate charter documents) of each of the Subsidiaries as in effect on the
date hereof.
2.7 No Conflicts. Each Seller warrants and represents only as to
himself that the execution and delivery by such Seller of this Agreement does
not, and the execution and delivery by such Seller of the Operative Agreements
to which he is a party, the performance by such Seller of his respective
obligations under this Agreement and such Operative Agreements to which such
Seller is a party and the consummation of the transactions contemplated hereby
and thereby will not to the Knowledge of each Seller:
(a) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate or articles of
incorporation or by-laws, Articles of Organization or Operating Agreement (or
other comparable corporate charter documents) of any of the Companies;
(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in Schedule 2.8 of the
Disclosure Schedule, conflict with or result in a violation or breach of any
term or provision of any Georgia, California, District of Columbia, and United
States of America Law or Order applicable to any of the Companies or any of
their respective Assets and Properties; or
(c) except as disclosed in Schedule 2.7 of the Disclosure
Schedule, (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require such Seller or any of the Companies to obtain any consent,
approval or action of, make any filing with or give any notice to any Person as
a result or under the terms of, (iv) result in or give to any Person any right
of termination, cancellation, acceleration or modification in or with respect
to, (v) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under, or (vi) result
in the creation or imposition of any Lien upon such Seller or any of the
Companies or any of their respective Assets and Properties under, any Contract
or License to which such Seller or any of the Companies is a party or by which
any of their respective Assets and Properties is bound, which violation, breach,
failure to obtain consent, right of termination, right of acceleration, or lien
would, individually or in the aggregate, have a material adverse affect upon the
business or assets of any or all of the Companies.
2.8 Governmental Approvals and Filings. Except as disclosed in
Schedule 2.8 of the Disclosure Schedule, to the Knowledge of each Seller no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority on the part of a Seller or any of the Companies is required
in connection with the execution, delivery and performance of this Agreement or
any of the Operative Agreements to which he is a party or the consummation of
the transactions contemplated hereby or thereby.
2.9 Books and Records. The minute books and other similar records
of the Companies as made available to Purchaser prior to the execution of this
Agreement contain a true and complete record, in all material respects, of all
action taken at all meetings and by all written consents in lieu of meetings of
the stockholders, the boards of directors and committees of the boards of
directors of the Companies. The stock transfer ledgers and other similar records
of the Companies as made available to Purchaser prior to the execution of this
Agreement accurately reflect all record transfers since September 30, 1991, to
the date
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hereof in the capital stock of the Companies. Except as set forth in Schedule
2.9 of the Disclosure Schedule, neither AEC nor any of the Companies has any of
its Books and Records recorded, stored, maintained, operated or otherwise wholly
or partly dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Companies.
2.10 Financial Statements. Prior to the execution of this
Agreement, Sellers have delivered to Purchaser true and complete copies of the
following financial statements:
(a) the audited combined balance sheet of AEC and its
Subsidiaries as of May 31, 1995, and for the five (5) preceding fiscal years,
and the related audited combined statement of income, stockholders' equity and
cash flows for each of the fiscal years then ended, together with a true and
correct copy of the report on such audited information by Smith & Howard, P.C.
(with respect to the reports for the fiscal years ended May 31, 1995, and May
31, 1994) and Williams, Benator and Libby (with respect to the prior reports)
with respect to the results of such audits (collectively, the "Audited Financial
Statements"); and
(b) the unaudited combined balance sheet of AEC and its
Subsidiaries as of May 31, 1996, and the related unaudited combined statements
of operations, stockholders' equity and cash flows for the period from October
1, 1995, through May 31, 1996 (the "Unaudited Financial Statements").
Except as set forth in the notes thereto and as disclosed in Schedule 2.10 of
the Disclosure Schedule:
(i) all such Audited Financial Statements
were prepared as stated in the applicable auditors' reports in accordance with
GAAP;
(ii) the Unaudited Financial Statements were
prepared consistent with prior unaudited fiscal year-end (i.e., May 31) reports;
(iii) all such financial statements fairly present
the combined financial condition and results of operations of such of the
Companies as are covered thereby as of the respective dates thereof and for the
respective periods covered thereby, except for customary year-end adjustments
that may be required to be made by AEC's independent public accountants to the
Unaudited Financial Statements; and
(iv) all such financial statements were compiled
from the Books and Records of the Companies regularly maintained by the
Companies and used to prepare the financial statements of the Companies in
accordance with the principles stated therein. To the Knowledge of each Seller,
except as set forth in Schedule 2.10 of the Disclosure Schedule, the Companies
have maintained their respective Books and Records in a manner sufficient to
permit the preparation of audited financial statements in accordance with GAAP,
such Books and Records fairly reflect, in all material respects, the income,
expenses, assets and liabilities of the Companies and the Books and Records
provided a fair and accurate basis for the preparation of the Audited Financial
Statements and the Unaudited Financial Statements.
2.11 Absence of Changes. Since the unaudited balance sheet of May
31, 1996, there has not been, to the Knowledge of each Seller, any material
adverse change, or any event or development which, individually or together with
other such events, could reasonably be expected to result in a material adverse
change, in the Business or Condition of the Companies. Without limiting the
foregoing, to the Knowledge of each Seller, except as disclosed in Schedule 2.11
of the Disclosure Schedule, there has not occurred between May 31, 1996, and the
date hereof:
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(a) any declaration, setting aside or payment of any dividend
or other distribution in respect of the capital stock or limited liability
company interests of any of the Companies, other than advances and distributions
to Sellers that are expressly provided for in this Agreement, or any direct or
indirect redemption, purchase or other acquisition by any of the Companies of
any such capital stock or limited liability company interests of or Option with
respect to any of the Companies;
(b) any authorization, issuance, sale or other disposition by
any of the Companies of any shares of capital stock or limited liability company
interests of or Option with respect to any of the Companies, or any modification
or amendment of any night of any holder of any outstanding shares of capital
stock or limited liability company interests of or Option with respect to any of
the Companies;
(c) any increase in the salary, wages or other compensation of
any officer, employee or consultant of any of the Companies whose annual salary
is, or after giving effect to such change would be, $40,000 or more, which
increases would, in the aggregate, exceed $50,000 and other than as set forth in
the Companies' operating budget heretofore provided Purchaser; any establishment
or modification of (A) targets, goals, pools or similar provisions in respect of
any fiscal year under any Benefit Plan, employment-related Contract or other
employee compensation arrangement or (B) salary ranges, increase guidelines or
similar provisions in respect of any Benefit Plan, employment-related Contract
or other employee compensation arrangement; or any adoption, entering into or
becoming bound by any Benefit Plan, employment-related Contract or collective
bargaining agreement, or amendment, modification or termination (partial or
complete) of any Benefit Plan, employment-related Contract or collective
bargaining agreement, except to the extent required by applicable Law and, in
the event compliance with legal requirements presented options, only to the
extent the option which any of the Companies reasonably believed to be the least
costly was chosen;
(d) any increase of Indebtedness of the Companies in excess of
the aggregate Indebtedness set forth on the unaudited balance sheet of May 31,
1996 (as reduced by the regularly scheduled amortized payments with respect to
the same) except as permitted pursuant to the further terms of this Agreement;
any voluntary purchase, cancellation, prepayment or complete or partial
discharge in advance of a scheduled payment date with respect to, or waiver of
any right of any of the Companies under, any Indebtedness of or owing to any of
the Companies; and such Indebtedness will not be increased through the Closing,
except for the $500,000 loan described in Section 1.6 of this Agreement and/or
to make the distributions to Sellers at or before the Closing as contemplated
herein;
(e) any physical damage, destruction or other casualty loss
(whether or not covered by insurance) affecting any of the plant, real or
personal property or equipment of any of the Companies in an aggregate amount
exceeding $50,000;
(f) any material change in (x) any pricing, investment,
accounting, financial reporting, inventory, credit, allowance or Tax practice or
policy of any of the Companies, or (y) any method of calculating any bad debt,
contingency or other reserve of any of the Companies for accounting, financial
reporting or Tax purposes, or any change in the fiscal year of any of the
Companies;
(g) any write-off, write-down or write-up of or any
determination to write-off, write-down or write-up any of the Assets and
Properties of any of the Companies in an aggregate amount exceeding $50,000,
other than normal year-end adjustments that may be required to be made to the
Unaudited Financial Statements or that may be required to be made by AEC's
independent public accountants pursuant to their audit of the fiscal year ended
May 31, 1996, including, by way of example, the customary year-end adjustment to
the student contract receivables account to be made as of May 31, 1996;
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<PAGE> 9
(h) any acquisition or disposition of, or incurrence of a Lien
(other than a Permitted Lien) on, any Assets and Properties of any of the
Companies, other than in the ordinary course of business consistent with past
practice;
(i) any amendment of the certificate or articles of
incorporation or by-laws (or other comparable corporate charter documents) of
any of the Companies, recapitalization, reorganization, liquidation or
dissolution of any of the Companies, or merger or other business combination
involving any of the Companies and any other Person;
(j) any entering into, amendment, modification, termination
(partial or complete) or granting of a waiver under or giving any consent with
respect to (A) any Contract which is required (or had it been in effect on the
date hereof would have been required) to be disclosed in the Disclosure Schedule
pursuant to Section 2.19(a) or provided to Purchaser in accordance with Section
2.16(d) or (B) any material License held by any of the Companies;
(k) capital expenditures or commitments (including any
capitalized leases) for additions to property, plant or equipment of the
Companies constituting capital assets in an aggregate amount exceeding $100,000
per month;
(l) any commencement or termination by any of the Companies
of any line of business;
(m) any transaction by any of the Companies with a Seller, any
officer, director, Affiliate (other than any of the Companies) or Associate of a
Seller or any Associate of any such officer, director or Affiliate outside the
ordinary course of business except consistent with past practice or other than
on an arm's-length basis, other than pursuant to any Contract in effect on May
31, 1996, and disclosed pursuant to Schedule 2.20 of the Disclosure Schedule; or
(n) any entering into of a Contract to do or engage in any of
the foregoing after the date hereof.
2.12 No Undisclosed Liabilities. Except as reflected or reserved
against in the Unaudited Financial Statements, or as disclosed in Schedule 2.12
of the Disclosure Schedule, to the Knowledge of each Seller there are no
Liabilities against, relating to or affecting any of the Companies or any of
their respective Assets and Properties, other than Liabilities incurred in the
ordinary course of business consistent with past practice.
2.13 Taxes.
(a) Each of the Companies has filed all Tax Returns that it
was required to file. To the Knowledge of each Seller all such Tax Returns were
correct and complete in all respects, and all Taxes owed by any of the Companies
have been paid or provision for payment thereof has been made. None of the
Companies currently is the beneficiary of any extension of time within which to
file any Tax Return. To the Knowledge of each Seller, no claim has ever been
made by an authority in a jurisdiction where any of the Companies does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. To
the Knowledge of each Seller, there are no Liens on any of the Assets and
Properties of any of the Companies that arose in connection with any failure (or
alleged failure) to pay any Tax.
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(b) To the Knowledge of each Seller each of the Companies has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party, or provision for payment thereof has
been made and is reflected in the Unaudited Financial Statements.
(c) To the Knowledge of each Seller there is no dispute or
claim concerning any Tax Liability of any of the Companies. Schedule 2.13 of the
Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to any of the Companies for taxable periods ended on
or after September 30, 1993, and indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. The Sellers have delivered to the Purchaser correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of the Companies since
September 30, 1993.
(d) None of the Companies has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) None of the Companies has filed a consent under Code ss.
341(f) concerning collapsible corporations. None of the Companies has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Code ss. 280G. None of the Companies has been a United
States real property holding corporation within the meaning of Code ss. 897(2)
during the applicable period specified in Code ss. 897(c)(1)(A)(ii). None of the
Companies is a party to any tax allocation or sharing agreement. None of the
Companies has been a member of an affiliated group filing, a consolidated
federal income Tax Return (other than a group the common parent of which was
AEC) or has any Liability for the Taxes of any Person (other than any of the
Companies) under Reg. ss. 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(f) Except as set forth on Schedule 2.13 of the Disclosure
Schedule, the unpaid Taxes of the Companies did not, as of May 31, 1996, exceed
the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the May 31, 1996, Unaudited Financial Statements and do not
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Companies in filing their
Tax Returns.
(g) No tax is required to be withheld pursuant to Code ss.
1445 as a result of any of the transfer contemplated by this Agreement and
Sellers will provide certificates to Purchaser documenting the foregoing.
(h) Except as set forth on Schedule 2.13 of the Disclosure
Schedule, for all periods after September 30, 1991:
(i) for federal and state income tax purposes,
AEC has been and will be (through the Closing Date but not thereafter) taxable
as an S corporation as such term is defined in Code ss. 1361(a)(1), and
comparable provisions of applicable state law. AEC has provided to the Purchaser
complete and accurate copies of its election to be taxed as an S corporation for
federal income tax purposes (together with copies of any state election required
to be so taxed for state income tax purposes) and copies of the IRS's notice of
acceptance of the election of AEC to be taxed as an S corporation for federal
(or state, as applicable) income tax purposes;
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(ii) there is, to the Knowledge of each Seller,
no basis upon which the AEC's election to be so taxed could be denied or revoked
for federal or state purposes prior to Closing, and AEC has not been taxable or
has not taken the position that it was taxable as other than an S corporation in
any jurisdiction.
(i) To the Knowledge of each Seller, AEMEC qualifies as a
partnership for federal income tax purposes, and none of AEMEC, AEC or such
Seller have taken any position inconsistent with such treatment.
2.14 Legal Proceedings. Except as disclosed in Schedule 2.14 of the
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(a) there are no Actions or Proceedings pending or, to the
Knowledge of each Seller, threatened against, relating to or affecting such
Seller, any of the Companies or any of their respective Assets and Properties
which could reasonably be expected to result in the issuance of an Order
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement or any of
the Operative Agreements or otherwise result in a material diminution of the
benefits contemplated by this Agreement or any of the Operative Agreements to
Purchaser, or if determined-adversely to a Seller, or any of the Companies,
could reasonably be expected to result in (x) any injunction or other equitable
relief against any of the Companies that would interfere in any material respect
with its business or operations or (y) Losses by any of the Companies;
(b) there are no facts or circumstances Known to a Seller that
could reasonably be expected to give rise to any Action or Proceeding that would
be required to be disclosed pursuant to clause (a) above; and
(c) there are no Orders outstanding against any of the
Companies.
Prior to the execution of this Agreement, Sellers have delivered to Purchaser
all responses of counsel for the Companies to auditors' requests for information
delivered in connection with the Audited Financial Statements for May 31, 1995
(together with any updates provided by such counsel) regarding Actions or
Proceedings pending or threatened against, relating to or affecting any of the
Companies.
2.15 Compliance with Laws and Orders. To the Knowledge of each
Seller and except as disclosed in Schedule 2.15 of the Disclosure Schedule, none
of the Companies is or has at any time within the last five (5) years been, or
has received any notice that it is or has at any time within the last five (5)
years been, in violation of or in default under, in any material respect, any
Law or Order applicable to any of the Companies or any of their respective
Assets and Properties.
2.16 Benefit Plans; ERISA.
(a) The Sellers have heretofore delivered to Purchaser true
and complete copies of each of the Companies' Benefit Plans, which Plans are
listed on Schedule 2.16 of the Disclosure Schedule, and have made copies of all
related documentation (such as summary plan descriptions, annual reports, trust
agreements, determination letters, audit reports, and domestic relations orders)
available for review by Purchaser and its representatives. Except as set forth
in Schedule 2.16 of the Disclosure Schedule, none of the Companies has scheduled
or agreed upon future increases of benefit levels (or creations of new benefits)
with respect to any Benefit Plan, and no such increases or creation of benefits
have been proposed, made the
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subject of representations to employees or requested or demanded by employees
under circumstances which make it reasonable to expect that such increases will
be granted.
(b) Except as set forth on Schedule 2.16 of the Disclosure
Schedule, to the Knowledge of each Seller none of the Companies maintains or is
obligated by Law to provide benefits under any life, medical or health plan
(other than as an incidental benefit under a Qualified Plan) which provides
benefits to retirees or other terminated employees other than benefit
continuation rights under the Consolidated Omnibus Budget Reconciliation of
1985, as amended.
(c) Except as set forth in Schedule 2.16 of the Disclosure
Schedule, each Benefit Plan covers only employees who are employed by one or
more of the Companies (or former employees or beneficiaries with respect to
service with one or more of the Companies), so that the transactions
contemplated by this Agreement will require no spin-off of assets and
liabilities or other division or transfer of rights with respect to any such
plan.
(d) None of the Companies, nor any ERISA Affiliate or any
other corporation or organization controlled by or under common control with any
of the foregoing within the meaning of Section 4001 of ERISA has at any time
contributed to any "multiemployer plan", as that term is defined in Section 4001
of ERISA.
(e) To the Knowledge of each Seller, each of the Benefit Plans
is, and its administration is and has been since inception, and except as set
forth in Schedule 2.16 of the Disclosure Schedule, in all material respects in
compliance with, and none of the Companies has received any claim or notice that
any such Benefit Plan is not in compliance with, all applicable Laws and Orders
and prohibited transactions exemptions, including the requirements of ERISA, the
Code, the Age Discrimination in Employment Act, the Equal Pay Act and Title VII
of the Civil Rights Act of 1964. Each Qualified Plan is qualified under Section
401(a) of the Code, and, if applicable, complies with the requirements of
Section 401(k) of the Code. To the Knowledge of each Seller, each Benefit Plan
which is intended to provide for the deferral of income, the reduction of salary
or other compensation or to afford other Tax benefits complies with the
requirements of the applicable provisions of the Code or other Laws required in
order to provide such Tax benefits.
(f) To the Knowledge of each Seller, neither of the Sellers
nor any of the Companies is in default in performing any of his or its
contractual obligations under any of the Benefit Plans or any related trust
agreement or insurance contract. To the Knowledge of each Seller, all
contributions and other payments required to be made by a Seller, any of the
Companies to any Benefit Plan with respect to any period ending before or at or
including the Closing Date have been made or reserves adequate for such
contributions or other payments have been or will be set aside therefor and have
been or will be reflected in Financial Statements in accordance with GAAP. To
the Knowledge of each Seller, there are no material outstanding liabilities of
any Benefit Plan other than liabilities for benefits to be paid to participants
in such Benefit Plan and their beneficiaries in accordance with the terms of
such Benefit Plan.
(g) To the Knowledge of each Seller, no event has occurred,
and there exists no condition or set of circumstances in connection with any
Benefit Plan, under which any of the Companies, directly or indirectly (through
any indemnification agreement or otherwise), could reasonably be expected to be
subject to any risk of material liability under Section 409 of ERISA, Section
502(i) of ERISA, Title IV of ERISA or Section 4975 of the Code.
(h) To the Knowledge of each Seller, no transaction
contemplated by this Agreement will result in liability to the PBGC under
Sections 302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or
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otherwise, with respect to any of the Companies, or any corporation or
organization controlled by or under common control with the Companies within the
meaning of Section 4001 of ERISA, and no event or condition exists or has
existed which could: reasonably be expected to result in any such liability with
respect to any of the Companies or any such corporation or organization; no
"reportable event" within the meaning of Section 4043 of ERISA has occurred with
respect to any Defined Benefit Plan; no termination reestablishment or spin-off
re-establishment transaction has occurred with respect to any Subject Defined
Benefit Plan; no Subject Defined Benefit Plan has incurred any accumulated
funding deficiency whether or not waived. No filing has been made and no
proceeding has been commenced for the complete or partial termination of, or
withdrawal from, any Benefit Plan which is a Pension Benefit Plan.
(i) To the Knowledge of each Seller, no benefit under any
Benefit Plan, including, without limitation, any severance or parachute payment
plan or agreement, will be established or become accelerated, vested, funded or
payable by reason of any transaction contemplated under this Agreement.
(j) To the Knowledge of each Seller, there are no pending or
threatened claims by or on behalf of any Benefit Plan, by any Person covered
thereby, or otherwise, which allege violations of Law which could reasonable be
expected to result in liability on the part of any of the Companies or any
fiduciary of any such Benefit Plan, nor is there any basis for such a claim.
(k) No employer securities, employer real property or other
employer property is included in the assets of any Benefit Plan.
(l) To the Knowledge of each Seller, the fair market value of
the assets of each Subject Defined Benefit Plan, as determined as of the last
day of the plan year of such plan which coincides with or first precedes the
date of this Agreement, was not less than the present value of the projected
benefit obligations under such plan at such date as established on the basis of
the actuarial assumptions applicable under such Subject Defined Benefit Plan at
said date and, to the Knowledge of each Seller, there have been no material
changes in such values since said date.
2.17 Real Property.
(a) Sellers have previously delivered to Purchaser true and
correct copies of each lease of real property entered into by any of the
Companies (as lessor or lessee) and all amendments thereto, which Leases are
listed on Schedule 2.17 of the Disclosure Schedule. None of the Companies owns
fee title to any real property.
(b) The Companies have adequate rights of ingress and egress
with respect to such leased real property and all buildings, structures,
facilities, fixtures and other improvements thereon. To the Knowledge of each
Seller, none of such real property, buildings, structures, facilities, fixtures
or other improvements, or the use thereof, contravenes or violates any building,
zoning, administrative, occupational safety and health or other applicable Law
in any material respect (whether or not permitted on the basis of prior
nonconforming use, waiver or variance), except as set forth in Schedule 2.17 of
the Disclosure Schedule.
(c) To the Knowledge of each Seller, each of the Companies has
a valid and subsisting leasehold estate in and the right to quiet enjoyment of
the real properties leased by it for the full term of the lease thereof. To the
Knowledge of each Seller, each lease referred to in the first sentence of
paragraph (a) above is a legal, valid and binding agreement, enforceable in
accordance with its terms, of each of the Companies that is a party thereto, and
except as set forth in Schedule 2.17 of the Disclosure Schedule, there is no,
and none of the Companies has received notice of any, default (or any condition
or event which, after
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notice or lapse of time or both, would constitute a default) thereunder;
however, said leases are assigned to National Westminister Bank, PLC, as
collateral security for the indebtedness owed to said bank. None of the
Companies owes any brokerage commissions with respect to any such leased space.
(d) Sellers have delivered to Purchaser prior to the execution
of this Agreement true and complete copies of all leasehold title insurance
policies, title reports, surveys and similar documents, and all amendments
thereof, with respect to the real property leased by the Companies, if any.
(e) To the Knowledge of each Seller, except as disclosed in
Schedule 2.17 of the Disclosure Schedule, the improvements on the real property
are in good operating condition and in a state of good maintenance and repair,
ordinary wear and tear excepted, and, to the Knowledge of each Seller, there are
no condemnation or appropriation proceedings pending or threatened against any
of such real property or the improvements thereon.
2.18 Tangible Personal Property; Investment Assets.
(a) To the Knowledge of each Seller and except as disclosed on
Schedule 2.18 of the Disclosure Schedule, each of the Companies is in possession
of and has good title to, or has valid leasehold interests in or valid rights
under Contract to use, all tangible personal property used in or reasonably
necessary for the conduct of their business, including all tangible personal
property reflected on the balance sheet included in the May 31, 1996, Unaudited
Financial Statements and tangible personal property acquired since May 31, 1996,
other than property disposed of since such date in the ordinary course of
business consistent with past practice. All such tangible personal property is
free and clear of all Liens, other than Permitted Liens and Liens disclosed in
Schedule 2.18 of the Disclosure Schedule, and, other than tangible, personal
property not currently in use in the operation of the business, is in good
working order and condition, ordinary wear and tear excepted. In no event shall
the representations and warranties contained in this Section 2.18 be construed
as applying for the personal property that will be distributed to either of the
Sellers in connection with the transactions contemplated herein.
(b) Schedule 2.18 of the Disclosure Schedule describes each
Investment Asset owned by any of the Companies on the date hereof. Except as
disclosed in Schedule 2.18 of the Disclosure Schedule, all such Investment
Assets are owned by each of the Companies free and clear of all Liens other than
Permitted Liens.
2.19 Intellectual Property Rights.
(a) The Companies utilize and have utilized in the past
numerous computer software programs in the administration and the day-to-day
conduct of their businesses. Sellers believe that, from time to time, some staff
members, faculty members and students use computer software programs in their
classes which have not been licensed by, and thus not officially authorized by,
the Companies, and Sellers make no warranties and representations with respect
to such software programs. To the Knowledge of each Seller, the Companies have
in recent years obtained contracts or consents to use substantially all the
computer software which the Companies believe are currently in use by the
Companies. None of such software will be removed from the Companies by Sellers,
either prior to or after the Closing, without the prior written approval of
Purchaser.
(b) To the Knowledge of each Seller, all other Intellectual
Property used in the conduct of the business of any of the Companies is owned or
validly licensed by the Companies. Subject to the qualifications set forth in
Section 2.19(a), Schedule 2.19 of the Disclosure Schedule sets forth all
trademarks,
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trade names, patents and, to the Knowledge of each Seller, a summary description
of any other Intellectual Property used by the Companies.
(c) To the Knowledge of each Seller, except as disclosed in
Schedule 2.19 of the Disclosure Schedule and subject to the qualifications set
forth in Section 2.19(a), (i) each of the Companies has the exclusive right to
use the intellectual Property owned by the Companies, (ii) all registrations
with and applications to Governmental or Regulatory Authorities in respect of
such Intellectual Property are valid and in full force and effect and are not
subject to the payment of any Taxes or maintenance fees or the taking of any
other actions by any of the Companies to maintain their validity or
effectiveness, (iii) none of the Companies is, or has received any notice that
it is, in default (or with the giving of notice or lapse of time or both, would
be in default) under any Contract to use such Intellectual Property, (iv) to the
Knowledge of each Seller, no such Intellectual Property is being infringed by
any other Person, and (v) there are no restrictions on the direct or indirect
transfer of any Contract, or interest therein, held by any of the Companies in
respect of such Intellectual Property which gives rise to the rights of any of
the Companies to use such Intellectual Property which would be implicated by the
consummation of this Agreement. Neither Seller nor any of the Companies has
received notice that any of the Companies is infringing any Intellectual
Property of any other Person, no claim is pending or, to the Knowledge of each
Seller, has been made to such effect that has not been resolved and, to the
Knowledge of each Seller, none of the Companies is infringing any Intellectual
Property of any other Person.
2.20 Contracts.
(a) Schedule 2.20 of the Disclosure Schedule contains a true
and complete list of each of the following Contracts or other arrangements (true
and complete copies, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been delivered to Purchaser prior to the
execution of this Agreement), to which any of the Companies is a party or by
which any of their respective Assets and Properties is bound:
(i) (A) all written or unwritten Contracts
which involve the payment or potential payment, pursuant to the terms of any
such Contract, by or to any of the Companies of more than $50,000 annually
(excluding Benefit Plans) providing for a commitment of employment or
consultation services for a specified or unspecified term or otherwise relating
to employment or the termination of employment, the name, position and rate of
compensation of each Person party to such a Contract and the expiration date of
each such Contract, and (B) any written (or unwritten representations made by
Thomas J. Barnette) representations, commitments, promises, communications or
courses of conduct (excluding Benefit Plans and any such Contracts referred to
in clause (A)) involving an obligation of any of the Companies to make payments
in any year, other than with respect to salary or incentive compensation
payments in the ordinary course of business, to any employee;
(ii) all Contracts with any Person containing any
provision or covenant prohibiting or limiting the ability of any of the
Companies to engage in any business activity or compete with any Person or,
except as provided in Section 4.11, prohibiting or limiting the ability of any
Person to compete with any of the Companies;
(iii) all partnership, joint venture,
shareholders' or other similar Contracts with any Person whether written or
unwritten;
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(iv) all Contracts relating to Indebtedness of
any of the Companies, except loans secured by life insurance contracts to be
transferred to either Seller at Closing, which loans will be assumed by the
appropriate Seller;
(v) all written or unwritten Contracts with
distributors, dealers, representatives, sales agencies or franchisees which
involve the payment or potential payment, pursuant to the terms of any such
Contract, by or to any of the Companies of more than $50,000 annually;
(vi) all written or unwritten Contracts relating
to (A) the future disposition or acquisition of any Assets and Properties, other
than dispositions or acquisitions in the ordinary course of business consistent
with past practice, and (B) any merger or other business combination;
(vii) all written or unwritten Contracts between
or among any of the Companies, on the one hand, and a Seller, any officer,
director, Affiliate (other than any of the Companies) or Associate of a Seller
or any Associate of any such officer, director or Affiliate, on the other hand;
(viii) all collective bargaining or similar labor
Contracts;
(ix) all Contracts that (A) limit or contain
restrictions on the ability of any of the Companies to declare or pay dividends
on, to make any other distribution in respect of or to issue or purchase, redeem
or otherwise acquire its capital stock, to incur Indebtedness, to incur or
suffer to exist any Lien, to purchase or sell any Assets and Properties, to
change the lines of business in which it participates or engages or to engage in
any business combination or (B) require any of the Companies to maintain
specified financial ratios or levels of net worth or other indicia of financial
condition; and
(x) all other Contracts (other than Benefit
Plans, leases listed in Schedule 2.17 of the Disclosure Schedule and insurance
policies listed in Schedule 2.22 of the Disclosure Schedule) that (A) involve
the payment or potential payment, pursuant to the terms of any such Contract, by
or to any of the Companies of more than $50,000 annually and (B) cannot be
terminated within thirty (30) days after giving notice of termination without
resulting in any material cost or penalty to any of the Companies.
(b) To the Knowledge of each Seller, each Contract
required to be disclosed in Schedule 2.20 of the Disclosure Schedule is in full
force and effect and constitutes a legal, valid and binding agreement of the
Company which is a party to such contract and enforceable against such Company
in accordance with its terms; and except as disclosed in Schedule 2.20 of the
Disclosure Schedule to the Knowledge of each Seller none of the Companies nor
any other party to such Contract is, or has received, written notice that it is
in violation or breach of or default under any such Contract (or with notice or
lapse of time or both, would be in violation or breach of or default under any
such Contract) in any material respect.
2.21 Licenses. To the Knowledge of each Seller, Schedule 2.21 of
the Disclosure Schedule contains a true and complete list of all Licenses used
in and material, individually or in the aggregate, to the business or operations
of any of the Companies (and all pending applications for any such Licenses),
setting forth the licensor, the licensee, and the expiration and renewal date of
each. Prior to the execution of this Agreement, Sellers have delivered to
Purchaser true and complete copies of all such Licenses. To the Knowledge of
each Seller, except as disclosed in Schedule 2.21 of the Disclosure Schedule:
(a) each of the Companies owns or validly holds all
Licenses that are material, individually or in the aggregate, to its business or
operations;
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(b) each License listed in Schedule 2.21 of the
Disclosure Schedule is in full force and effect;
(c) none of the Companies is, or has received any notice
that it is, in default (or with the giving of notice or lapse of time or both,
would be in default) under any such License; and
(d) no Governmental or Regulatory Authority has initiated
any Actions or Proceedings or threatened to initiate any Actions or Proceedings
with respect to any such License, or restricted or limited or threatened to
restrict or limit the right of any of the Companies to participate in any
program administered or regulated by such Governmental or Regulatory Authority,
and no basis therefor is Known to a Seller.
Notwithstanding the foregoing or anything else in this Agreement to the
contrary, neither Seller makes any representations nor warranties with respect
to any license requirements applicable to the operation of the American
University in Dubai.
2.22 Insurance. To the Knowledge of each Seller, Schedule 2.22 of
the Disclosure Schedule contains a summary of insurance policies currently in
effect and maintained by the Companies as provided the Companies by a carrier or
insurance broker, which policies have been issued to any of the Companies or
have been issued to any Person (other than any of the Companies) for the benefit
of any of the Companies. The insurance coverage provided by any of the policies
issued to the Companies will not terminate or lapse by reason of the
transactions contemplated by this Agreement. To the Knowledge of each Seller,
each policy listed in Schedule 2.22 of the Disclosure Schedule is valid and
binding and in full force and effect, no premiums due thereunder have not been
paid and none of the Companies nor the Person to whom such policy has been
issued has received any notice of cancellation or termination in respect of any
such policy or is in default thereunder. To the Knowledge of each Seller, the
insurance policies listed in Schedule 2.22 of the Disclosure Schedule, are
believed to be in amounts and have coverages that are reasonable and customary
for Persons engaged in such businesses and operations and having such Assets and
Properties. None of the Companies nor the Person to whom such policy has been
issued has received notice that any insurer under any policy referred to in this
Schedule is denying liability with respect to a claim thereunder or defending
under a reservation of rights clause.
2.23 Affiliate Transactions. To the Knowledge of each Seller,
except as set forth in the May 31, 1996, Unaudited Financial Statements, or in
Schedule 2.23 of the Disclosure Schedule, (i) there are no Liabilities between
any of the Companies, on the one hand, and a Seller, any officer, director,
Affiliate (other than any of the Companies) or Associate of a Seller or any
Associate of any such officer, director or Affiliate, on the other, (ii) neither
of the Sellers nor any such officer, director, Affiliate or Associate provides
or causes to be provided any assets, services of facilities to any of the
Companies, and (iii) none of the Company provides or causes to be provided any
assets, services or facilities to a Seller or any such officer, director,
Affiliate or Associate.
2.24 Employees; Labor Relations.
(a) Section 2.24 of the Disclosure Schedule contains a
true and accurate list of the name of each officer and employee of the Companies
having an annual W-2 base salary or wages of at least $40,000 at the date
hereof, together with each such person's annual base salary or wages and any
incentive or bonus arrangement with respect to such person for such period. No
Seller has received any information that would lead him to believe that a
material number of such persons will or may cease to be employees because of the
consummation of the transactions contemplated by this Agreement.
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(b) To the Knowledge of each Seller, except as disclosed in
Schedule 2.24 of the Disclosure Schedule, no employee of any of the Companies
is presently a member of a collective bargaining unit, and there are no
threatened or contemplated attempts to organize for collective bargaining
purposes any of the employees of any of the Companies, no unfair labor practice
complaint or sex, age, race or other discrimination claim has been brought
during the last five (5) years against any of the Companies before the National
Labor Relations Board, the Equal Employment Opportunity Commission or any other
Governmental or Regulatory Authority, and there has been no work stoppage,
strike or other concerted action by employees of any of the Companies. Except as
disclosed in Schedule 2.14 of the Disclosure Schedule, there are no Actions or
Proceedings pending or, to the Knowledge of each Seller, threatened against,
relating to or affecting a Seller, any of the Companies or any of their
respective Assets and Properties which have been initiated by any of the current
or former employees of the Companies, and there are no facts or circumstances to
the Knowledge of each Seller which could reasonably be expected to give rise to
any such Action or Proceeding.
2.25 Environmental Matters. Except as set forth in Schedule 2.25
of the Disclosure Schedule.
(a) To the Knowledge of each Seller, the Companies have not
conducted their businesses in a manner that knowingly violates applicable
Environmental Laws.
(b) To the Knowledge of each Seller, no Hazardous Materials
exist on, under or about any site or facility now or previously owned, operated
or leased by any of the Companies.
(c) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or that are in the
possession of, any of the Companies in relation to any site or facility now or
previously owned, operated or leased by any of the Companies which have not been
delivered to Purchaser prior to the execution of this Agreement.
2.26 Bank and Brokerage Accounts; Investment Assets. Schedule 2.26
of the Disclosure Schedule sets forth a true and complete list of the names of
all banks, trust companies, securities brokers and other financial institutions
at which any of the Companies has an account or safe deposit box or maintains a
banking, custodial, trading or other similar relationship; account numbers of
each bank account, safe deposit account, or other banking account, and the names
of the respective officers, employees, agents or other similar representatives
of any of the Companies having signatory power with respect thereto; and a list
of each Investment Asset, the name of the record and beneficial owner thereof,
the location of the certificates, if any, therefor, the maturity date, if any,
and any stock or bond powers or other authority for transfer granted with
respect thereto. Each Seller acknowledges and agrees that the certificate of
deposit and all proceeds thereof pledged to secure Barnette's debt to Fidelity
National Bank are assets of AEC, and that AEC will retain the same upon their
release by the bank.
2.27 No Powers of Attorney. Except as set forth in Schedule 2.27
of the Disclosure Schedule, none of the Companies has any powers of attorney or
comparable delegations of authority outstanding.
2.28 Accounts Receivable. To the Knowledge of each Seller, the
accounts and notes receivable of the Companies reflected on the balance sheet
included in the May 31, 1996, Unaudited Financial Statements, and all accounts
and notes receivable arising subsequent to said Unaudited Financial Statements
arose from bona fide sales transactions in the ordinary course of business and
are payable in accordance with their terms, are legal, valid and binding
obligations of the respective debtors enforceable in accordance with their terms
(including such cancellation rights set forth therein or as provided by
applicable Laws or Orders), are not subject to any valid set-off or
counterclaim, do not represent obligations for goods sold on
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consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement, except as described above, and are not the
subject of any Actions or Proceedings brought by or on behalf of any of the
Companies. Sellers do not warrant the collectibility of said receivables, except
with respect to the receivables from Sellers which will be paid at Closing. The
Companies do not maintain a reserve for doubtful accounts or similar reserve.
The Companies evaluate their receivables as of May 31 and September 30 of each
year and on other occasions from time to time to determine which receivables are
not likely to be collected and expense or write-off such amount against income
as of the fiscal year end.
2.29 SACS. The American College (of Applied Arts) operated by AEC
and its branch campuses has been accredited by and is in good standing with
SACS, and to the Knowledge of each Seller there are no actions pending or
threatened which could result in the loss of such accreditation, and to the
Knowledge of each Seller there is no basis therefor. Within ten (10) days after
the date hereof, Sellers will provide Purchaser with all correspondence to and
from SACS since January 1, 1994, with respect to such accreditation.
2.30 Scholarships. Schedule 2.30 of the Disclosure Schedules sets
forth a true and complete list of (i) all scholarships and discounts that are
outstanding but are not presently being utilized by the recipients thereof, and
(ii) any commitments to provide scholarships or discounts that are not presently
being utilized by the recipients thereof. The expense of such scholarships and
discounts presently awarded and being utilized approximates $500,000 on an
annual basis. In addition, the expense of scholarships and discounts awarded but
not presently being utilized are not expected to exceed $500,000 annually.
2.31 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Sellers directly with
Purchaser without the intervention of any Person on behalf of either of the
Sellers in such manner as to give rise to any valid claim by any Person against
Purchaser, any of the Companies for a finder's fee, brokerage commission or
similar payment.
2.32 Disclosure. To the Knowledge of each Seller, all material
facts relating to the Business or Condition of the Companies have been disclosed
to Purchaser in or in connection with this Agreement, and no representation or
warranty contained in this Agreement, and no statement contained in the
Disclosure Schedule or in any certificate, list or other writing furnished to
Purchaser pursuant to any provision of this Agreement (including without
limitation the Financial Statements), knowingly contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers, as of the date
hereof and as of the Closing Date, as follows:
3.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Georgia.
Purchaser has full corporate power and authority to execute and deliver this
Agreement and the Operative Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby.
3.2 Authority. The execution and delivery by Purchaser of this
Agreement and the Operative Agreements to which it is a party, and the
performance by Purchaser of obligations hereunder and thereunder,
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have been duly and validly authorized by the Board of Directors of Purchaser, no
other corporate action on the part of Purchaser or its stockholders being
necessary. This Agreement has been duly and validly executed and delivered by
Purchaser and constitutes, and upon the execution and delivery by Purchaser of
the Operative Agreements to which it is a party, such Operative Agreements will
constitute, legal, valid and binding obligations of Purchaser enforceable
against Purchaser in accordance with their terms.
3.3 No Conflicts. The execution and delivery by Purchaser of this
Agreement do not, and the execution and delivery by Purchaser of the Operative
Agreements to which it is a party, the performance by Purchaser of its
obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the articles of incorporation or by-laws
(or other comparable corporate charter document) of Purchaser;
(b) subject to obtaining the consents, approvals and actions,
making the filings and giving the notices disclosed in Schedule 3.4 hereto,
conflict with or result in a violation or breach of any term or provision of any
Law or Order applicable to Purchaser or any of its Assets and Properties; or
(c) except as disclosed in Schedule 3.3 hereto, conflict with
or result in a violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, require Purchaser to obtain any consent,
approval or action of, make any filing with or give any notice to any Person as
a result or under the terms of, or result in the creation or imposition of any
Lien upon Purchaser or any of its Assets or Properties under, any Contract or
License to which Purchaser is a party or by which any of its Assets and
Properties is bound.
3.4 Governmental Approvals and Filings. Except as disclosed in
Schedule 3.4 hereto, no consent, approval or action of, filing with or notice to
any Governmental or Regulatory Authority on the part of Purchaser is required in
connection with the execution, delivery and performance of this Agreement or the
Operative Agreements to which it is a party or the consummation of the
transactions contemplated hereby or thereby.
3.5 Legal Proceedings. There are no Actions or Proceedings pending
or, to the knowledge of Purchaser, threatened against, relating to or affecting
Purchaser or any of its Assets and Properties which could reasonably be expected
to result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated by this Agreement or any of the Operative Agreements.
3.6 Purchase for Investment. The Sellers' Shares will be acquired
by Purchaser (or, if applicable, its assignee pursuant to Section 14.10) for its
own account for the purpose of investment, it being understood that the right to
dispose of such Sellers' Shares shall be entirely within the discretion of
Purchaser (or such assignee, as the case may be). Purchaser (or such assignee,
as the case may be) will refrain from transferring or otherwise disposing of any
of the Sellers' Shares, or any interest therein, in such manner as to cause
either of the Sellers to be in violation of the registration requirements of the
Securities Act of 1933, as amended, or applicable state securities or blue sky
laws.
3.7 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser directly
with Sellers without the intervention of any Person on behalf of Purchaser in
such manner as to give rise to any valid claim by any Person against either of
the
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Sellers or any of the Companies for a finder's fee, brokerage commission or
similar payment. Notwithstanding the foregoing, Purchaser has engaged the
Robinson-Humphrey Company to assist it in arranging the financing to consummate
the transactions contemplated herein.
3.8 Capitalization. As of the Closing Date, Purchaser's equity
capitalization, including preferred stock and/or subordinated debt, shall be
equal to not less than 25% of the Purchase Price.
ARTICLE IV
COVENANTS OF SELLERS
Each of the Sellers severally covenants and agrees with Purchaser that,
at all times from and after the date hereof until the Closing and, with respect
to any covenant or agreement by its terms to be performed in whole or in part
after the Closing, for the period specified herein or, if no period is specified
herein, indefinitely, each of the Sellers will comply with all covenants and
provisions of this Article IV (and the applicable provisions of Article V) to be
performed by him, except to the extent Purchaser may otherwise consent in
writing. The parties agree that neither Seller shall be responsible for the
covenants of the other Seller.
4.1 Regulatory and Other Approvals. Each of the Sellers will, and
will cause the Companies to, take all commercially reasonable steps necessary or
desirable, and proceed diligently and in good faith and use all commercially
reasonable efforts, as promptly as practicable to obtain all consents, approvals
or actions of, to make all filings with and to give all notices to Governmental
or Regulatory Authorities or any other Person required of a Seller or any of the
Companies to consummate the transactions contemplated hereby, including without
limitation those described in Schedule 2.7 and 2.8 of the Disclosure Schedule
and Sections 6.5, 6.6, 6.7, 7.5, and 7.6, provide such other information and
communications to such Governmental or Regulatory Authorities or other Persons
as Purchaser or such Governmental or Regulatory Authorities or other Persons may
reasonably request of Sellers in connection therewith, and cooperate with
Purchaser as promptly as practicable in obtaining all consents, approvals or
actions of, making all filings with and giving all notices to Governmental or
Regulatory Authorities or other Persons required of Purchaser to consummate the
transactions contemplated hereby and by the Operative Agreements. Sellers will
provide prompt notification to Purchaser when any such consent, approval,
action, filing or notice referred to in clause (a) above is obtained, taken,
made or given, as applicable, and will advise Purchaser of any communications
(and, unless precluded by Law, provide copies of any such communications that
are in writing) with any Governmental or Regulatory Authority or other Person
regarding any of the transactions contemplated by this Agreement or any of the
Operative Agreements.
4.2 Investigation by Purchaser. Each Seller will, and will cause
the Companies to, (a) provide Purchaser and any Person providing (equity or
debt) financing to Purchaser to finance all or any portion of the Purchase Price
and their respective officers, directors, employees, agents, counsel,
accountants, financial advisors, consultants and other representatives (together
"Representatives") with full access, upon reasonable prior notice and during
normal business hours, to all officers, employees, agents and accountants of the
Companies, including without limitation Al Braxton, and their Assets and
Properties and Books and Records; provided, such interviews are coordinated with
Sellers to cause the least disruption of the operations of the Companies and
avoid duplicative interviews, and (b) furnish Purchaser and such other Persons
with all such information and data (including without limitation copies of
Contracts, Benefit Plans and other Books and Records) concerning the business
and operations of the Companies as Purchaser or any of such other Persons
reasonably may request in connection with such investigation.
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4.3 No Solicitations. Neither of the Sellers will take, nor will
they permit any of the Companies or any Affiliate or Associate of a Seller (or
authorize or permit any investment banker, financial advisor, attorney,
accountant or other Person retained by or acting for or on behalf of any of the
Sellers, the Companies or any Affiliate or Associate of a Seller) to take,
directly or indirectly, any action to solicit, encourage, receive, negotiate,
assist or otherwise facilitate (including by furnishing confidential information
with respect to any of the Companies or permitting access to the Assets and
Properties and Books and Records of any of the Companies) any offer or inquiry
from any Person concerning an Acquisition Proposal. If any of the Sellers or the
Companies or any Affiliate or Associate of a Seller (or any such Person acting
for or on their behalf) receives from any Person any offer, inquiry or
informational request referred to above, the Sellers will cause the Purchaser to
be promptly advised by written notice, of such offer, inquiry or request.
4.4 Conduct of Business. Except as set forth in Section 4.7, each
Seller will use commercially reasonable efforts to cause the Companies to
conduct business only in the ordinary course consistent with past practice and
in such manner so that the representations and warranties contained in Article
II shall continue to be true and correct on and as of the Closing Date as if
made on and as of the Closing Date. Without limiting the generality of the
foregoing, each Seller will:
(a) cause the Companies to use commercially reasonable efforts
to preserve intact the present business organization and reputation of the
Companies, keep available (subject to dismissals and retirements in the ordinary
course of business consistent with past practice) the services of the present
officers, employees and consultants of the Companies, maintain the Assets and
Properties of the Companies in good working order and condition, ordinary wear
and tear excepted, maintain the good will of students, student outplacement
sources, referral sources, landlords, suppliers, lenders and other Persons to
whom any of the Companies provides services or with whom any of the Companies
otherwise has significant business relationships and continue all current sales,
marketing and promotional activities relating to the business and operations of
the Companies;
(b) except to the extent required by applicable Law, cause the
Books and Records to be maintained in the usual, regular and ordinary manner,
not permit any material change in (A) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or Tax practice or policy of
any of the Companies, or (B) any method of calculating any bad debt, contingency
or other reserve of any of the Companies for accounting, financial reporting or
Tax purposes and not permit any change in the fiscal year of any of the
Companies;
(c) use, and will cause the Companies to use, commercially
reasonable efforts to maintain in full force and effect until the Closing
substantially the same levels of coverage as the insurance afforded under the
Contracts listed in Schedule 2.22 of the Disclosure Schedule, and cause any and
all benefits under such Contracts paid or payable (whether before or after the
date of this Agreement) with re spect to the business, operations, employees or
Assets and Properties of the Companies to be paid to the Companies; and
(d) will not knowingly engage in any fraudulent or illegal
activity, and promptly following receipt of any notice received from any
Governmental or Regulatory Authority or other Person alleging any violation of
any Law or Order give Purchaser copies of any such notice.
(e) will not award any additional scholarships or discounts
without the prior approval of Purchaser, other than Founder's Scholorships,
Emilio Pucci Scholarships, George Thomas (Lord Tonypandy) Scholarships, Terry
O'Neill/Douglas Hayward Scholarships, Travilla Scholarships, Paul Anderson Youth
Home Scholarships, Guy Milner Scholarships, or scholarships awarded pursuant to
the
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American College High School/Secondary School Scholarship competition, in each
case awarded pursuant to the procedures set forth in the American College's
1994-1996 catalog.
4.5 Financial Statements and Reports; Filings.
(a) As promptly as practicable and in any event no later than
thirty (30) days after the end of each calendar month ending after the date
hereof and before the Closing Date, Sellers will deliver to Purchaser true and
complete copies of the unaudited balance sheet, and the related unaudited
statements of operations, stockholders' equity and cash flows, of each of the
Companies, in each case as of each such calendar month and the portion of the
fiscal year then ended, together with the notes, if any, relating thereto, which
financial statements shall be prepared on a basis consistent with the Unaudited
Financial Statements, except for customary year-end adjustments as may be
required, as disclosed in Schedule 2.10.
(b) As promptly as practicable, Sellers will deliver to
Purchaser true and complete copies of such other financial statements, reports
and analyses relating to the business or operations of any of the Companies, as
Purchaser may reasonably request and which are routinely prepared by the
Companies.
(c) As promptly as practicable, Sellers will deliver copies of
all License applications and other filings made by any of the Companies after
the date hereof and before the Closing Date with any Governmental or Regulatory
Authority (other than routine, recurring filings made in the ordinary course of
business consistent with past practice).
4.6 Employee Matters. Except as may be required by Law, each
Seller will refrain, and will cause the Companies to refrain, from directly or
indirectly:
(a) making any representation or promise, oral or written, to
any officer, employee or consultant of any of the Companies concerning any
Benefit Plan, except for statements as to the rights or accrued benefits of any
officer, employee or consultant under the terms of any Benefit Plan;
(b) making any increase in the salary, wages or other
compensation of any officer, employee or consultant of any of the Companies
whose annual salary is or, after giving effect to such change, would be $40,000
or more (except for minor isolated increases which do not exceed 10% of the
annual compensation of any such employee) without the prior written consent of
Purchaser;
(c) adopting, entering into or becoming bound by any Benefit
Plan, employment-related Contract or collective bargaining agreement, or
amending, modifying or terminating (partially or completely) any Benefit Plan,
employment-related Contract or collective bargaining agreement, except to the
extent required by applicable Law and, in the event compliance with legal
requirements presents options, only to the extent that the option which of the
Companies reasonably believes to be the least costly is chosen; or
(d) establishing or modifying any targets, goals, pools or
similar provisions in respect of any fiscal year under any Benefit Plan,
employment-related Contract or other employee compensation arrangement or salary
ranges, increase guidelines or similar provisions in respect of any Benefit
Plan, employment-related Contract or other employee compensation arrangement.
Each Seller will use commercially reasonable efforts to cause the
Companies to administer each Benefit Plan, or cause the same to be so
administered, in all material respects in accordance with the applicable
provisions of the Code, ERISA and all other applicable Laws. Each Seller will
promptly notify Purchaser in writing of each receipt by such Seller, any of the
Companies (and furnish Purchaser with copies)
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of any notice of investigation or administrative proceeding by the IRS,
Department of Labor, PBGC or other Person involving any Benefit Plan.
4.7 Certain Restrictions. Each Seller will cause the Companies to
refrain from:
(a) amending their certificates or articles of incorporation
or by-laws (or other comparable corporate charter documents) or taking any
action with respect to any such amendment or any recapitalization,
reorganization, liquidation or dissolution of any such corporation; except, in
the case of AEMEC, such amendment to its operating agreement and/or other
organizational documents, as may be necessary to reflect AEC's understanding
with Mark Barnette, as described on Schedule 2.20 hereof;
(b) authorizing, issuing, selling or otherwise disposing of
any shares of capital stock of or any Option with respect to any of the
Companies, or modifying or amending any right of any holder of outstanding
shares of capital stock or limited liability company interests of or Option with
respect to any of the Companies;
(c) declaring, setting aside or paying any dividend or other
distribution in respect of the capital stock or limited liability company
interest of any of the Companies, or directly or indirectly redeeming,
purchasing or otherwise acquiring any capital stock or limited liability company
interests of or any Option with respect to any of the Companies; provided,
however, that the Sellers shall be permitted to cause the Companies to pay
dividends or distributions to the Sellers (including by way of salary or other
compensation) which do not exceed the net income of the Companies (prior to the
effects of this transaction) from October 1, 1995, through the close of business
on May 31, 1996 (and the Sellers shall be responsible for all Taxes thereon),
except as may otherwise be provided in Article I hereof.
(d) acquiring or disposing of, or incurring any Lien (other
than a Permitted Lien) on, any Assets and Properties, other than in the ordinary
course of business consistent with past practice or except as expressly provided
for in this Agreement;
(e) (i) entering into, amending, modifying, terminating
(partially or completely), granting any waiver under or giving any consent with
respect to (A) any Contract that would, if in existence on the date of this
Agreement, be required to be disclosed in the Disclosure Schedule pursuant to
Section 2.19(a), but only if such amendment, modification, or termination would
with respect to all such contracts increase the obligations of the Companies by
more than $100,000 annually, in the aggregate, without prior written consent of
Purchaser, or (B) any material License or (ii) granting any irrevocable powers
of attorney;
(f) knowingly violating, breaching or defaulting under in any
material respect, or taking or failing to take any action that (with or without
notice or lapse of time or both) would constitute a material violation or breach
of, or default under, any term or provision of any License held or used by any
of the Companies or any Contract to which any of the Companies is a party or by
which any of their respective Assets and Properties is bound;
(g) incurring Indebtedness in an aggregate principal amount
exceeding the amount reflected on the unaudited balance sheet dated May 31, 1996
(as reduced by the regularly scheduled amortized payments with respect to the
same), or voluntarily purchasing, canceling, prepaying or otherwise providing
for a complete or partial discharge in advance of a scheduled payment date with
respect to, or waiving any right of any of the Companies under, any Indebtedness
of or owing to any of the Companies without the prior written consent of
Purchaser, or fail or otherwise refrain from making any regularly scheduled
amortization
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payment with respect to any Indebtedness, unless in each case such action is
otherwise permitted pursuant to the terms of this Agreement;
(h) engaging with any Person in any merger or other business
combination;
(i) making capital expenditures or commitments for additions
to property, plant or equipment constituting capital assets in an aggregate
amount exceeding $100,000 per month after May 31, 1996, without the prior
written consent of Purchaser;
(j) making any change in the lines of business in which they
participate or are engaged;
(k) writing off or writing down any of their Assets and
Properties outside the ordinary course of business consistent with past
practice; or
(l) entering into any Contract to do or engage in any of the
foregoing.
4.8 Affiliate Transactions.
(a) The parties agree that at or before the Closing, all
Indebtedness (including those identified as "advance accounts," "interest
accounts," and "note receivable accounts,") and other amounts owing under
Contracts between a Seller or his Affiliate (other than any of the Companies) or
Associate or any Associate of such Affiliate, on the one hand, and any of the
Companies, on the other, will be paid in full, and each Seller will terminate
and will cause any such Affiliate or Associate to terminate each Contract with
any of the Companies except for any Contract that is to be entered into or
continued pursuant to the express terms of this Agreement. Prior to the Closing,
none of the Companies will enter into any Contract or amend or modify any
existing Contract, and will not engage in any transaction outside the ordinary
course of business consistent with past practice or not on an arm's-length basis
(other than pursuant to Contracts disclosed pursuant to Schedule 2.23 of the
Disclosure Schedule), with a Seller or any such Affiliate or Associate except
for any Contract that is to be entered into or continued pursuant to the express
terms of this Agreement.
(b) At or before the Closing, Sellers shall cause the
Companies to sell or otherwise distribute to the Sellers (in accordance with
Section 1.5(a)) the assets described in Schedule 1.5(a), and all of the Net
Operating Profit not previously distributed to the Sellers, computed in the
manner set forth in Section 1.5(b).
(c) At or before the Closing, Sellers shall cause AEC to
transfer to Barnette all of AEC's interests and forego any claims with respect
to prepaid memberships, deposits, tickets and interest in the Royal Automobile
Club, Harry's Bar, Mark's Club, Anna Bell's, British Red Cross 125 Society, The
Georgian Club, The Buckhead Club, Braves Baseball Tickets for 1996 only,
Sailfish Point and the Farm Golf Clubs.
(d) At or before the Closing, AEC shall enter into an
agreement in form and substance reasonably satisfactory to Barnette and
Purchaser, whereby Barnette (or an entity to be designated by Barnette) shall be
granted the right to use the video production facilities and personnel of AEC
located at its Atlanta, Georgia school location for a total of 500 hours within
three (3) years from the Closing, at no charge. Such use shall be at such
reasonable times, and may be subject to such reasonable conditions, as may be
agreed upon by Barnette and Purchaser, which times may include, without
limitation but subject to the normal operations of the educational curriculum,
usage after 4:00 p.m. on weekdays, and reasonable usage on weekends.
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4.9 Books and Records. On the Closing Date, Sellers will deliver
or make available to Purchaser at the offices of the Companies all of the Books
and Records, and if at any time after the Closing either of the Sellers
discovers in its possession or under its control any other Books and Records, it
will forthwith deliver such Books and Records to Purchaser.
4.10 Noncompetition.
(a) Each Seller will, for a period of three (3) years from the
Closing Date, refrain from, either alone or in conjunction with any other
Person, or directly or indirectly through its present or future Affiliates or
Associates of a Seller or his Affiliates:
(i) employing, engaging or seeking to employ or
engage any Person who within the prior twelve (12) months had been an officer or
employee of one or more of the Companies, other than Mark Barnette, William
Barnette, Al Braxton, and Karen Rodriguez, unless such officer or employee (A)
resigns voluntarily (without any solicitation from a Seller or any of his
Affiliates or any Associate of Seller or his Affiliates) or (B) is terminated by
any of the Companies after the Closing Date;
(ii) causing or attempting to cause (A) any
student, student outplacement source, referral source, client, customer or
supplier of any of the Companies to terminate or materially reduce its business
with the Companies or (B) any officer, employee or consultant of any of the
Companies to resign or sever a relationship with one or more of the Companies;
or
(iii) participating or engaging in (other than
through the ownership of five percent (5%) or less of any class of securities
registered under the Securities Exchange Act of 1934, as amended), or otherwise
perform consulting services or lending assistance (financial or otherwise) to
any Person participating or engaged in, any of the lines of business in which
any of the Companies is participating or engaged on the Closing Date in any
jurisdiction listed in Schedule 4.10, which are all of the jurisdictions in
which one or more of the Companies participates or engages in such line of
business on the Closing Date. Notwithstanding the foregoing, in the event that
Markert's employment with Purchaser is terminated without "cause" (as defined in
the Employment Agreement to be entered into between Markert and Purchaser) the
covenants and agreement set forth in this Section 4.10(a) shall as to Markert,
terminate and be of no further force and effect.
(b) Following the Closing, each Seller will refrain from,
either alone or in conjunction with any other Person, or directly or indirectly
through its present or future Affiliates or Associates of a Seller or his
Affiliates, disclosing (unless compelled by judicial or administrative process)
or using any confidential or secret information relating to any of the Companies
or any of their respective clients, customers or suppliers. The obligations
contained in this Section 4.10(b) shall survive for a period of five (5) years
following the Closing Date. The right to enforce a Seller's obligations under
this Section 4.10(b) are in addition to those rights the Purchaser and the
Companies have under the common law or applicable statutes for the protection of
trade secrets.
(c) The parties hereto recognize that the Laws and public
policies of the various states of the United States may differ as to the
validity and enforceability of covenants similar to those set forth in this
Section. It is the intention of the parties that the provisions of this Section
be enforced to the fullest extent permissible under the Laws and policies of
each jurisdiction in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such Laws or policies) of
any provisions of this Section shall not render unenforceable, or impair, the
remainder of the provisions of this Section.
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Accordingly, if any provision of this Section shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall be deemed to apply
only with respect to the operation of such provision in the particular
jurisdiction in which such determination is made and not with respect to any
other provision or jurisdiction.
(d) The parties hereto acknowledge and agree that any remedy
at Law for any breach of the provisions of this Section would be inadequate, and
each Seller hereby consents to the granting by any court of an injunction or
other equitable relief, without the necessity of actual monetary loss being
proved and without the necessity of posting a bond or other security, in order
that the breach or threatened breach of such provisions may be effectively
restrained.
(e) The Sellers acknowledge and agree that each of the
Companies shall be deemed a third party beneficiary of the obligations of
Sellers set forth in this Section, and that any one or more of the Companies
shall be entitled to enforce the obligations of Seller contained in this
Section.
4.11 Certain Obligations with respect to Life Insurance. Between
the date hereof and the Closing, Barnette will (i) purchase for their cash
surrender value all life insurance policies owned by AEC on Barnette's life; and
(ii) use his best efforts to cause the Companies to be released from any and all
obligations which are the subject of that certain Deferred Compensation
Agreement with Niklaus Weibel that is referenced in the Disclosure Schedule. In
connection with obtaining the aforementioned release from Niklaus Weibel the
Purchaser agrees that Barnette may cause the Companies to distribute to Niklaus
Weibel (or any other Person) any life insurance policies maintained by any of
the Companies on Niklaus Weibel's life.
4.12 Non-Affiliate Asset Distributions. Between the date hereof
and the Closing, the Sellers will cause title to the Ford Explorer used by
Manson Crumbley to be transferred to him without charge.
4.13 Use of Home Office Building. Purchaser shall cause AEC to
vacate its corporate office at 521 Village Trace, Building #10, Marietta,
Georgia, within ninety (90) days after the Closing and the parties hereto shall
cause the existing lease to be terminated without further obligation of tenant
and landlord to each other. The parties hereto acknowledge and agree that
Barnette intends to continue to conduct various business and personal activities
in said building. The parties will cooperate (and the Purchaser shall cause AEC
to cooperate) with each other to accommodate the activities of AEC, Purchaser
and Barnette. The receptionist employed by AEC will serve as the receptionist
for AEC and Barnette's activities during the continued occupancy of AEC, and
will be compensated by AEC without reimbursement from Barnette. AEC may occupy
the premises during the term, rent free, except AEC will pay all utilities,
including telephone, actual condominium fees, property taxes and insurance
(prorated), janitorial services, non-capital maintenance and repairs, during its
occupancy; provided, however, that such charges shall in no event exceed, in the
aggregate, the sum of $8,500 per month (prorated on a per diem basis for partial
months). Other than Purchaser's CEO, no person employed by Purchaser and AEC,
other than those currently employed by AEC and located in said building, shall
be moved into said building. Such employees and Purchaser's CEO shall be located
in such offices in said building as may be designated by Barnette.
4.14 Non-Affiliate Loan Repayments. At the Closing, the Sellers
shall direct the Purchaser to apply a sufficient portion of the Purchase Price
to retire Barnette's debt to Fidelity National Bank (not to exceed $500,000), to
retire Barnette's debt to Niklaus Weibel and his associates (not to exceed
$2,066,667) and to retire Markert's debt to Barnette (not to exceed $96,000).
4.15 Appointment of Special Counsel. Prior to or immediately upon
the execution of this Agreement, the Sellers have caused or shall cause the
Companies to hire the law firm of Dow, Lohnes &
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Albertson, at the sole expense of the Companies, to assist all parties in
obtaining the required approvals of SACS, the Department of Education and other
Governmental and Regulatory Authorities. In connection with such appointment,
the Sellers will cause Dow, Lohnes & Albertson to approach the U.S. Department
of Education and present the transactions contemplated by this Agreement
(without revealing the names of any parties) in order to confirm the absence of
any barriers to the Department of Education continuing or reissuing the License
of the Companies to participate in the Title IV, HEA programs, after Closing, on
a basis consistent with the current License of the Companies. The expense with
respect to such counsel is not to be included in determining the legal and
accounting expense described in Section 13.03 hereof.
4.16 Truth of Warranties, Representations, and Statements. No
representation or warranty of the Sellers contained in this Agreement or in the
documents, certificates and written statements furnished to Purchaser for use in
connection with the transactions contemplated hereby contains or shall contain
any untrue statement of a material fact, or omits or shall omit to state a
material fact necessary to make the statements and facts contained therein not
misleading or that would otherwise materially and adversely affect the business
of the Companies. All the statements, representations, and warranties made by
the Sellers in this Agreement and the attached Disclosure Schedule are true and
accurate in every material respect, and the Sellers have no information with
respect to any facts, circumstances, or conditions which do or would in any way
materially and adversely affect the truth of the above warranties and
representations or which, if not disclosed, would make the statements,
representations, or warranties herein, or in the attached Disclosure Schedule,
materially misleading. The Sellers shall have the obligation throughout the
period from the date of this Agreement through and including the Closing Date to
give Purchaser prompt written notice of the inaccuracy or change in any
representation or warranty made by the Sellers in Article II of this Agreement
or on any Disclosure Schedule attached hereto. On or before the Closing Date,
the Sellers shall provide Purchaser with any and all information or documents
relating to any event, transaction or circumstance, as soon as practicable after
it becomes Known to Seller, occurring after the date of this Agreement that will
render untrue any representation or warranty or Disclosure Schedule of the
Sellers contained in this Agreement and such notification shall be deemed to be
an update to the applicable representation, warranty, or schedule hereof without
the necessity of further action by Purchaser or Sellers. In the event that any
such information or documents should have been but were not previously disclosed
on the Disclosure Schedule hereto, or set forth material changes which,
individually or in the aggregate, materially adversely affect or may materially
adversely affect, the Companies and/or their operations, the Purchaser may elect
to terminate this Agreement as provided in Article XI hereof. Sellers
acknowledge and agree that any information, documents, or notices (including any
amendments, additions or supplements to the Disclosure Schedule) delivered to
Purchaser pursuant to this Section 4.16 shall be so delivered to and received by
Purchaser at least five Business Days prior to the Closing Date or Purchaser may
unilaterally extend the Closing Date to allow five Business Days to review the
same prior to the Closing.
4.17 Fulfillment of Conditions. Each Seller will execute and
deliver at the Closing each Operative Agreement that such Seller is required
hereby to execute and deliver as a condition to the Closing, will take all
commercially reasonable steps necessary or desirable and proceed diligently and
in good faith to satisfy each other condition to the obligations of Purchaser
contained in this Agreement and will not, and will not permit any of the
Companies to, take or fail to take any action that could reasonably be expected
to result in the nonfulfillment of any such condition.
4.18 Acknowledgment. EACH SELLER ACKNOWLEDGES AND AGREES THAT
EXCEPT FOR ANY WRITTEN WARRANTY EXPRESSLY SET FORTH IN THIS AGREEMENT ANY ASSET
BEING DISTRIBUTED, SOLD OR OTHERWISE CONVEYED TO A SELLER BY ANY ONE OR MORE OF
THE COMPANIES PURSUANT TO THE TERMS OF THIS AGREEMENT IS BEING SO DISTRIBUTED,
SOLD OR OTHERWISE CONVEYED WITHOUT ANY EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY OF
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ANY NATURE, KIND OR CHARACTER, AND ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE IS EXPRESSLY DISCLAIMED.
ARTICLE V
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Sellers that, at all times from and
after the date hereof until the Closing, Purchaser will comply with all
covenants and provisions of this Article V (and the applicable provisions of
Article IV), except to the extent Sellers may otherwise consent in writing.
5.1 Regulatory and Other Approvals. Purchaser will take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental or Regulatory Authorities or any
other Person required of Purchaser to consummate the transactions contemplated
hereby, including without limitation those described in Schedules 3.3 and 3.4
hereto and Sections 6.5, 6.6, 6.7, 7.5, and 7.6, provide such other information
and communications to such Governmental or Regulatory Authorities or other
Persons as Sellers or such Governmental or Regulatory Authorities or other
Persons may reasonably request of Purchaser in connection therewith and
cooperate with Sellers and the Companies as promptly as practicable in obtaining
all consents, approvals or actions of, making all filings with and giving all
notices to Governmental or Regulatory Authorities or other Persons required of
Sellers or any of the Companies to consummate the transactions contemplated
hereby and by the Operative Agreements. Purchaser will provide prompt
notification to Sellers when any such consent, approval, action, filing or
notice referred to in clause (a) above is obtained, taken, made or given, as
applicable, and will advise Sellers of any communications (and, unless precluded
by Law, provide copies of any such communications that are in writing) with any
Governmental or Regulatory Authority or other Person regarding any of the
transactions contemplated by this Agreement or any of the Operative Agreements.
5.2 Notice and Cure. Purchaser will notify Sellers in writing of,
and contemporaneously will provide Sellers with true and complete copies of any
and all information or documents relating to, and will use all commercially
reasonable efforts to cure before the Closing, any event, transaction or
circumstance, as soon as practicable after it becomes known to Purchaser,
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of Purchaser under this Agreement to be breached or that
renders or will render untrue any representation or warranty of Purchaser
contained in this Agreement as if the same were made on or as of the date of
such event, transaction or circumstance. Purchaser also will notify Sellers in
writing of, and will use all commercially reasonable efforts to cure, before the
Closing, any violation or breach, as soon as practicable after it becomes known
to Purchaser, of any representation, warranty, covenant or agreement made by
Purchaser in this Agreement, whether occurring or arising before, on or after
the date of this Agreement. No notice given pursuant to this Section shall have
any effect on the representations, warranties, covenants or agreements contained
in this Agreement for purposes of determining satisfaction of any condition
contained herein or shall in any way limit Sellers' right to seek indemnity
under Article X.
5.3 Closing and Post Closing Obligations of Purchaser.
(a) From and after the Closing, Purchaser agrees that it will
cause the Companies to provide scholarships to those individuals listed on
Schedule 5.3 of the Disclosure Schedule, should such
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individuals so desire. Such scholarships shall include all tuition, books,
regular dormitory accommodations and travel expenses germane to the educational
program of the student.
(b) Purchaser shall cause the Companies to erect and maintain
plaques in the main reception area of each school to recognize Thomas J. and
Helen Barnette as co-founders. Purchaser will also cause Paddington to be named
for Thomas J. Barnette and the auditorium in the building to be named Lattimore
Hall.
(c) Purchaser shall cause the lenders and lessors listed on
Schedule 5.3(c) to release Sellers from any and all guarantees and direct
obligations either or both have given or made on behalf of any of the Companies.
(d) Purchaser shall cause the Companies to honor, and the
Companies shall honor, all scholarships granted in the ordinary course of
business by the Companies prior to Closing, including scholarships that may not
be utilized until some period subsequent to the Closing, but in each case only
if and to the extent specifically disclosed in Schedule 2.30 of the Disclosure
Schedule.
(e) Purchaser shall cause AEC (or another one of the
Companies) to provide, and AEC (or another of the Companies) shall continue to
provide retirement compensation to the following individuals: Bill Nash - $100
per week; Luther Ross - $100 per week; William Lattimore - $1,000 per month;
Helen Lattimore - $1,000 per month.
(f) The Purchaser shall not permit the Companies, and the
Companies shall not reduce Manson Crumbley's current level of compensation under
any circumstances for at least twelve (12) months following the Closing.
(g) Purchaser shall cause ACIL to provide, and ACIL shall
provide, Barnette with free access to and free use of his office in London at
110 Marylebone High Street for a three (3) year period following the Closing.
All present furnishings and office furniture will remain in his office during
the three (3) year period. Purchaser will also appoint Barnette to serve as
"Chairman Emeritus" of the colleges operated by the Companies with reimbursement
for reasonable expenses and other benefits commensurate with other nonexecutive
directors for so long as Barnette shall be willing to serve in such capacity.
Barnette agrees to make himself available to serve in such position.
(h) Promptly after the Closing, Purchaser will cause the
Companies to cancel any prepaid insurance pertaining to any of the assets sold
or transferred to Barnette in accordance with this Agreement, and Purchaser will
Promptly remit to Barnette any premium refunds received with respect to such
canceled policies.
(i) Purchaser shall pay, or cause AEC to pay and satisfy in
full, all obligations arising under those certain equipment leases on equipment
in the corporate offices and aviation office transferred to Barnette, and to
further exercise any purchase options thereunder, so that such assets may be
transferred to Barnette at or before Closing free and clear of any and all
liens, but only if and to the extent the cost of all of the foregoing
obligations and purchase options does not exceed the sum of $ 30,000 in the
aggregate.
5.4 Acknowledgment of Barnette's Related Activities. Purchaser
acknowledges Barnette has initiated other business ventures to produce
television documentaries, seminars, lecture series, and related activities. Some
of the personnel of AEC, in addition to Barnette, have assisted in initiating
these new ventures and will continue to provide some assistance through the
Closing. Purchaser agrees to execute at
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Closing, and to cause AEC to execute at Closing, a general release to Barnette
and the other ventures to the effect that neither AEC nor the Purchaser shall
have any rights in said ventures or the products of said ventures, and are not
entitled to any reimbursement for the services of any of the employees of AEC
prior to Closing for any such activities nor for any other expenses related
thereto that may have been incurred by AEC; provided, that none of such expenses
are capital expenditures incurred after the date hereof.
5.5 Fulfillment of Conditions. Purchaser will execute and deliver
at the Closing each Operative Agreement that Purchaser is hereby required to
execute and deliver as a condition to the Closing, will take all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each other condition to the obligations of Sellers contained in this
Agreement and will not take or fail to take any action that could reasonably be
expected to result in the nonfulfillment of any such condition.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder to purchase the Sellers' Shares
are subject to the fulfillment, at or before the Closing, of each of the
following conditions (all or any of which may be waived in whole or in part by
Purchaser in its sole discretion):
6.1 Representations and Warranties. Each of the representations
and warranties made by the Sellers in this Agreement (other than those made as
of a specified date earlier than the Closing Date) shall be true and correct in
all material respects on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date, and any
representation or warranty made as of a specified date earlier than the Closing
Date shall have been true and correct in all material respects on and as of such
earlier date.
6.2 Performance. Each Seller shall have performed and complied
with, in all material respects, each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by such Seller at or
before the Closing.
6.3 Certificates. Each Seller shall have delivered to Purchaser a
certificate, dated the Closing Date and in form and substance reasonably
satisfactory to Purchaser and its legal counsel, confirming that the conditions
set forth in Sections 6.1 and 6.2 have been performed and including a statement
to the effect that such Seller is unaware (after reasonable inquiry) of any
breach of any warranty, representation, or covenant herein made by Purchaser,
except as specifically set forth therein.
6.4 Orders and Laws. There shall not be in effect on the Closing
Date any Order or Law restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement or any of the Operative Agreements or which could reasonably be
expected to otherwise result in a material diminution of the benefits of the
transactions contemplated by this Agreement or any of the Operative Agreements
to Purchaser, and there shall not be pending or threatened on the Closing Date
any Action or Proceeding or any other action in, before or by any Governmental
or Regulatory Authority which could reasonably be expected to result in the
issuance of any such Order or the enactment, promulgation or deemed
applicability to Purchaser, any of the Companies or the transactions
contemplated by this Agreement or any of the Operative Agreements of any such
Law.
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6.5 Regulatory Consents and Approvals.
(a) Subject to Section 6.5(b) below, all consents, approvals
and actions of, filings with and notices to any Governmental or Regulatory
Authority necessary to permit Purchaser and Sellers to perform their obligations
under this Agreement and the Operative Agreements and to consummate the
transactions contemplated hereby and thereby (without any loss of or adverse
affect on the Licenses described in Section 2.21) shall have been duly obtained,
made or given, shall be in form and substance reasonably satisfactory to
Purchaser, shall not be subject to the satisfaction of any condition that has
not been satisfied or waived and shall be in full force and effect.
(b) The parties acknowledge and agree that after the Closing
the Companies' continued participation in the Title IV, HEA programs
administered by the Department of Education will require the Purchaser and/or
the Companies to make certain post-Closing filings with the Department of
Education in order to obtain a continuation or reissuance of the current License
of the Companies to participate in such programs. Notwithstanding the inability
to obtain a continuation or reissuance of such License prior to the Closing, the
parties acknowledge and agree that as a condition to Purchaser's obligation to
purchase the Sellers' Shares the Purchaser must receive written assurance (in
form and substance acceptable to Purchaser's legal counsel) from the legal
counsel referenced in Section 4.15 that there are no significant barriers to the
Department of Education continuing or reissuing the License of the Companies to
participate in the Title IV, HEA programs on a basis consistent with the current
License of the Companies.
6.6 SACS Consent and Approval. The approval of SACS to the
Purchaser's acquisition of the Seller's Shares, and the agreement of SACS to the
maintenance of the accreditation of the educational institution operated by AEC
(a) shall have been obtained, (b) shall be in form and substance reasonably
satisfactory to Purchaser, (c) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (d) shall be in full force
and effect. Such approval executed by the Executive Director of SACS (acting in
such capacity and on behalf of SACS) shall satisfy the condition set forth in
this Section 6.6.
6.7 Third Party Consents.
(a) The consents (or in lieu thereof waivers) listed in
Schedule 6.7 of the Disclosure Schedule, and all other consents (or in lieu
thereof waivers) to the performance by Purchaser and Sellers of their
obligations under this Agreement and the Operative Agreements or to the
consummation of the transactions contemplated hereby and thereby as are required
under any Contract to which Purchaser, a Seller or any of the Companies is a
party or by which any of their respective Assets and Properties are bound (a)
shall have been obtained, (b) shall be in form and substance reasonably
satisfactory to Purchaser, (c) shall not be subject to the satisfaction of any
condition that has not been satisfied or waived and (d) shall be in full force
and effect, except where the failure to obtain any such consent (or in lieu
thereof waiver) could not reasonably be expected, individually or in the
aggregate with other such failures, to materially adversely affect Purchaser or
the Business or the Condition of the Companies or otherwise result in a material
diminution of the benefits of the transactions contemplated by this Agreement
and the Operative Agreements to Purchaser.
(b) Without limiting the obligations set forth in Section
6.7(a) Sellers shall obtain, in accordance with Section 6.7(a), the consent of
MB to the direct or indirect transfer to Purchaser of the limited liability
company interests in AEMEC as provided for in this Agreement.
6.8 Opinion of Counsel. Purchaser shall have received the
opinion of Arnall, Golden & Gregory, counsel to Seller and the Companies, dated
the Closing Date, substantially in the form and to such
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effect as Purchaser and its legal counsel may reasonably request. Purchaser
shall also have received a reliance letter from Arnall, Golden & Gregory
authorizing any financial institution extending acquisition financing to
Purchaser to rely on such opinion.
6.9 Good Standing Certificates. Seller shall have delivered to
Purchaser (a) copies of the certificates or articles of incorporation (or other
comparable corporate charter documents), including all amendments thereto, of
each of the Companies certified by the Secretary of State or other appropriate
official of the jurisdiction of incorporation, (b) certificates from the
Secretary of State or other appropriate official of the respective jurisdictions
of incorporation to the effect that each of the Companies is in good standing or
subsisting in such jurisdiction, listing all charter documents of such Companies
on file and attesting to its payment of all franchise or similar Taxes, and (c)
a certificate from the Secretary of State or other appropriate official in each
jurisdiction in which the Companies are qualified or admitted to do business to
the effect that the applicable of the Companies is duly qualified or admitted
and in good standing in such jurisdiction.
6.10 Resignations of Directors and Officers. Such members of the
boards of directors and such officers of the Companies as are designated in a
written notice delivered at least two (2) Business Days prior to the Closing
Date by Purchaser to Sellers shall have tendered, effective at the Closing,
their resignations as such directors and officers.
6.11 Financial Covenants. The annual lease liabilities of the
Companies for all property other than real estate shall not exceed in the
aggregate, as of the Closing, the limits set forth in Schedule 6.11, plus such
non-real estate capital lease obligations as were incurred subsequent to May 31,
1996, in the ordinary course of business (and within the limits set forth in
Section 4.7) to finance equipment acquisitions for the Companies, and the total
debt of the Companies will not exceed, in the aggregate, as of the Closing, the
amount set forth on in the Unaudited Financial Statements, plus such debt as was
incurred subsequent to May 31, 1996, in the ordinary course of business,
including the amount referred to in Section 1.6 (and within the limits set forth
in Section 4.7), to finance the day-to-day operations of the Companies and the
acquisition of equipment and other materials for the Companies, or as permitted
by the further provisions of this Agreement.
6.12 Employment Agreements.
(a) William Barnette shall have executed and delivered to AEC
an employment agreement, in form and substance reasonably satisfactory to
Purchaser and William Barnette, which shall provide for (i) a term of five (5)
years; (ii) a prohibition against termination without cause prior to the third
year; (iii) one (1) year's severance if the employment agreement is terminated
during the third through fifth year without cause; and (iv) an annual
compensation of One Hundred Thousand and 00/100 Dollars ($100,000).
(b) Phillip Markert shall have executed and delivered to AEC,
an employment agreement, in form and substance reasonably satisfactory to
Purchaser and Markert, which shall provide for (i) a term of five (5) years;
(ii) two (2) years' severance if such agreement is terminated without cause; and
(iii) annual compensation of Two Hundred Thousand and 00/100 Dollars ($200,000).
(c) Rafael Lago shall have executed and delivered to AEC an
employment agreement, in form and substance reasonably satisfactory to
Purchaser, which shall provide for (i) a term of five (5) years; (ii) a minimum
notice of eighteen (18) months or the remaining duration of the five (5) year
employment agreement if such employment agreement is terminated without cause;
(iii) annual compensation of One Hundred Eighty Five Thousand and 00/100 Dollars
($185,000); and (iv) an additional Five Thousand 00/100 Dollars ($5,000) per
year in miscellaneous benefits of Rafael Lago's choosing.
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(d) Suzanne McBride shall have executed and delivered to AEC
an employment agreement, in form and substance reasonably satisfactory to
Purchaser, which shall provide for (i) a term of five (5) years; (ii) minimum
notice of one (1) year or the remaining duration of the five (5) year employment
agreement if such employment agreement is terminated without cause; and (iii)
annual compensation equal to her compensation immediately prior to Closing.
(e) Each of the employment agreements referenced in this
Section 6.12 shall provide for standard company benefits with William Barnette,
Phillip Markert and Rafael Lago receiving such other or additional benefits as
are commensurate with each other and the other executive officers of AEC. Each
of the employment agreements referenced in this Section 6.12 shall also contain
noncompetition covenants in favor of the Companies which shall survive any
employment termination for any reason, but will expire upon the final payment of
any severance obligations payable for any termination without cause.
6.13 Proceedings. All proceedings to be taken on the part of Seller in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchaser, and Purchaser shall have received copies of all such
documents and other evidences as Purchaser may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
6.14 License of Logo. Barnette shall have entered into an agreement
with the Companies whereby Barnette shall agree to allow the Companies to use
the logo distributed to Barnette (i.e. a shield with an eagle on it) for a
period of three (3) years after the Closing, at no charge.
6.15 Consulting Agreements.
(a) Barnette shall have executed and delivered to AEC, a
consulting agreement, in form and substance reasonably satisfactory to
Purchaser, which shall provide for Barnette to render consultation services from
the Closing Date until December 31, 1999, in consideration of a total payment of
Three Hundred Fifty Thousand and 00/100 Dollars ($350,000) to be paid in equal
monthly installments of Nine Thousand Seven Hundred Twenty Two and 22/100
Dollars ($9,722.22). Such installments shall begin on January 5, 1997, with each
subsequent installment to be paid by the fifth (5th) calendar day of each
succeeding month and with the last installment to be paid on December 5, 1999.
(b) AEC and a consulting company which is owned and controlled by
William Barnette shall have also entered into a Consulting Agreement, in form
and substance reasonably satisfactory to Purchaser, pursuant to which the
consulting company shall provide consultation services to AEC and the Companies
in consideration of Seventy Five Thousand and 00/100 Dollars ($75,000) per year.
Such consulting agreement shall have a term of five (5) years and cannot be
terminated without cause prior to the third (3rd) year. Such consulting
agreement shall also provide for one (1) year's severance if such consulting
agreement is terminated during the third (3rd) through fifth (5th) year without
cause.
(c) AEC and a consulting company which is owned and controlled by
Markert shall have entered into a consulting agreement, in form and substance
reasonably satisfactory to Purchaser, pursuant to which the consulting company
shall provide consultation services to AEC and the Companies in consideration of
Twenty Eight Thousand and 00/100 Dollars ($28,000) per year payable quarterly.
Such consulting agreement shall provide for a term of five (5) years and two (2)
years' severance if such consulting agreement is terminated without cause.
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers hereunder to sell the Sellers' Shares are
subject to the fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part by Seller in
its sole discretion):
7.1 Representations and Warranties. Each of the representations
and warranties made by Purchaser in this Agreement shall be true and correct in
all material respects on and as of the Closing Date as though such
representation or warranty was made on and as of the Closing Date.
7.2 Performance. Purchaser and the Companies shall have performed
and complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
Purchaser and the Companies at or before the Closing.
7.3 Officers' Certificates. Purchaser shall have delivered to
Sellers a certificate, in form and substance reasonably satisfactory to Sellers
and their legal counsel, dated the Closing Date and executed by the Chairman of
the Board, the President or any Executive or Senior Vice President of Purchaser,
confirming that the conditions set forth in Sections 7.1 and 7.2 have been
performed and including a statement to the effect that the Purchaser is unaware
(after reasonable inquiry) of any breach of any warranty, representation, or
covenant herein made by Sellers, except as specifically set forth in such
certificate, including, without limitation, any representation, warranty, or
covenant dealing with financial matters, and distributions from any of the
Companies to either of the Sellers. Purchaser shall have also delivered to
Sellers a certificate, in form and substance reasonably satisfactory to Sellers
and their legal counsel, dated as of the Closing Date and executed by the
Secretary or Assistant Secretary of Purchaser, confirming the authority and
incumbency of the officers of the Purchaser who are effecting the transactions
contemplated by this Agreement.
7.4 Orders and Laws. There shall not be in effect on the Closing
Date any Order or Law that became effective after the date of this Agreement
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement or any of
the Operative Agreements.
7.5 Regulatory Consents and Approvals. Subject to Section 6.5(b),
all consents, approvals and actions of, filings with and notices to any
Governmental or Regulatory Authority necessary to permit Sellers and Purchaser
to perform their obligations under this Agreement and the Operative Agreements
and to consummate the transactions contemplated hereby and thereby (a) shall
have been duly obtained, made or given, (b) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (c)
shall be in full force and effect.
7.6 Third Party Consents. All consents (or in lieu thereof
waivers) to the performance by the Sellers of their obligations hereunder and to
the consummation of the transactions contemplated hereby as are required under
the Contracts listed in Schedule 7.6 of the Disclosure Schedule (a) shall have
been obtained, (b) shall not be subject to the satisfaction of any condition
that has not been satisfied or waived and (c) shall be in full force and effect.
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7.7 Opinion of Counsel. Seller shall have received the opinion of
Smith, Gambrell & Russell, counsel to Purchaser, dated the Closing Date,
substantially in the form and to such effect as Sellers and their legal counsel
may reasonably request.
7.8 Employment Agreements. AEC shall have executed the Employment
Agreements and delivered the same to William Barnette, Markert, Suzanne McBride
and Rafael Lago. AEC shall also enter into a letter agreement or some other
acceptable agreement with Graham Carter, whereby AEC shall agree to pay Mr.
Carter a severance payment equal to six months of his salary in effect as of May
31, 1996, in the event that his employment with AEC is terminated without cause
(as defined in the Employment Agreements), within two (2) years after Closing.
7.9 Proceedings. All proceedings to be taken on the part of
Purchaser in connection with the transactions contemplated by this Agreement and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Sellers, and Sellers shall have received copies of all such
documents and other evidences as Seller may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
7.10 Release from Guarantees. The lenders and lessors listed on
Schedule 5.3(c) shall have released Sellers from any and all guarantees and
direct obligations either or both of them have given or made on behalf of any of
the Companies, or the Sellers shall be satisfied, in their reasonable
discretion, that such releases will be obtained by Purchaser promptly and
expeditiously after the Closing.
7.11 Consulting Agreements. AEC shall have executed and delivered
to Barnette, and AEC and the two consulting companies referenced in Section 6.15
shall have executed and delivered to each other, the consulting agreements
described in Section 6.15.
ARTICLE VIII
TAX MATTERS AND POST-CLOSING TAXES
8.1 Tax Sharing Agreements. Any Tax sharing agreement to which any
of the Sellers or the Companies is a party shall be terminated as of the Closing
Date and will have no further effect for any taxable year or period following
the Closing Date.
8.2 Certain S. Corporation Tax Items. Sellers shall prepare and
file all unfiled federal and state income tax returns treating AEC as an S
Corporation pursuant to the Code for federal income tax purposes and for all
state income tax purposes (the "S Corporation Returns") for AEC for all periods
ending on or before the Closing Date (the "Pre-Closing Period"). Purchaser shall
make available to Sellers any and all information reasonably requested by them
to allow Sellers to prepare such returns. With respect to any such S Corporation
Return, the Seller shall provide the Purchaser and its authorized
representatives with a copy of such completed S Corporation Return and a
statement (including all necessary supporting schedules and information required
to support such statement) that certifies and sets forth the calculation of the
amount of Tax shown on such S Corporation Return at least 30 days prior to the
due date (including any extension thereof) for the filing of such S Corporation
Return, and the Purchaser and its authorized representatives shall have the
right to review such S Corporation Return and statement (including any
supporting schedules or other documents relevant thereto) prior to the filing of
such S Corporation Return. The Sellers and the Purchaser agree to consult and to
attempt in good faith to resolve any issues arising as a result of the review of
such S Corporation Return and statement by the Purchaser or its authorized
representatives. Subject to the
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foregoing right of review, consultation and resolution of disputed items,
Purchaser shall cause AEC to file such S Corporation with the Internal Revenue
Service and with the appropriate state agencies. The Sellers shall control and
have final decision making authority with respect to any audit relating to the
Pre-Closing Period S Corporation Returns for all matters which involve taxes
imposed on the Shareholders. Any Shareholder level taxes in respect of the
Pre-Closing Period S Corporation Returns including any audit adjustments thereto
shall be the sole obligation of Sellers, provided that any audit adjustment with
respect to a Pre-Closing Period S Corporation Return which increases the tax
liability of Sellers and which results in a future tax benefit of AEC or
Purchaser in a tax period ending after the Pre-Closing Period shall give rise to
a repayment obligation by Purchaser in the amount of such tax benefit. Payment
of the amount of such benefit or benefits to Sellers shall be made by Purchaser
on or before the due date of Purchaser's or AEC returns for the years in which
such benefits are available to be claimed by Purchaser or AEC.
8.3 Cooperation on Tax Matters.
(a) Purchaser, the Companies and Sellers shall cooperate
fully, as and to the extent reasonably requested by any other party, in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Companies and Sellers agree (i) to retain all
books and records with respect to Tax matters pertinent to the Companies
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Purchaser or Seller, any extensions thereof) of the respective taxable periods,
and to abide by all record retention agreements entered into with any taxing
authority, and (ii) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, the Companies or Sellers, as the case may be, shall
allow the other party to take possession of such books and records.
(b) Purchaser and Sellers further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANT AND AGREEMENTS
9.1 Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any right of Purchaser (whether or not exercised) to
investigate the affairs of the Companies or any right of any party (whether or
not exercised) to investigate the accuracy of the representations and warranties
of the other party contained in this Agreement, Seller and Purchaser have the
right to rely fully upon the representations, warranties, covenants and
agreements of the other contained in this Agreement. The representations,
warranties, covenants and agreements of Seller and Purchaser contained in this
Agreement will survive the Closing as follows: (a) indefinitely with respect to
the representations and warranties contained in Sections 2.2, 2.3, 2.4, 2.5, 2.6
(but only insofar as it relates to the capital stock of the Companies), 2.30,
2.31, 3.2 and 3.7 and the covenants and agreements contained in Sections 13.3
and 13.6, (b) until sixty (60) days after the expiration of all applicable
statutes of limitation (including all periods of extension, whether automatic or
permissive) with respect to matters covered by (i) Section 2.13 and Article
VIII, and (ii) Section 2.16 and
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Article X (insofar as Section 2.16 and Article X relate to ERISA or the Code),
(c) until the second anniversary of the date that AEC files its federal income
tax returns for the taxable year in which the Closing occurs in the case of all
other representations and warranties and any covenant or agreement to be
performed in whole or in part on or prior to the Closing, or (d) with respect to
each other covenant or agreement contained in this Agreement, until sixty (60)
days following the last date on which such covenant or agreement is to be
performed or otherwise terminates in accordance with its terms or, if no such
date is specified, indefinitely, except that any representation, warranty,
covenant or agreement that would otherwise terminate in accordance with clause
(b), (c), or (d) above will continue to survive if a Notice of Claim shall have
been timely given under Article X on or prior to such termination date, until
the related claim for indemnification has been satisfied or otherwise resolved
as provided in Article X.
ARTICLE X
INDEMNIFICATION
10.1 Not Applicable to Termination. The provisions in this Article
X with respect to indemnification shall not provide any of the parties hereto,
their officers, directors, employees, or stockholders, with any rights for
damages, losses, or expenses of any kind relating to the failure, refusal, or
inability of the transactions herein contemplated to be closed on or before the
Closing Date (as extended pursuant to the further provisions hereof), as all
such rights, if any, shall be governed by the provisions of Section 11.2.
10.2 Indemnification by Sellers. For a period commencing on the
Closing Date and ending at the time specified in Section 9.1 hereof that is
applicable to the particular matter in question, each of the Sellers hereby
jointly and severally covenants and agrees to fully and completely defend,
indemnify and hold harmless Purchaser and the Companies and any of their
respective successors or assigns (and any of their respective shareholders,
directors, officers, employees, agents, Affiliates and principals) from and
against any and all claims, losses, liabilities, costs, expenses, payments,
damages, or deficiencies (including reasonable attorneys' fees) of every nature,
kind or character (collectively the "Damages") asserted, paid, or incurred by,
or levied or assessed against, Purchaser, any of the Companies, or any of their
respective successors or assigns, or any of their respective shareholders,
directors, officers, employees, agent, Affiliates, or principals, resulting from
or arising in connection with any of the following matters:
(a) Liabilities or obligations existing as of May 31, 1996,
and which, under GAAP (to be applied without any materiality limitations),
should have been accrued or reserved for on a balance sheet or the notes thereto
as a liability or obligation if and to the extent that the same were not accrued
or reserved for as liabilities on the May 31, 1996, balance sheet included as a
part of the Unaudited Financial Statements, or which were not disclosed in the
Disclosure Schedule (without regard to any materiality limitations), or which
were not subject to computation in a manner consistent with past practice as a
result of disclosures in the Disclosure Schedule hereto;
(b) Liabilities or obligations arising out of any breach by
any of the Companies prior to Closing of any provision of any agreement,
Contract (written or unwritten), commitment, or lease (except with respect to
any liabilities or obligations disclosed in the Disclosure Schedule or otherwise
expressly set forth in this Agreement) not accrued or reserved for in the May
31, 1996, balance sheet included as a part of the Unaudited Financial Statements
or that are to be satisfied at or immediately after Closing in accordance with
the terms of this Agreement;
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(c) Any breach of any representation or warranty on the part
of a Seller contained in or made pursuant to this Agreement or in any
certificate, schedule, exhibit furnished by a Seller in connection herewith or
therewith, and for purposes of this clause (c) any qualification of such
representations and warranties by reference to the materiality of matters stated
therein, shall be disregarded, in determining any inaccuracy, untruth,
incompleteness or breach thereof; provided, however, that if such breach or
failure is known by the Purchaser as of the Closing, and reflected on the
certificate discussed in Section 7.3 hereof, such breach or failure shall not
give rise to a right of indemnification hereunder;
(d) Any breach or failure to perform any covenant or agreement
on the part of a Seller contained in this Agreement or any instrument or
document furnished by a Seller in connection herewith; provided, however, that
if such breach or failure is known by the Purchaser as of the Closing, and
reflected on the certificate discussed in Section 7.3 hereof, such breach or
failure shall not give rise to a right of indemnification hereunder; or
(e) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs, and expenses (including reasonable attorneys'
fees) suffered or incurred by Purchaser as a result of or in connection with any
matter or item listed and described in the foregoing subparagraphs (a) through
(d) of this Section 10.2.
10.3 Indemnification by Purchaser. For a period commencing on the
Closing Date and ending at the time specified in Section 9.1 hereof that is
applicable to the particular matter in question, Purchaser hereby agrees to
indemnify and hold harmless Sellers from and against any Damages as a result of
the following matters:
(a) Any financial obligations of Purchaser and the Companies
incurred in the operation of the Companies arising or accruing after the Closing
Date, including obligations arising under contractual obligations of the
Companies, which obligations include, without limitation, contracts between the
Companies and Floyd McRae & Company, and contractual obligations guaranteed by
either Seller, which guarantees are not released at or before Closing;
(b) Any breach by Purchaser of any of the representations,
warranties, or covenants made by Purchaser in this Agreement, including, without
limiting the foregoing, the satisfaction of any and all obligations of the
Companies guaranteed by either of the Sellers; provided, however, that if such
breach or failure is known by either Seller as of the Closing, and reflected on
the certificate discussed in Section 6.3 hereof, such breach or failure shall
not give rise to a right of indemnification hereunder;
(c) Any misrepresentation contained in any Exhibit,
certificate, or other document or instrument delivered to the Seller by
Purchaser in accordance with any provision of this Agreement;
(d) Any claim asserted by any employee or former employee of
the Companies relating to or arising from any action by Purchaser, or failure to
act by Purchaser, on or after the Closing Date (except for claims directly
arising from any contract, dispute or other fact or circumstance that preceded
Closing but was not properly disclosed to Purchaser within the Disclosure
Schedule or otherwise pursuant to Section 4.16); and
(e) Any claims, liabilities, causes of action, or damages
resulting from the operation of the Companies subsequent to Closing which are in
no way caused or resulting from the operation of the Companies prior to Closing;
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(f) Any State of Georgia sales tax (together with any
interest, penalties, or other charges associated therewith, all of which shall
be grossed up for any income taxes imposed upon Sellers as a result of their
receipt of such amounts) that is properly imposed on either of the Sellers with
respect to the transfer of any of the assets of the Companies to such Seller in
accordance with the terms of this Agreement;
(g) Any claim for any investment banking or brokerage fee
(including, but not limited to, any fees payable to the Robinson-Humphrey
Company) incurred by Purchaser in connection with the consummation of the
transactions contemplated herein; or
(h) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs, and expenses (including reasonable attorneys'
fees) suffered or incurred by sellers as a result of or in connection with any
matter or item listed and described in the foregoing Subparagraphs (a) through
(g) of this Section 10.3.
10.4 Limitations on Indemnification. The indemnification
obligations of the Sellers under this Article X shall only be applicable when
Damages are incurred which exceed, in the aggregate, the sum of Five Hundred
Thousand and 00/100 Dollars ($500,000) (the "Basket Amount") and shall only be
applicable to the extent that any such Damages exceed the Basket Amount.
Furthermore, notwithstanding anything else in this Agreement to the contrary,
the indemnifications provided by Sellers hereunder that are applicable to the
Companies generally shall be pro rata in that Barnette shall be responsible for
90% and Markert for 10%, and the indemnification of a breach by only one Seller
shall be the exclusive obligation of such Seller. Moreover, the benefits of the
Basket Amount shall be similarly allocated between Barnette and Markert on a
90/10 percent basis. Notwithstanding the foregoing, the maximum indemnification
obligation of Barnette hereunder shall not exceed $1,800,000 and that of Markert
shall not exceed $200,000, in each case in excess of the Basket Amount.
10.5 Indemnification Procedure.
(a) The party to be indemnified hereunder (the "Indemnitee")
shall give prompt written notice to the party from whom indemnification is
sought (the "Indemnitor") of the assertion of a claim for indemnification (such
written notice referred to as the "Notice of Claim"), but in no event later than
(i) fifteen (15) days after service of process in the event litigation is
commenced against the Indemnitee by a third party, or (ii) thirty (30) days
after the assertion of such claim. If the Indemnitee fails to give a Notice of
Claim within the time periods set forth in the immediately preceding sentence,
the Indemnitee shall nonetheless be entitled to be indemnified hereunder to the
extent (but only to the extent) that the Indemnitor has not been prejudiced by
such failure. Each Notice of Claim shall describe in reasonable detail and in
good faith the facts and circumstances upon which the asserted claim for
indemnification is based. The Indemnitee shall consult regularly with the
Indemnitor with respect to the payment, settlement or defense of any claim,
action, suit, proceeding or demand.
(b) If any action or proceeding shall be brought in connection
with any liability or claim to be indemnified hereunder, the Indemnitee shall
provide the Indemnitor a period of twenty (20) days to decide whether to defend
such liability or claim. During such period the Indemnitee shall take all
necessary steps to protect the interests of itself and the Indemnitor, including
the filing of necessary responsive pleadings, the seeking of emergency relief or
other action necessary to maintain the status quo, subject to reimbursement from
the Indemnitor of its expense in doing so. The Indemnitor shall defend such
action or proceeding at its expense, using counsel selected by any insurance
company insuring against any such claim and undertaking to defend such claim, or
by other counsel selected by it and approved by the Indemnitee, which approval
shall not be unreasonably withheld or delayed. The Indemnitor shall keep the
Indemnitee
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fully apprised at all times as to the status of the defense and shall consult
with the Indemnitee prior to the settlement of any indemnified matter and will
not settle or otherwise compromise the same without the Indemnitee's consent
(which shall in any event not be unreasonably withheld) unless there is no
finding or admission of any violation of law by the Indemnitee or any violation
of the rights of any person by the Indemnitee and no effect on any other claims
that may be made against the Indemnitee and the sole relief provided is monetary
damages that are paid in full by the Indemnitor. Indemnitee shall have the
option, at its expense, of participating in the defense of any such action or
proceeding. In the event the Indemnitor does not notify the Indemnitee whether
the Indemnitor will defend such liability or claim within twenty (20) days after
receipt of Indemnitee's Notice of Claim (or if Indemnitor abandons the defense
of such claim), the Indemnitee shall have the right to defend the claim at
Indemnitor's expense with counsel of its own choosing reasonably satisfactory to
Indemnitor, subject to the right of the Indemnitor to assume the defense of any
claim at any time prior to settlement or final determination thereof. In such
event the Indemnitee shall send a written notice to Indemnitor of any proposed
settlement of any claim, which settlement the Indemnitor may reject, in its
reasonable judgment, within thirty (30) days of receipt of such notice. Failure
to reject such notice within such thirty (30) day period shall be deemed an
acceptance of such settlement. The Indemnitee shall have the right to settle any
such claim over the objection of the Indemnitor, provided that the Indemnitee
waives any right to indemnify therefor, but such waiver shall occur only if (i)
the Indemnitor is contesting such claim in good faith, or (ii) the Indemnitor
has assumed the defense from the Indemnitee.
(c) Notwithstanding the subsection (b) above, if there is a
reasonable probability that a third party claim for which a Seller has granted
indemnification rights to Purchaser hereunder will materially and adversely
affect Purchaser or the Companies or its business to be carried after the
Closing Date other than as a result of money damages or other payments Purchaser
shall be entitled to conduct the defense of such claim at Seller's expense.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written
agreement of Barnette and Purchaser;
(b) at any time before the Closing, by either Barnette or
Purchaser, in the event (i) a representation of the nonterminating party, proves
to be untrue in some material, adverse respect; (ii) of a material breach of a
covenant or agreement set forth herein by the non-terminating party if such non-
terminating party fails to cure such breach within five (5) Business Days
following notification thereof by the terminating party (and prior to September
30, 1996, in any event), or (iii) upon notification of the non terminating party
by the terminating party that the satisfaction of any condition to the
terminating party's obligations under this Agreement becomes impossible or
impracticable with the use of commercially reasonable efforts if the failure of
such condition to be satisfied is not caused by the terminating party; or
(c) at any time after September 30, 1996, by either Barnette
or Purchaser upon notification of the non-terminating party by the terminating
party if the Closing shall not have occurred on or before such date.
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11.2 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 11.1, this Agreement will forthwith become null and void,
and there will be no liability or obligation on the part of Sellers or Purchaser
(or any of their respective officers, directors, employees, agents or other
representatives or Affiliates), except as provided in Section 11.2(a) and the
provisions with respect to confidentiality in Section 13.5 will continue to
apply following any such termination, except as follows:
(a) If Purchaser terminates this Agreement on or before the
Closing Date because a representation or warranty of a Seller proves to be
untrue in some material adverse respect, or because of a breach of a material
covenant of a Seller, which breach is not cured within the applicable cure
period set forth in Section 11.1(b) above, or the failure of one or both of the
Sellers to fulfill any obligation required to be fulfilled by them prior to the
Closing, then Purchaser shall be entitled to receive from the Sellers, an amount
equal to the lesser of (i) all of the out-of-pocket costs and expenses incurred
by Purchaser (or Steve Bostic) in connection with the transactions contemplated
by this Agreement, including without limitation, legal fees, loan commitment
fees and travel expenses, or (ii) Five Hundred Thousand Dollars ($500,000). Such
amount shall be paid to Purchaser in the form of a promissory note from Sellers
to Purchaser, to be paid in full on or before the first anniversary date of such
termination. Such promissory note shall bear interest at the same rate as is
provided for in the loan which is the subject of the Letter Agreement. Sellers
shall also be required to use their best efforts to cause Purchaser and Steven
Bostic to be released from all liability as a guarantor or otherwise, pertaining
to that certain loan to AEC by NationsBank described more specifically in
Section 1.6 hereof.
(b) If Purchaser terminates this Agreement for any other
reason, Purchaser shall not be entitled to reimbursement from Sellers, for any
expenses or damages suffered as a result of such termination, whether liquidated
damages or otherwise.
(c) If either Seller terminates this Agreement for any reason,
including Purchaser's breach of any warranty, representation or covenant
contained in this Agreement, Sellers shall not be entitled to any legal or
equitable remedy, including any claim for reimbursement from Purchaser for any
expenses or damages suffered as a result of such termination. The Sellers have
agreed to this Section 11.2(c) in consideration of the obligations of Purchaser
and Steve Bostic set forth in the Letter Agreement referenced in Section 1.6.
(d) Other than as set forth in this Section 11.2, the parties
shall have no right to damages or any other claims arising out of the
termination of this Agreement.
ARTICLE XII
DEFINITIONS
12.1 Definitions.
(a) Defined Terms. As used in this Agreement, the
following defined terms have the meanings indicated below:
"Acquisition Proposal" means any proposal for a merger or other
business combination to which any of the Companies is a party or the direct or
indirect acquisition of any equity interest in, or a substantial portion of the
assets of, any of the Companies, other than the transactions contemplated by
this Agreement.
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"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit, but
excluding in each case any of the foregoing matters that arise under the laws of
any of the United Arab Emirates, including Dubai, or any political subdivision
thereof.
"Affiliate" means any Person that directly, or indirectly through one
of more intermediaries, controls or is controlled by or is under common control
with the Person specified. For purposes of this definition, control of a Person
means the power, direct or indirect, to direct or cause the direction of the
management and policies of such Person whether by Contract or otherwise and, in
any event and without limitation of the previous sentence, any Person owning
fifty percent (50%) or more of the voting securities of another Person shall be
deemed to control that Person.
"Agreement" means this Stock Purchase Agreement and the Exhibits, the
Disclosure Schedule and the Schedules hereto and the certificates delivered in
accordance with Sections 6.3 and 7.3, as the same shall be amended from time to
time.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including without limitation
cash, cash equivalents, Investment Assets, accounts and notes receivable,
chattel paper, documents, instruments, general intangibles, real estate,
equipment, inventory, goods and Intellectual Property.
"Associate" means, with respect to any Person, any corporation or other
business organization of which such Person is an officer or partner or is the
beneficial owner, directly or indirectly, of fifty percent (50%) or more of any
class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Audited Financial Statements" has the meaning ascribed to it in
Section 2.10(a).
"Basket Amount" has the meaning ascribed to it in Section 10.4.
"Benefit Plan" means any Plan established by any of the Companies, or
any predecessor or Affiliate of any of the foregoing, existing at the Closing
Date or prior thereto, to which any of the Companies contributes or has
contributed, or under which any employee, former employee or director of any of
the Companies or any beneficiary thereof is covered, is eligible for coverage or
has benefit rights.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of the Companies,
including without limitation financial statements, Tax Returns and related work
papers and letters from accountants, budgets, pricing guidelines, ledgers,
journals, deeds, title policies, minute books, stock certificates and books,
stock transfer ledgers, Contracts, Licenses, customer lists, computer files and
programs, retrieval programs, operating data and plans and environmental studies
and plans.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of Georgia are authorized or obligated to
close.
"Business or Condition of the Companies" means the business, condition
(financial or otherwise), results of operations, Assets and Properties and
prospects of the Companies taken as a whole.
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"Closing" means the closing of the transactions contemplated by Section
1.4.
"Closing Date" has the meaning ascribed to it in Section 1.4.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Companies" means AEC, AEMEC, ACIL, and each Subsidiary.
"Contract" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract (in each
case written unless oral contracts are expressly referenced in the Agreement).
"Damages" has the meaning ascribed to it in Section 10.2.
"Defined Benefit Plan" means each Benefit Plan which is subject to Part
3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.
"Disclosure Schedule" means the record delivered to Purchaser by
Sellers herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein by Sellers pursuant to this Agreement, including any
amendment thereof or supplement thereto which is effected pursuant to Section
4.16.
"Employment Agreements" has the meaning ascribed to it in Section 6.14.
"Environmental Law" means any Law or Order relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is in the same controlled group
of corporations or who is under common control with a Seller or, before the
Closing, any of the Companies (within the meaning of Section 414 of the Code).
"Financial Statements" means the financial statements of the Companies
delivered to Purchaser pursuant to Section 2.10 or 4.5.
"GAAP" means generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States and, other than the United Arab Emirates, any foreign country,
any domestic or foreign state, county, city or other political subdivision
(other than of
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the United Arab Emirates, including Dubai), or any private or public entity such
as SACS that regulates, inspects, monitors, or issues any reports or finding
with respect to educational institutions.
"Hazardous Material" means (i) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid containing levels of
polychlorinated biphenyls (PCBs); (ii) any chemicals or other materials or
substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import under any Environmental Law; and
(iii) any other chemical or other material or substance, exposure to which is
now or hereafter prohibited, limited or regulated by any Governmental or
Regulatory Authority under any Environmental Law.
"Indebtedness" of any Person means all obligations of such Person (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnitee" has the meaning ascribed to it in Section 10.3(a).
"Indemnitor" has the meaning ascribed to it in Section 10.3(a).
"Intellectual Property" means all patents and patent rights, trademarks
and trademark rights, trade names and trade name rights, service marks and
service mark rights, service names and service name rights, brand names,
inventions, processes, formulae, copyrights and copyright rights, trade dress,
business and product names, logos, slogans, trade secrets, industrial models,
processes, designs, methodologies, computer programs (including all source
codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by any of the
Companies and issued by any Person other than any of the Companies (other than
trade receivables generated in the ordinary course of business of the
Companies).
"IRS" means the United States Internal Revenue Service.
"JAMS" has the meaning ascribed to it in Section 13.13.
"Knowledge of either Seller" or "Known to a Seller" means the actual
current awareness of either of the Sellers, Mark Barnette, William Barnette, Al
Braxton, or Graham Carter. The phrase "to the Knowledge of each Seller" or
similar phrases are to be construed to mean the separate and distinct Knowledge
of a Seller with respect to the representations and warranties in question.
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, any foreign
country (other than the United Arab Emirates) or any domestic
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or foreign state, county, city or other political subdivision (other than of the
United Arab Emirates, including Dubai) or of any Governmental or Regulatory
Authority.
"Letter Agreement" has the meaning ascribed it in Section 1.6.
"Liabilities" means all Indebtedness, obligations and other liabilities
of a Person (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing, but excluding in each case any of the foregoing
matters that arise under the laws of any of the United Arab Emirates, including
Dubai, or any political subdivision thereof.
"Loss" means any and all damages, fines, fees, penalties, deficiencies,
losses, liabilities and expenses (including without limitation interest, court
costs, fees of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment).
"Notice of Claim" has the meaning ascribed to it in Section 10.3(a).
"Operative Agreements" means any support or other agreements to be
entered into in connection with the transaction.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of such Person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(ii) receive or exercise any benefits or rights similar to any rights enjoyed by
or accruing to the holder of shares of capital stock of such Person, including
any rights to participate in the equity or income of such Person or to
participate in or direct the election of any directors or officers of such
Person or the manner in which any shares of capital stock of such Person are
voted.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.
"Pension Benefit Plan" means each Benefit Plan which is a pension
benefit plan within the meaning of Section 3(2) of ERISA.
"Permitted Lien" means (i) any Lien for Taxes not yet due or delinquent
or being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any statutory Lien
arising in the ordinary course of business by operation of Law with respect to a
Liability that is not yet due or delinquent and (iii) any minor imperfection of
title or similar Lien which individually or in the aggregate with other such
Liens does not materially impair the value of the property subject to such Lien
or the use of such property in the conduct of the business of any of the
Companies.
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"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization, trust, union,
association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.
"Purchase Price" has the meaning ascribed to it in Section 1.2(b).
"Purchaser" has the meaning ascribed to it in the forepart of this
Agreement.
"Qualified Plan" means each Benefit Plan which is intended to qualify
under Section 401 of the Code.
"Representatives" has the meaning ascribed to it in Section 4.2.
"SACS" means the Southern Association of Colleges and Schools.
"Seller" has the meaning ascribed to it in the forepart, of this
Agreement.
"Sellers' Shares" has the meaning ascribed to it in the forepart of
this Agreement.
"Subject Defined Benefit Plan" means each Defined Benefit Plan listed
and described in Schedule 2.16(a) of the Disclosure Schedule.
"Subsidiary" means any Person (other than ACIL or AEMEC) in which any
of AEC, AEMEC or ACIL, directly or indirectly through subsidiaries or otherwise,
beneficially owns more than fifty percent (50%) of either the equity interests
in, or the voting control of, such Person.
"Tax Returns" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Taxes" means any federal, state, local, or foreign income, gross
receipts, license payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not, but excluding in each case any of
the foregoing matters that arise under the laws of the United Arab Emirates,
including Dubai, or any political subdivision thereof.
"Unaudited Financial Statements" has the meaning ascribed to it in
Section 2.10(b).
(b) Construction of Certain Terms and Phrases. Unless the
context of this Agreement otherwise requires, (i) words of any gender include
each other gender; (ii) words using the singular or plural number also include
the plural or singular number, respectively; (iii) the terms "hereof," "herein,"
"hereby"
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<PAGE> 48
and derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
practice of one or more of the Companies. Whenever this Agreement refers to a
number of days, such number shall refer to calendar days unless Business Days
are specified. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP.
ARTICLE XIII
MISCELLANEOUS
13.1 Notices. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:
If to Purchaser, to:
Edutrek International, Ltd.
c/o Electra Ventures, Ltd.
One Buckhead Plaza
3060 Peachtree Road, N.W.
Suite 1420
Atlanta, GA 30305
Facsimile No.: 404/264-8949
Attn: Steve Bostic
with a copy to:
Smith, Gambrell & Russell
Atlanta Financial Center
Suite 1800
3343 Peachtree Road, N. E.
Atlanta, GA 30326-1010
Facsimile No.: 404/264-2652
Attn: Arthur Jay Schwartz, Esq.
If to a Seller, to:
American European Corporation
521 Village Trace
Building 10
Marietta, Georgia 30067
Facsimile No.:
Attn: Thomas J. Barnette; Phillip J. Markert
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<PAGE> 49
with a copy to:
Arnall, Golden & Gregory
2800 One Atlantic Center
1201 West Peachtree Center Atlanta, GA 30309
Facsimile No.: 404/873-8501
Attn: S. Jarvin Levison, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.
13.2 Entire Agreement. This Agreement and the Operative Agreements
supersede all prior discussions and agreements between the parties with respect
to the subject matter hereof and thereof, and contain the sole and entire
agreement between the parties hereto with respect to the subject matter hereof
and thereof.
13.3 Expenses. Except as otherwise expressly provided in this
Agreement (including without limitation as provided in Section 11.2), whether or
not the transactions contemplated hereby are consummated, each party will pay
its own costs and expenses, and Sellers shall pay the costs and expenses of the
Companies, incurred in connection with the negotiation, execution and closing of
this Agreement and the Operative Agreements and the transactions contemplated
hereby and thereby; provided, however, that the Sellers may cause the Companies
to pay some or all of their costs and expenses up to, but not in excess of, the
aggregate amount of $150,000; and provided, further, that the expenses incurred
by the Companies pursuant to Section 4.15 hereof shall not be counted against
such $150,000 limitation.
13.4 Public Announcements. At all times at or before the Closing,
Sellers and Purchaser will not issue or make any reports, statements or releases
to the public or generally to the students, student outplacement sources,
referral sources, employees, customers, suppliers or other Persons to whom the
Companies sell goods or provide services or with whom the Companies otherwise
have significant business relationships with respect to this Agreement or the
transactions contemplated hereby without the consent of the other, which consent
shall not be unreasonably withheld. If either party is unable to obtain the
approval of its public report, statement or release from the other party and
such report, statement or release in the opinion of legal counsel to such party,
required by Law in order to discharge such party's disclosure obligations, then
such party may make or issue the legally required report, statement or release
and promptly furnish the other party with a copy thereof. Seller and Purchaser
will also obtain the other party's prior approval of any press release to be
issued immediately following the Closing announcing the consummation of the
transactions contemplated by this Agreement.
13.5 Confidentiality. Each party hereto will hold, and will use its
best efforts to cause its Affiliates, and in the case of Purchaser, any Person
listed on Schedule 13.5 who considering investing in Purchaser or who has
provided, or who is considering providing, financing to Purchaser to finance all
or any portion of the Purchase Price, and their respective Representatives to
hold, in strict confidence from any Person (other than any such Affiliate,
Person who has provided, or who is considering providing, financing
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<PAGE> 50
or Representative), unless (a) compelled to disclose by judicial or
administrative process (including without limitation in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Governmental or Regulatory Authorities) or by other
requirements of Law or (b) disclosed in an Action or Proceeding brought by a
party hereto in pursuit of its rights or in the exercise of its remedies
hereunder, all documents and information concerning the other party or any of
its Affiliates furnished to it by the other party or such other party's
Representatives in connection with this Agreement or the transactions
contemplated hereby, except to the extent that such documents or information do
not qualify or cease to qualify as a trade secret under applicable law on or
after the 3rd anniversary of the later of (i) the date of disclosure or (ii) the
earlier of the termination of this Agreement or the Closing, and except to the
extent that such documents or information can be shown to have been (x)
previously known by the party receiving such documents or information, (y) in
the public domain (either prior to or after the furnishing of such documents or
information hereunder) through no fault of such receiving party or (z) later
acquired by the receiving party from another source if the receiving party is
not aware that such source is under an obligation to another party hereto to
keep such documents and information confidential; provided that following the
Closing the foregoing restrictions will not apply to Purchaser's use of
documents and information concerning the Companies furnished by a Seller
hereunder. In the event the transactions contemplated hereby are not
consummated, upon the request of the other party, each party hereto will, and
will cause its Affiliates, any Person who has provided, or who is considering
providing, financing to such party and their respective Representatives to,
promptly (and in no event later than five (5) Business Days after such request)
redeliver or cause to be redelivered all copies of documents and information
furnished by the other party in connection with this Agreement or the
transactions contemplated hereby and destroy or cause to be destroyed all notes,
memoranda, summaries, analyses, compilations and other writings related thereto
or based thereon prepared by the party furnished such documents and information
or its Representatives. The obligations contained in this Section 13.5 shall
survive the termination of this Agreement or the Closing, as the case may be.
Purchaser agrees that it will cause each Person listed on Schedule 13.5 who is
provided with any information which is the subject of this Section 13.5 to
execute a confidentiality agreement which contains restrictions substantially
similar to those contained herein and which expressly provides that the Sellers
and the Companies shall be third party beneficiaries thereof. Purchaser shall
promptly provide Barnette with a copy of each such confidentiality agreement.
13.6 Further Assurances; Post-Closing Cooperation.
(a) At any time or from time to time after the Closing, each
Seller shall execute and deliver to Purchaser such other documents and
instruments, provide such materials and information and take such other actions
as Purchaser may reasonably request more effectively to vest title to the
Sellers' Shares in Purchaser and, to the full extent permitted by Law, to put
Purchaser in actual possession and operating control of the Companies and their
Assets and Properties and Books and Records, and otherwise to cause such Seller
to fulfill his obligations under this Agreement and the Operative Agreements to
which he is a party.
(b) Following the Closing, each party will afford the other
party, its counsel and its accountants, during normal business hours, reasonable
access to the books, records and other data relating to the Business or
Condition of the Companies in its possession with respect to periods prior to
the Closing and the right to make copies and extracts therefrom, to the extent
that such access may be reasonably required by the requesting party in
connection with (i) the preparation of Tax Returns, (ii) the determination or
enforcement of rights and obligations under this Agreement, (iii) compliance
with the requirements of any Governmental or Regulatory Authority, (iv) the
determination or enforcement of the rights and obligations of any Indemnitee or
(v) in connection with any actual or threatened Action or Proceeding. Further,
each party agrees for a period extending six (6) years after the Closing Date
not to destroy or otherwise dispose of any such books, records and other data
unless such party shall first offer in writing to surrender such books,
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<PAGE> 51
records and other data to the other party and such other party shall not agree
in writing to take possession thereof during the ten (10) day period after such
offer is made.
(c) If, in order properly to prepare its Tax Returns, other
documents or reports required to be filed with Governmental or Regulatory
Authorities or its financial statements or to fulfill its obligations hereunder,
it is necessary that a party be furnished with additional information, documents
or records relating to the Business or Condition of the Companies not referred
to in paragraph (b) above, and such information, documents or records are in the
possession or control of the other party, such other party shall use its best
efforts to furnish or make available such information, documents or records (or
copies thereof) at the recipient's request, cost and expense. Any information
obtained by a Seller in accordance with this paragraph shall be held
confidential by such Seller in accordance with Section 13.5.
(d) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relationship in litigation or
arbitration, the furnishing of information, documents or records in accordance
with any provision of this Section, relating to the subject matter in litigation
or arbitration, shall be subject to applicable rules relating to discovery.
13.7 Waiver. Any term or condition of this Agreement may be waived
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
13.8 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
13.9 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than (a) any Person entitled to indemnity under Article X, and (b) the Companies
pursuant to and to the extent provided in Section 4.10.
13.10 No Assignment, Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) that Purchaser may assign any or all of its rights, interests and
obligations hereunder (including without limitation its rights under Article X)
to (i) an Affiliate of Purchaser, provided that any such Affiliate agrees in
writing to be bound by all of the terms, conditions and provisions contained
herein, (ii) any post-Closing purchaser of all of the issued and outstanding
stock of one or more of the Companies or substantial part of any one or more of
their assets, or (iii) any financial institution providing purchase money or
other financing to Purchaser (or its assignee) or any of the Companies from time
to time as collateral security for such financing (and, in this connection,
Sellers shall execute an acknowledgment in favor of such financial institution
acknowledging and agreeing to such assignment), but no such assignment referred
to in clause (i) or (ii) shall be effective, unless Steve Bostic owns not less
than fifty percent (50%) of the voting rights of all classes of stock of the
assignee, and such assignment shall not relieve Purchaser (or its assignee) of
its obligations hereunder. Subject to the preceding sentence, this Agreement is
binding upon, inures to the benefit of and is enforceable by the parties hereto
and their respective successors and assigns.
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<PAGE> 52
13.11 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
13.12 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future Law, and if
the rights or obligations of any parry hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
13.13 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Georgia applicable to a
Contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
13.14 Dispute Resolution, Consent to Jurisdiction and Venue. Any
dispute between the parties either with respect to the application of any
provision of this Agreement or with respect to the performance by Sellers or
Purchasers of its, or their, respective duties and responsibilities hereunder
shall be resolved in the following manner:
(a) Upon the written request of a party, each of the parties
(Sellers acting jointly as one party) will appoint a designated representative
who has not devoted substantial time to the subject in dispute whose task it
will be to meet for the purpose of endeavoring to resolve such dispute.
(b) The designated representatives shall meet as often as the
parties reasonably deem necessary in order to gather and furnish to the other
all information with respect to the matter in issue which the parties believe to
be appropriate and germane in connection with its resolution.
(c) Such representatives shall discuss the problem and
negotiate in good faith in an effort to resolve the dispute without the
necessity of any formal proceeding relating thereto.
(d) During the course of such negotiation, all reasonable
requests made by one party to the other for non-privileged information
reasonably related to the subject in dispute will be honored in order that each
of the parties may be fully advised of the other's position.
(e) The specific format for such discussions will be left to
the discretion of the designated representatives but may include the preparation
of agreed upon statements of fact or written statements of position furnished to
the other party.
(f) If the designated representatives cannot resolve the
dispute within thirty (30) days after the initial request to negotiate such
dispute, then either party may refer the dispute to the Judicial Arbitration &
Mediation Service, Inc. ("JAMS"), Atlanta, Georgia, for a voluntary settlement
conference and the other party will be deemed to have consented to such
conference. The parties may alternatively request nonbinding mediation or a
binding settlement conference. In the absence of agreement the procedure shall
be nonbinding mediation. If JAMS does not maintain an office in Fulton County at
such time, then either party may request the American Arbitration Association to
be substituted for JAMS.
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<PAGE> 53
(g) If the procedure set forth in subparagraph (f) above
utilized by the parties is a nonbinding procedure, then a party who is not
satisfied with the proposed resolution of the dispute may, after the expiration
of not less than thirty (30) days from the date of the conclusion of the
proceeding, initiate formal proceedings in the Superior Court of Cobb County,
Georgia, or the United States District Court for the Northern District of
Georgia for a judicial resolution of such dispute.
(h) Notwithstanding the foregoing, a party may proceed to
initiate formal proceedings in the Superior Court of Cobb County, Georgia, or
the United States District Court for the Northern District of Georgia if there
are less than thirty (30) days before the statute of limitations governing any
cause of action relating to such dispute would expire.
(i) Except where clearly prevented by the subject in dispute,
the parties agree to continue performing their respective obligations under this
Agreement while the dispute is being resolved.
(j) Sellers and Purchaser each represent and warrant to the
other that it or they is/are not entitled, to immunity from judicial proceedings
and agree that, should any party bring any judicial proceedings to enforce any
obligation or liability of the other under this Agreement, no immunity from such
proceedings will be claimed by or on behalf of such other party or with respect
to their assets or property. The parties agree that any suit, action or
proceeding arising out of or relating to this Agreement may be instituted only
in the Superior Court of Cobb County, Georgia, or the Federal District Court for
the Northern District of Georgia, Atlanta, Georgia, they waive any objection
which a party may have now or hereafter to the laying of venue of any such suit,
action or proceeding, and irrevocably consent and submit to the jurisdiction of
such court in any such suit, action or proceeding.
(k) If any action or proceeding relating to this Agreement or
the enforcement of any provision of this Agreement is brought against any party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
13.15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered, under seal, by the duly authorized officer of each party hereto as of
the date first above written.
<TABLE>
<S> <C>
"Purchaser"
Attest: /s/ Doug Chait EDUTREK INTERNATIONAL, LTD.
--------------------------------
Name: Doug Chait
--------------------------
Title: Secretary
------------------------- By: /s/ S. Bostic
--------------------------------
Steve Bostic, Chairman
[CORPORATE SEAL]
</TABLE>
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
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<PAGE> 54
<TABLE>
<S> <C>
"Sellers"
By: /s/ Thomas J. Barnette L.S.
--------------------------------------------------
THOMAS J. BARNETTE
By: /s/ Phillip J. Markert L.S.
--------------------------------------------------
PHILLIP J. MARKERT
</TABLE>
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<PAGE> 55
LIST OF SCHEDULES
<TABLE>
<CAPTION>
DESCRIPTION SCHEDULE
<S> <C>
Purchase Price Calculations 1.2
Asserts to be distributed to Sellers 1.5(a)
Net Operating Profit; Distributions of Net Operating Profit 1.5(b)
AEC: lines of business, jurisdictions in which
qualified, officers and directors 2.2
AEMEC: lines of business, jurisdictions in which
qualified, members and officers 2.3
ACIL: lines of business, jurisdictions in which
qualified, officers and directors 2.4
Exceptions to title in Shares 2.5
Subsidiaries 2.6
Violations of Agreements 2.7
Governmental Consents and Approvals 2.8
Books and Records; where maintained other than at Headquarters of AEC 2.9
Exceptions to GAAP 2.10
Changes since May 31, 1996 2.11
Liabilities not shown on Balance Sheet 2.12
Tax returns filed since September 30, 1993; Tax Disclosures 2.13
Legal Proceedings 2.14
Compliance with Laws 2.15
Benefit Plans and benefit matters 2.16
</TABLE>
-1-
<PAGE> 56
<TABLE>
<S> <C>
Real Property Leases; defaults; Condition of improvements 2.17
Exceptions to Title to tangible personal property; Investment Assets 2.18
Intellectual Property; Exceptions to right to use Intellectual Property 2.19
Material Contracts; Violations of Contracts 2.20
Licenses 2.21
Insurance Policies 2.22
Affiliate Transactions 2.23
Employee Labor Matters 2.24
Environmental Laws 2.25
Bank Accounts; Bank Account Information 2.26
Powers of Attorney 2.27
Scholarships 2.30
No Violations (Purchaser) 3.3
Consents and Approvals (Purchaser) 3.4
Noncompetition Jurisdictions 4.10
Specified Individuals Entitled to Full Scholarships 5.3
Lenders to release Sellers' guarantees 5.3(c)
Required Third Party Consents 6.7
Annual Lease liabilities for non-real estate leases 6.11
Required Third Party Consents 7.6
Persons to be subject to Confidentiality Agreements (Purchaser Schedule) 13.5
The Company hereby agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request.
</TABLE>
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<PAGE> 1
EXHIBIT 3(i)
ARTICLES OF INCORPORATION
OF
EDUTREK HOLDINGS, INC.
I.
The name of the Corporation is Edutrek Holdings, Inc.
II.
A. The authorized capital stock of the Corporation shall consist of two
million (2,000,000) shares of voting common stock, which shall consist of:
(1) 1,000,000 shares of Class A Common Stock without par value;
(2) 1,000,000 shares of Class B Common Stock without par value.
B. Except to the extent otherwise provided below, the holders of Class
A Common Stock ("Class A Holders") and the Class B Common Stock ("Class B
Holders") shall have the same powers, designations, preferences and
participation rights and privileges. The holders of Class A Common Stock and
Class B Common Stock shall have the following specific powers, designations,
preferences, and relative participating rights and privileges:
(1) Each holder of Class A Common Stock shall be entitled to one (1)
vote per share of Class A Common Stock standing in his name on the transfer of
books of the Corporation, and each holder of Class B Common Stock shall be
entitled to ten (10) votes per share of Class B Common Stock standing in his
name on the transfer books of the Corporation, with respect to each matter to be
voted upon.
(2) The holders of Class A Common Stock and Class B Common Stock
shall have the right to vote, but not as separate classes except to the extent
required by law or as otherwise
<PAGE> 2
provided in subsection B(3) below, upon all matters submitted to the
shareholders of the Corporation. A quorum shall be present when the majority of
all votes eligible to be cast by holders of Class A Common Stock and Class B
Common Stock taken as a whole is present in person or by proxy.
(3) In addition to any other vote required by law, the Corporation
may not alter or change, by increase, diminution, or otherwise, the relative
rights, preferences, privileges, restrictions, dividend rights, voting power or
other powers given to the holders of Class A Common Stock and Class B Common
Stock pursuant to this Article II other than by the affirmative vote of not less
than sixty-six and two thirds percent (662/3%) of all the votes entitled to be
voted by the holders of each class of stock to be adversely affected thereby
voting as a separate class, except that the Corporation may increase the total
number of authorized shares of Class A Common Stock that may be issued by the
Corporation by the affirmative vote of a majority of all the votes entitled to
be cast by the holders of Class A Common Stock and Class B Common Stock voting
together, without regard to class. In the event that the Board of Directors
declares a dividend or distribution payable in the Common Stock of the
corporation and there are an insufficient number of authorized Class B Common
Stock shares available to distribute in accordance with Paragraph (4)(b) below,
then the shareholders of Class B Common Stock may vote on an amendment to these
Articles of Incorporation increasing the number of authorized shares of such
class to the number sufficient to permit the issuance of the stock dividend or
distribution, without submitting such vote for approval by shareholders of the
Class A Common Stock.
(4) Holders of Class A Common Stock and Class B Common Stock shall
be entitled to receive such dividends and other distribution in cash, stock or
property of the Corporation
2
<PAGE> 3
as may be declared thereon by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor; provided,
however, that:
(a) No cash dividend may be declared and paid on the Class B
Common Stock unless a dividend of an equal or greater amount of cash per share
has been declared and paid on the Class A Common Stock.
(b) In case of dividends or other distributions payable in stock
of the Corporation, including a distribution pursuant to any stock split or
division, which occurs after the initial issuance of Class B Common Stock by the
Corporation, only shares of Class A Common Stock shall be distributed with
respect to Class A Common Stock and only shares of Class B Common Stock, in an
amount per share equal to the amount per share distributed with respect to the
Class A Common Stock, shall be distributed with respect to Class B Common Stock.
(c) In the case of any combination, reclassification or
recapitalization of the Class A Common Stock, the shares of Class B Common Stock
shall also be combined, reclassified or recapitalized so that the number of
shares of Class B Common Stock outstanding immediately following such
combination, reclassification or recapitalization shall bear the same
relationship to the number of shares of Class B Common Stock outstanding
immediately prior to such combination, reclassification or recapitalization as
the number of shares of Class A Common Stock outstanding immediately following
such combination, reclassification or recapitalization bears to the number of
shares of Class A Common Stock outstanding immediately prior to such
combination, reclassification or recapitalization.
(d) Shares of Class B Common Stock outstanding at any time shall
not be reverse split or combined, whether by reclassification, recapitalization
or otherwise, so as to
3
<PAGE> 4
decrease the number of shares thereof issued and outstanding unless at the same
time the shares of Class A Common Stock are reverse split or combined so that
the number of shares of Class A Common Stock outstanding immediately following
such reclassification or recapitalization shall bear the same relationship to
the number of shares of Common Stock outstanding immediately prior to such
reclassification or recapitalization as the number of shares of Class B Common
Stock outstanding immediately following such reclassification or
recapitalization bears to the number of shares of Class B Common Stock
outstanding immediately prior to such reclassification or recapitalization.
(5) Any outstanding shares of Class B Common Stock shall be
convertible into fully paid and nonassessable shares of Class A Common Stock at
the option of the holder thereof on a one-share-for-one-share basis. In order
for a shareholder to effect any such conversion, such shareholder must furnish
the Corporation with a written notice of the request for conversion, which
notice shall be addressed to the principal office of the Corporation or to the
Corporation's designated transfer agent, shall state the number of shares of
Class B Common Stock to be converted into Class A Common Stock, shall state the
name of the person(s) in whose name(s) the shares of Class A Common Stock are to
be registered and shall be accompanied by a certificate or certificates
representing such shares, properly endorsed and ready for transfer. A conversion
shall be deemed to be made (and the holder of such shares shall be deemed to be
the holder of record of an equal number of shares of Class A Common Stock) at
the close of business on the date when the Corporation or transfer agent has
received the prescribed written notice and required certificate for
certificates, properly endorsed and ready for transfer. The Corporation hereby
reserves and shall at all times reserve and keep available out of its authorized
and unissued shares of Class A Common
4
<PAGE> 5
Stock, for the purposes of effecting conversion such number of duly authorized
shares of Class A Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Class B Common Stock.
C. The Board of Directors may determine the designation, par value,
preferences, qualifications, voting rights and powers, limitations and relative
rights of one or more series of preferred stock to be issued by the Corporation
from time to time upon such terms as the Board of Directors may adopt and upon
filing of an amendment to these Articles in accordance with Section 14-2-602 of
the Georgia Business Corporation Code, or any successor statute authorizing the
issuance of preferred stock.
D. Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting by written consent signed by persons
who would be entitled to vote at a meeting shares of voting capital stock having
voting power to cast not less than the minimum number of votes that would be
necessary to authorize or take the action at a meeting of the shareholders, in
accordance with Section 14-2-704 of the Georgia Business Corporation Code, or
any successor statute.
III.
The street address of the initial registered office of the Corporation
is Suite 1800, Atlanta Financial Center, 3343 Peachtree Road, N.E., Atlanta,
Georgia 30326-1010, located in Fulton County. The initial registered agent of
the Corporation at such office is Arthur Jay Schwartz.
IV.
The mailing address of the initial principal office of the Corporation
is Suite 1420, 3060 Peachtree Road, Atlanta, Georgia 30305.
5
<PAGE> 6
V.
The name and address of the Incorporator of the Corporation is:
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
Arthur Jay Schwartz Suite 1800, Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1010
</TABLE>
VI.
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of duty of care
or other duty as a director; provided, however, that to the extent required by
applicable law, this Article shall not eliminate or limit the liability of a
director (i) for any appropriation, in violation of his duties, of any business
opportunity of the Corporation, (ii) for acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) for the types of
liability set forth in Section 14-2-832 of the Georgia Business Corporation
Code, or (iv) for any transaction from which the director derived an improper
personal benefit. If applicable law is amended to authorize corporate action
further eliminating or limiting the liability of directors, then the liability
of each director of the Corporation shall be eliminated or limited to the
fullest extent permitted by applicable law, as amended. Neither the amendment or
repeal of this Article, nor the adoption of any provision of these Articles of
Incorporation inconsistent with this Article, shall eliminate or reduce the
effect of this Article in respect of any acts or omissions occurring prior to
such amendment, repeal or adoption of an inconsistent provision.
VII.
In discharging the duties of their respective provisions and in
determining what is believed to be in the best interests of the Corporation, the
board of directors, committees of the board of
6
<PAGE> 7
directors, and individual directors, in addition to considering the effects of
any action on the Corporation or its shareholders, may consider the interests of
the employees, customers, suppliers, and creditors of the Corporation and its
subsidiaries, the communities in which offices or other establishments of the
Corporation and its subsidiaries are located, and all other factors such
directors consider pertinent; provided, however, that this Article shall be
deemed solely to grant discretionary authority to the directors and shall not be
deemed to provide to any constituency any right to be considered.
VIII.
A. The Corporation shall, to the fullest extent permitted by
applicable law as the same exists or may hereafter be in effect, and as set
forth in the By-Laws, indemnify any person who is or was made or threatened to
be made a party to or is involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation to
procure a judgment in its favor and an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or any other entity, which any director,
officer, employee of the Corporation or other person is serving, has served or
has agreed to serve in any capacity at the request of the Corporation, by reason
of the fact that such person or such person's testator or intestate is or was or
has agreed to become a director or officer of the Corporation, or is or was
serving or has agreed to serve such other corporation, partnership, joint
venture, trust, employee benefit plan or other entity in any capacity, against
judgments, fines, amounts paid or to be paid in settlement, taxes or penalties,
and costs, charges and expenses, including attorneys' fees, incurred in
connection with such action or proceeding or any appeal
7
<PAGE> 8
therein; provided, however, that no indemnification shall be provided to any
such person in circumstances for which indemnification is prohibited by the
Georgia Business Corporation Code. The Corporation shall provide for the
advancement of expenses to directors, and may, at the discretion of the Board of
Directors, provide for the advancement of expenses incurred in connection with
any such action or proceeding to officers, employees and others, subject to the
requirements of applicable law and as set forth in the By-Laws.
B. Nothing contained in this Article VIII shall limit the right to
indemnification and advancement of expenses to which any person would be
entitled by law in the absence of this Article, or shall be deemed exclusive of
any other rights to which such person seeking indemnification or advancement of
expenses may have or hereafter may be entitled under law, any provision of these
Articles of Incorporation, or By-Laws, any agreement approved by the Board of
Directors, or a resolution of shareholders or directors; and the adoption of any
such resolution or entering into of any such agreement approved by the Board of
Directors is hereby authorized. The Corporation may purchase and maintain
insurance on behalf of any or all persons for whom indemnification is authorized
or required.
C. The indemnification and advancement of expenses provided by, or
authorized pursuant to, this Article VIII shall: (i) apply with respect to acts
or omissions occurring prior to the adoption of this Article VIII to the fullest
extent permitted by law, and (ii) survive the full or partial repeal or
restrictive amendment hereof with respect to events occurring prior thereto.
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation on July 1, 1996.
/s/ Arthur Jay Schwartz
---------------------------
Arthur Jay Schwartz
Incorporator
9
<PAGE> 1
EXHIBIT 3(i).1
ARTICLES OF AMENDMENT
OF
EDUTREK HOLDINGS, INC.
I.
The name of the Corporation is Edutrek Holdings, Inc.
II.
The Articles of Incorporation of the Corporation shall be amended by
deleting Article I thereof in its entirety and substituting the following in
lieu of Article I:
"I.
The name of the Corporation is E Holdings, Inc."
III.
The amendment set forth in Article II of these Articles of Amendment
was adopted on August 22, 1996.
IV.
The amendment was adopted by the Corporation's Board of Directors
without shareholder action. In accordance with Section 14-2-1002 of the Georgia
Business Corporation Code, shareholder action was not required to effect a
change in the Corporation's name.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by R. Steven Bostic, Chairman of the Board of Directors
of the Corporation, on this 22nd day of August, 1996.
EDUTREK HOLDINGS, INC.
By: /s/ S. Bostic
------------------------------
R. Steven Bostic, Chairman
<PAGE> 1
EXHIBIT 3(i).2
ARTICLES OF AMENDMENT
OF
EDUTREK INTERNATIONAL, INC.
I.
The name of the Corporation is EduTrek International, Inc.
II.
The Articles of Incorporation of the Corporation shall be amended by
deleting Article II thereof in its entirety and substituting the following in
lieu of Article II:
II.
A. The aggregate number of shares of capital stock the
Corporation shall have the authority to issue shall be fifty-five million
(55,000,000) shares, consisting of the following securities:
(1) forty million (40,000,000) shares of common stock,
without par value, designated as Class A Common Stock;
(2) ten million (10,000,000) shares of common stock,
without par value, designated as Class B Common Stock; and
(3) five million (5,000,000) shares of preferred stock as
the Board of Directors of the Corporation may decide to issue pursuant to
Article II(D) hereof.
Effective upon the filing of these Articles of Amendment (the
"Effective Date"), each share of Class A Common Stock of the Corporation issued
and outstanding on the Effective Date shall be automatically changed without
further action into seven (7) fully paid and non-assessable shares of Class A
Common Stock of the Corporation, and each share of Class B Common Stock of the
Corporation issued and outstanding on the Effective Date shall be automatically
changed without
<PAGE> 2
further action into seven (7) fully paid and non-assessable shares of Class B
Common Stock of the Corporation.
B. Except to the extent otherwise provided below, the holders of
shares of Class A Common Stock ("Class A Holders") and the holders of shares of
Class B Common Stock ("Class B Holders") shall have the same powers,
designations, preferences and participation rights and privileges. The Class A
Holders and the Class B Holders shall share with each other on a ratable basis
as a single class in the net assets of the Corporation upon dissolution,
subject to any preferences that may be established for the Corporation's
preferred stock. The Class A Holders and the Class B Holders shall have the
following specific powers, designations, preferences, and relative
participating rights and privileges:
(1) Each Class A Holder shall be entitled to one (1) vote
per share of Class A Common Stock standing in his name on the transfer books of
the Corporation, and each Class B Holder shall be entitled to ten (10) votes
per share of Class B Common Stock standing in his name on the transfer books of
the Corporation, with respect to each matter to be voted upon.
(2) The Class A Holders and the Class B Holders shall
have the right to vote, but not as separate classes except to the extent
required by law or as otherwise provided in subsection B(3) below, upon all
matters submitted to the shareholders of the Corporation. A quorum shall be
present when the majority of all votes eligible to be cast by the Class A
Holders and the Class B Holders taken as a whole is present in person or by
proxy.
(3) In addition to any other vote required by law, the
Corporation may not alter or change, by increase, diminution, or otherwise, the
relative rights, preferences, privileges, restrictions, dividend rights, voting
power or other powers given to the Class A Holders and the Class B Holders
pursuant to this Article II other than by the affirmative vote of not less than
sixty-six and two thirds percent (66 2/3%) of all the votes entitled to be
voted by the holders of each class
<PAGE> 3
of stock to be adversely affected thereby voting as a separate class, except
that the Corporation may increase the total number of authorized shares of
Class A Common Stock that may be issued by the Corporation by the affirmative
vote of a majority of all the votes entitled to be cast by the Class A Holders
and the Class B Holders voting together, without regard to class. In the event
that the Board of Directors declares a dividend or distribution payable in the
Common Stock of the corporation and there are an insufficient number of
authorized Class B Common Stock shares available to distribute in accordance
with Paragraph (4)(b) below, then the Class B Holders may vote on an amendment
to these Articles of Incorporation increasing the number of authorized shares
of such class to the number sufficient to permit the issuance of the stock
dividend or distribution, without submitting such vote for approval of the
Class A Holders.
(4) The Class A Holders and the Class B Holders shall be
entitled to receive such dividends and other distributions in cash, stock or
property of the Corporation as may be declared thereon by the Board of
Directors from time to time out of assets or funds of the Corporation legally
available therefor; provided, however, that:
(a) No cash dividend may be declared and paid on
the Class B Common Stock unless a dividend of an equal or greater amount of
cash per share has been declared and paid on the Class A Common Stock; and
(b) In the case of dividends or other
distributions payable in stock of the Corporation, including a distribution
pursuant to any stock split or division, which occurs after the initial
issuance of Class B Common Stock by the Corporation, only shares of Class A
Common Stock shall be distributed with respect to Class A Common Stock and only
shares of Class B Common Stock, in an amount per share equal to the amount per
share distributed with respect to the Class A Common Stock, shall be
distributed with respect to Class B Common Stock.
<PAGE> 4
(c) In the case of any combination,
reclassification or recapitalization of the Class A Common Stock, the shares of
Class B Common Stock shall also be combined, reclassified or recapitalized so
that the number of shares of Class B Common Stock outstanding immediately
following such combination, reclassification or recapitalization shall bear the
same relationship to the number of shares of Class B Common Stock outstanding
immediately prior to such combination, reclassification or recapitalization as
the number of shares of Class A Common Stock outstanding immediately following
such combination, reclassification or recapitalization bears to the number of
shares of Class A Common Stock outstanding immediately prior to such
combination, reclassification or recapitalization.
(d) Shares of Class B Common Stock outstanding at
any time shall not be reverse split or combined, whether by reclassification,
recapitalization or otherwise, so as to decrease the number of shares thereof
issued and outstanding unless at the same time the shares of Class A Common
Stock are reverse split or combined so that the number of shares of Class A
Common Stock outstanding immediately following such reclassification or
recapitalization shall bear the same relationship to the number of shares of
Common Stock outstanding immediately prior to such reclassification or
recapitalization as the number of shares of Class B Common Stock outstanding
immediately following such reclassification or recapitalization bears to the
number of shares of Class B Common Stock outstanding immediately prior to such
reclassification or recapitalization.
(5) Any outstanding shares of Class B Common Stock shall
be convertible into fully paid and nonassessable shares of Class A Common Stock
at the option of the holder thereof on a one-share-for-one-share basis. In
order for a shareholder to effect any such conversion, such shareholder must
furnish the Corporation with a written notice of the request for conversion,
which notice shall be addressed to the principal office of the Corporation or
to the Corporation's
<PAGE> 5
designated transfer agent, shall state the number of shares of Class B Common
Stock to be converted into Class A Common Stock, shall state the name of the
person(s) in whose name(s) the shares of Class A Common Stock are to be
registered and shall be accompanied by a certificate or certificates
representing such shares, properly endorsed and ready for transfer. A
conversion shall be deemed to be made (and the holder of such shares shall be
deemed to be the holder of record of an equal number of shares of Class A
Common Stock) at the close of business on the date when the Corporation or
transfer agent has received the prescribed written notice and required
certificate or certificates, properly endorsed and ready for transfer. The
Corporation hereby reserves and shall at all times reserve and keep available
out of its authorized and unissued shares of Class A Common Stock, for the
purposes of effecting conversion such number of duly authorized shares of Class
A Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Class B Common Stock.
C. (1) The Corporation shall not issue, either from its
authorized, unissued shares or from its treasury, a Class B Holder shall not
transfer record or beneficial ownership of, and the Corporation shall not
register the transfer of, whether by sale, assignment, gift, bequest,
appointment or otherwise, any shares of Class B Common Stock except to R.
Steven Bostic, Alice Jane Bostic, the Bostic Family Limited Partnership
(collectively, a "Bostic Affiliate") or a Permitted Transferee (as hereinafter
defined). Subsequent issuances or transfers of Class B Common Stock and
dividends and distributions payable in Class B Common Stock, including any
distribution pursuant to a stock split or division, shall be subject to the
rights and limitations set forth in this Article II. Any transfer of record or
beneficial ownership of shares of Class B Common Stock to a person or entity
other than a Bostic Affiliate or a Permitted Transferee shall result in the
conversion of such shares of Class B Common Stock into Class A Common Stock as
provided in subsection C(4) below. A "Permitted Transferee" shall mean, with
respect to each
<PAGE> 6
person or entity from time to time shown as the record holder of shares of
Class B Common Stock:
(a) A member of any such holder's immediate
family which immediate family consists of the spouse, parents, lineal
descendants (including adopted children and stepchildren), the spouse of any
lineal descendant, and brothers and sisters of such holders;
(b) The trustee of a trust (including a voting
trust) exclusively for the benefit of such holder and/or one or more of his
Permitted Transferees described in subsection C(1) other than this clause (b),
provided that such trust may grant a general or special power of appointment to
any person subject to the limitation that no shares of Class B Common Stock
shall be transferred to any person or entity that is not a Permitted
Transferee; or
(c) A corporation if all of the outstanding
capital stock of such corporation which is entitled to vote for the election of
directors is owned by, or a partnership if all of the partners of such
partnership are and all of the beneficial interests in the partnership are
owned by, the Class B Holder or his Permitted Transferees determined pursuant
to this subsection C(1); provided that, if by reason of any change in ownership
of such stock or partnership interest, such corporation or partnership would no
longer qualify as a Permitted Transferee under this clause (c), all of the
shares of Class B Common Stock held by such corporation or partnership shall,
immediately and without further act, be converted into Class A Common Stock as
provided in subsection C(4) below.
(2) Notwithstanding the foregoing, any Class B Holder may
pledge such holder's shares of Class B Common Stock to a pledgee pursuant to a
bona fide pledge of such shares as collateral for security for indebtedness due
to the pledgee, provided that such shares shall not be transferred to or
registered in the name of pledgee and shall remain subject to the provisions of
this Article II(C). In the event of foreclosure or other similar action by the
pledgee,
<PAGE> 7
such pledged shares of Class B Common Stock may only be transferred to a Bostic
Affiliate or a Permitted Transferee of the pledgor or converted into shares of
Class A Common Stock as provided in subsection C(4) below, as the pledgee may
elect.
(3) For purposes of this Article II(C), each reference to
a corporation shall include any successor corporation resulting from merger or
consolidation.
(4) Upon any transfer of shares of Class B Common Stock
of record or beneficially to any person or entity other than a Bostic Affiliate
or a Permitted Transferee, all of the shares of Class B Common Stock so
transferred shall convert into an equal number of shares of Class A Common
Stock, effective as of the date on which the certificates representing such
shares of Class B Common Stock being transferred are presented for transfer on
the books of the Corporation. The Corporation may, in connection with
preparing or verifying a list of shareholders entitled to vote at any meeting
of shareholders or as a condition to the transfer or registration of shares of
Class B Common Stock on the books of the Corporation, require the furnishing of
such affidavits or other proof as it may deem necessary to confirm that
conversion of any shares of Class B Common Stock to shares of Class A Common
Stock is not required under these Articles prior to any such vote, transfer or
registration.
(5) The shares of Class B Common Stock shall be
registered only in the name of a Bostic Affiliate or a Permitted Transferee as
the registered or beneficial owner thereof and not in a "street" or "nominee"
name. For purposes of this Article II(C), a "beneficial owner" shall mean a
person who can, or any entity which possesses the power to, either singly or
jointly, direct the voting or disposition of such shares. The Corporation
shall note on the certificates representing shares of Class B Common Stock that
there are restrictions on the transfer and the registration of the transfer of
such shares imposed by these Articles.
<PAGE> 8
D. The Board of Directors may determine the designation, par
value, preferences, qualifications, voting rights and powers, limitations and
relative rights of one or more series of preferred stock to be issued by the
Corporation from time to time upon such terms as the Board of Directors may
adopt and upon filing of an amendment to these Articles in accordance with
Section 14-2-602 of the Georgia Business Corporation Code, or any successor
statute authorizing the issuance of preferred stock.
E. Any action required or permitted to be taken at a meeting of
the shareholders may be taken without a meeting by written consent signed by
persons who would be entitled to vote at a meeting shares of voting capital
stock having voting power to cast not less than the minimum number of votes
that would be necessary to authorize or take the action at a meeting of the
shareholders, in accordance with Section 14-2-704 of the Georgia Business
Corporation Code, or any successor statute."
III.
The amendment set forth in Article II of these Articles of Amendment
was adopted on June 9th, 1997.
IV.
The amendment set forth in Article II of these Articles of Amendment
was duly approved by the shareholders of the Corporation in accordance with the
provisions of Code Section 14-2-1003 of the Georgia Business Corporation Code.
<PAGE> 9
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by R. Steven Bostic, President of the Corporation, on
this 9th day of June, 1997.
EDUTREK INTERNATIONAL, INC.
By: /s/ R. Steven Bostic
--------------------------
R. Steven Bostic President
<PAGE> 1
EXHIBIT 3(ii)
BY-LAWS
OF
EDUTREK HOLDINGS, INC.
<PAGE> 2
BY-LAWS
OF
EDUTREK HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I.
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
GENERAL PROVISIONS REGARDING NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III.
SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1. PLACE OF MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2. ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4. NOTICE TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5. FIXING OF RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 6. QUORUM AND VOTING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 7. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 8. INFORMAL ACTIONS BY SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV.
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1. GENERAL POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2. NUMBER, TENURE, QUALIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3. VACANCIES, HOW FILLED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4. PLACE OF MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 8. GENERAL PROVISIONS REGARDING NOTICE AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
Section 9. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. MANNER OF ACTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 11. COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 12. ACTION WITHOUT FORMAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 13. CONFERENCE CALL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V.
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. GENERALLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2. COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4. CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6. THE CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7. DEPUTY OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 8. ASSISTANT OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI.
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1. DEFINITIONS FOR INDEMNIFICATION PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. MANDATORY INDEMNIFICATION AGAINST EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3. AUTHORITY FOR PERMISSIVE INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. DETERMINATION AND AUTHORIZATION OF
PERMITTED INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. SHAREHOLDER-APPROVED INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6. ADVANCES FOR EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7. INDEMNIFICATION OF OFFICERS, EMPLOYEES,
AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9. EXPENSES FOR APPEARANCE AS WITNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VII.
REIMBURSEMENT OF NON-DEDUCTIBLEPAYMENTS
TO OFFICERS AND EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII.
FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IX.
ANNUAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE X.
CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1. FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2. TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3. RIGHTS OF HOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4. LOST OR DESTROYED CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE XI.
SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XII.
REGISTERED OFFICE AND REGISTERED AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XIII.
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1. AMENDMENTS GENERALLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2. BY-LAW INCREASING QUORUM OR
VOTING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
(iii)
<PAGE> 5
BY-LAWS
OF
EDUTREK HOLDINGS, INC.
(ADOPTED: July 2, 1996)
ARTICLE I.
DEFINITIONS
As used in these By-Laws, the terms set forth below shall have the
meanings indicated, as follows:
"Articles of Incorporation" means the Articles of Incorporation of the
Corporation, as amended from time to time.
"Board" shall mean the Board of Directors of the Corporation.
"Chief Executive Officer" shall mean the Chairman of the Board of the
Corporation, or such other officer as shall be designated by the Board as
having the duties of the Chief Executive Officer, as described in Section 4 of
Article V of these By-Laws.
"Code" shall mean the Georgia Business Corporation Code, as amended
from time to time.
"Corporation" shall mean Edutrek Holdings, Inc., a Georgia
corporation.
"Secretary" shall mean the Secretary of the Corporation, or such other
officer as shall be designated by the Board as having the duties of the
corporate Secretary as described in Section 5 of Article V of these By-Laws.
"Secretary of State" shall mean the Secretary of State of Georgia.
"Voting group" shall have the meaning set forth in subsection (a) of
Section 6 of Article III of these By-Laws.
ARTICLE II.
GENERAL PROVISIONS REGARDING NOTICES
Section 1. NOTICES. Except as otherwise provided in the
Articles of Incorporation or these By-Laws, or as otherwise required by
applicable law:
<PAGE> 6
(a) Any notice required by these By-Laws or by law shall be in
writing unless oral notice is reasonable under the circumstances.
(b) Notice may be communicated in person; by telephone, telegraph,
teletype, or other form of wire or wireless communication; or by mail or
private carrier. If these forms of personal notice are impracticable, notice
may be communicated by a newspaper of general circulation in the area where
published, or by radio, television, or other form of public broadcast
communication.
(c) Written notice by the Corporation to any shareholder, if in a
comprehensible form, is effective when mailed, if mailed with first-class
postage prepaid and correctly addressed to the shareholder's address shown in
the Corporation's current record of shareholders; provided that if the
Corporation has more than 500 shareholders of record entitled to vote at a
meeting, it may utilize a class of mail other than first class if the notice of
the meeting is mailed, with adequate postage prepaid, not less than 30 days
before the date of the meeting.
(d) Written notice to the Corporation may be addressed to its
registered agent at its registered office or to the Corporation or its
Secretary at its principal office shown in its most recent annual registration
with the Secretary of State.
(e) Except as provided in subsection (c) of this Section 1,
written notice, if in a comprehensible form, is effective at the earliest of
the following:
(1) When received, or when delivered, properly addressed, to the
addressee's last known principal place of business or
residence;
(2) Five days after its deposit in the mail, as evidenced by the
postmark, if mailed with first-class postage prepaid and
correctly addressed; or
(3) On the date shown on the return receipt, if sent by registered
or certified mail, return receipt requested, and the receipt
is signed by or on behalf of the addressee.
(f) Oral notice is effective when communicated if communicated in
a comprehensible manner.
(g) In calculating time periods for notice under these By-Laws,
when a period of time measured in days, weeks, months, years, or other
measurement of time is prescribed for the exercise of any privilege or the
discharge of any duty, the first day shall not be counted but the last day
shall be counted.
Section 2. WAIVER OF NOTICE. Except as otherwise provided or
required by the Articles of Incorporation, these By-Laws or applicable law:
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<PAGE> 7
(a) A shareholder may waive any notice required to be given to such
shareholder, before or after the date and time stated in the notice. The waiver
must be in writing, be signed by the shareholder entitled to the notice, and be
delivered to the Corporation for inclusion in the minutes or filing with the
Corporation's corporate records.
(b) A shareholder's attendance at a meeting:
(1) Waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business
at the meeting; and
(2) Waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
(c) Neither the business transacted nor the purpose of the meeting
need be specified in the waiver, except that any waiver by a shareholder of the
notice of a meeting of shareholders with respect to an amendment of the
Articles of Incorporation, a plan of merger or share exchange, a sale of assets
or any other action which would entitle the shareholder to exercise statutory
dissenter's rights under the Code and obtain payment for his shares shall not
be effective unless:
(1) Prior to the execution of the waiver, the shareholder shall
have been furnished the same material that under the Code
would have been required to be sent to the shareholder in a
notice of the meeting, including notice of any applicable
dissenters' rights as provided in the Code; or
(2) The waiver expressly waives the right to receive the material
required to be furnished.
(d) A director may waive any notice required to be given to such
director by the Code, the Articles of Incorporation, or these By-Laws before or
after the date and time stated in the notice. Except as provided by subsection
(e) of this Section 2, the waiver must be in writing, signed by the director
entitled to the notice, and delivered to the Corporation for inclusion in the
minutes or filing with the Corporation's corporate records.
(e) A director's attendance at or participation in a meeting
waives any required notice to him of the meeting unless the director at the
beginning of the meeting (or promptly upon his arrival) objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
-3-
<PAGE> 8
ARTICLE III.
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETING. The Board may designate any place
within or outside the State of Georgia as the place of meeting for any annual
or special shareholders' meeting. A waiver of notice signed by all
shareholders entitled to vote at a meeting may designate any place within or
outside the State of Georgia as the place for the holding of such meeting. If
no designation is made, or if a special meeting be otherwise called, the place
of meeting shall be the principal office of the Corporation.
Section 2. ANNUAL MEETING. An annual meeting of the
shareholders shall be held on the 1st of April of each year, if not a legal
holiday (and if such is a legal holiday, then on the next following day not a
legal holiday), at such time and place as the Board shall determine, at which
time the shareholders shall elect a Board and transact such other business as
may be properly brought before the meeting. Notwithstanding the foregoing, the
Board may cause the annual meeting of shareholders to be held on such other
date in any year as the Board shall determine to be in the best interests of
the Corporation, and any business transacted at that meeting shall have the
same validity as if transacted on the date designated herein.
Section 3. SPECIAL MEETINGS. Except to the extent otherwise
prescribed by statute or the Articles of Incorporation, special meetings of the
shareholders, for any purpose or purposes, may be called by the Chief Executive
Officer, or by the presiding officer of the Board, if any. The Chief Executive
Officer or the Secretary shall call a special meeting when: (1) requested in
writing by any two or more of the directors; or (2) requested in writing by
shareholders owning shares representing at least twenty-five percent (25%) of
all the votes entitled to be cast on any issue proposed to be considered at
such meeting. Any such written request shall be signed and dated and shall
state the purpose or purposes of the proposed meeting.
Section 4. NOTICE TO SHAREHOLDERS.
(a) Except as otherwise specifically provided in this Section 4,
requirements with respect to the giving of notice and waiver of notice shall be
governed by the provisions of Article II of these By-Laws.
(b) The Corporation shall give notice to each shareholder entitled
to vote thereat of the date, time and place of each annual and special
shareholders' meeting no fewer than ten (10) nor more than sixty (60) days
before the meeting date.
(c) Unless otherwise required by the Code with respect to meetings
at which specified actions will be considered (including but not limited to
mergers, certain share exchanges, certain asset sales by the Corporation, and
dissolution of the Corporation), notice of an annual meeting need not contain a
description of the purpose or purposes for which the meeting is called.
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<PAGE> 9
(d) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(e) Unless a new record date is set (or is required by law or by
the terms of these By-Laws to be set) therefor, notice of the date, time and
place of any adjourned meeting need not be given otherwise than by the
announcement at the meeting before adjournment. If a new record date for the
adjourned meeting is or must be fixed, however, notice of the adjourned meeting
must be given in accordance with these By-Laws as if such adjourned meeting
were a newly-called meeting.
(f) If any corporate action proposed to be considered at a meeting
of shareholders would or might give rise to statutory dissenters' rights under
the Code, the notice of such meeting shall state that the meeting is to include
consideration of such proposed corporate action, and that the consummation of
such action will or might give rise to such dissenters' rights, and shall
include the description of such statutory dissenters' rights required by the
Code.
(g) If any corporate action which would give rise to statutory
dissenters' rights under the Code is taken by written consent of shareholders
without a meeting, or is taken at a meeting with respect to which less than all
shareholders were entitled to receive notice, or is otherwise taken without a
vote of shareholders, the Corporation shall cause notice thereof, including the
information concerning statutory dissenters' rights contemplated by paragraph
(b) above, to be given, not more than ten (10) days after the adoption of such
action by shareholder vote at a meeting or by written consent to those
shareholders who did not execute such written consent or who were not entitled
to receive notice of such meeting, or to all shareholders if such action was
otherwise taken without a vote of shareholders.
Section 5. FIXING OF RECORD DATE.
(a) For the purpose of determining shareholders entitled to notice
of or to vote at any meeting of shareholders, or shareholders entitled to
demand a special meeting of shareholders, or shareholders entitled to take any
other action, the Board may fix in advance (but not retroactively from the date
the Board takes such action) a date as the record date for any such
determination of shareholders, such date in any case to be not more than
seventy (70) days prior to the meeting or action requiring such determination
of shareholders. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders, the
close of business on the last business day before the first notice of such
meeting is delivered to shareholders shall be the record date. If no record
date is fixed for determining shareholders entitled to take action without a
meeting, the date the first shareholder signs the consent shall be the record
date for such purpose. If no record date is fixed for determining shareholders
entitled to demand a special meeting, or to take other action, the date of
receipt of notice by the Corporation of demand for such meeting, or the date on
which such other action is to be taken by the shareholders, shall be the record
date for such purpose.
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<PAGE> 10
(b) A separate record date may be established for each voting
group entitled to vote separately on a matter at a meeting.
(c) A determination of shareholders entitled to notice of or to
vote at a shareholders meeting is effective for any adjournment of the meeting
unless the Board fixes a new record date, which it must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting.
(d) For the purpose of determining shareholders entitled to a
distribution by the Corporation (other than one involving a purchase,
redemption or other acquisition of the Corporation's shares), the record date
shall be the date fixed for such purpose by the Board, or if the Board does not
fix such a date, the date on which the Board authorizes such distribution.
Section 6. QUORUM AND VOTING REQUIREMENTS.
(a) Except as otherwise provided by the Articles of Incorporation
or the Code:
(i) A "voting group" with respect to any given matter
means all shares of one or more class or series
which, under the Articles of Incorporation or the
Code, are entitled to vote and be counted together
collectively on that matter, and unless specified
otherwise in the Articles of Incorporation, the Code
or these By-Laws, all shares entitled to vote on a
given matter shall be deemed to be a single voting
group for purposes of that matter.
(ii) Each outstanding share, regardless of class, is
entitled to one vote on each matter voted on at a
shareholders' meeting.
(iii) A majority of the votes entitled to be cast on the
matter by a voting group constitutes a quorum of that
voting group for action on that matter.
(iv) The presence of a quorum of each voting group
entitled to vote thereon shall be the requisite for
transaction of business on a given matter.
(v) Action on a matter other than election of directors
is approved by a voting group if a quorum of such
voting group exists and the number of votes cast
within such voting group in favor of such action
exceeds the number of votes cast within such voting
group against such action.
(vi) Except as otherwise provided in these By-Laws, all
shares entitled to vote for election of directors
shall vote thereon as a single voting group, and
directors shall be elected by a plurality of votes
cast by shares entitled to vote in the election in a
meeting at which a quorum of such voting group is
present.
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<PAGE> 11
(b) Once a share is represented for any purpose other than solely
to object to holding a meeting or transacting business at the meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is, or is required by law
or these By-Laws to be, set for that adjourned meeting.
(c) If a quorum for transaction of business shall not be present
at a meeting of shareholders, the shareholders entitled to vote thereat,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time, until the requisite amount of voting stock shall be present. No
notice other than announcements at the meeting before adjournment shall be
required of the new date, time or place of the adjourned meeting, unless a new
record date for such adjourned meeting is, or is required by law or these
By-Laws to be, fixed. At such adjourned meeting (for which no new record date
is, or is required to be, set) at which a quorum shall be present in person or
by proxy, any business may be transacted that might have been transacted at the
meeting originally called.
Section 7. PROXIES. At every meeting of the shareholders, any
shareholder having the right to vote shall be entitled to vote in person or by
proxy, but no proxy shall be: (i) effective unless given in writing and
signed, either personally by the shareholder or his attorney-in-fact; or (ii)
effective until received by the Secretary or other officer or agent authorized
to tabulate votes; or valid after eleven months from its date, unless said
proxy expressly provides for a longer period.
Section 8. INFORMAL ACTIONS BY SHAREHOLDERS. Any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting if written consent (which may take the form of one or more
counterpart copies), setting forth the action so taken, shall be signed by all
the holders of all the shares entitled to vote with respect to the subject
matter thereof and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. Such consent shall have the same force and
effect as a unanimous vote of the shareholders; provided, however, that no such
consent which purports to be an approval of any plan of merger, share exchange,
asset sale or other transaction (i) as to which shareholder approval is
required by the Code and (ii) with respect to which specific disclosure
requirements to voting shareholders are imposed by the Code, shall be effective
unless:
(1) prior to the execution of the consent, each consenting
shareholder shall have been furnished the same material which,
under the Code, would have been required to be sent to
shareholders in a notice of a meeting at which the proposed
action would have been submitted to the shareholders for
action, including notice of any applicable dissenters' rights;
or:
(2) the written consent contains an express waiver of the right to
receive the material otherwise required to be furnished.
-7-
<PAGE> 12
ARTICLE IV.
DIRECTORS
Section 1. GENERAL POWERS. All corporate powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation managed under the direction of, its Board,
subject to any limitation set forth in the Articles of Incorporation, or any
amendment to these By-Laws approved by the shareholders of the Corporation, or
any otherwise lawful agreement among the shareholders of the Corporation.
Section 2. NUMBER, TENURE, QUALIFICATIONS. The Board shall
consist of one or more individuals, the precise number to be fixed by
resolution of the shareholders from time to time. Each member of the Board
shall hold office until the annual meeting of shareholders held next after his
election and until his successor has been duly elected and has qualified, or
until his earlier resignation, removal from office, or death. Directors shall
be natural persons who are eighteen (18) years of age or older, but need not be
shareholders or residents of Georgia unless the Articles of Incorporation
require otherwise.
Section 3. VACANCIES, HOW FILLED. If any vacancy shall occur in
the membership of the Board by reason of the resignation, removal or death of a
director, the remaining directors shall continue to act, and such vacancies may
be filled by the affirmative vote of the majority of the directors then in
office, though less than a quorum, and if not therefore filled by action of the
directors, may be filled by the shareholders at any meeting held during the
existence of such vacancy. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office.
Section 4. PLACE OF MEETING. The Board may hold its meetings at
such place or places within or without the State of Georgia as it may from time
to time determine.
Section 5. COMPENSATION. Directors may be allowed such
compensation for attendance at regular or special meetings of the Board and of
any special or standing committees thereof as may be from time to time
determined by resolution of the Board.
Section 6. REGULAR MEETINGS. A regular annual meeting of the
Board shall be held, without other notice than this By-Law, immediately after,
and at the same place as, the annual meeting of shareholders. The Board may
provide, by resolution, the time and place within or without the State of
Georgia, for the holding of additional regular meetings without other notice
than such resolution.
Section 7. SPECIAL MEETINGS. Special meetings of the Board may
be called by the Chief Executive Officer or the presiding officer of the Board,
if different from the Chief Executive Officer, on not less than two (2) days'
notice to each director by mail, telegram, cablegram or other form of wire or
wireless communication, or personal delivery or other form of communication
authorized under the circumstances by the Code, and shall be called by the
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<PAGE> 13
Chief Executive Officer or the Secretary in like manner and on like notice on
the written request of any two (2) or more members of the Board. Such notice
shall state the time, date and place of such meeting, but need not describe the
purpose of the meeting. Any such special meeting shall be held at such time and
place as shall be stated in the notice of the meeting.
Section 8. GENERAL PROVISIONS REGARDING NOTICE AND WAIVER.
Except as otherwise expressly provided in this Article IV, matters relating to
notice to directors and waiver of notice by directors shall be governed by the
provisions of Article II of these By-Laws.
Section 9. QUORUM. At all meetings of the Board, unless
otherwise provided in the Articles of Incorporation or other provisions of
these By-Laws, the presence of a majority of the Directors shall constitute a
quorum for the transaction of business. In the absence of a quorum a majority
of the Directors present at any meeting may adjourn from time to time until a
quorum be had. Notice of the time and place of any adjourned meeting need only
be given by announcement at the meeting at which adjournment is taken.
Section 10. MANNER OF ACTING. Except as expressly otherwise
provided by the Articles of Incorporation or other provisions of these By-Laws,
if a quorum is present when a vote is taken, the affirmative vote of a majority
of directors present is the act of the Board. A director who is present at a
meeting when corporate action is taken is deemed to have assented to the action
unless:
(1) He objects at the beginning of the meeting (or promptly upon
his arrival) to holding it or transacting business at the
meeting;
(2) His dissent or abstention from the action taken is entered in
the minutes of the meeting; or
(3) He does not vote in favor of the action taken and delivers
written notice of his dissent or abstention to the presiding
officer of the meeting before its adjournment or to the
Corporation immediately after adjournment of the meeting.
Section 11. COMMITTEES.
(a) Except as otherwise provided by the Articles of Incorporation,
the Board may create one or more committees and appoint members of the Board to
serve on them. Each committee may have one or more members, who serve at the
pleasure of the Board.
(b) The provisions of these By-Laws and of the Code which govern
meetings, action without meetings, notice and waiver of notice, and quorum and
voting requirements of the Board, shall apply as well to committees created
under this Section 11 and their members.
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<PAGE> 14
(c) To the extent specified by the Articles of Incorporation,
these By-Laws and the resolution of the Board creating such committee, each
committee may exercise the authority of the Board, provided that a committee
may not:
(1) Approve, or propose to shareholders for approval, action
required by the Code to be approved by shareholders;
(2) Fill vacancies on the Board or on any of its committees;
(3) Exercise any authority which the Board may have to amend the
Articles of Incorporation;
(4) Adopt, amend, or repeal by-laws; or
(5) Approve a plan of merger not requiring shareholder approval.
Section 12. ACTION WITHOUT FORMAL MEETING. Except as expressly
otherwise provided in the Articles of Incorporation, any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting if written consent thereto (which may take the
form of one or more counterparts) is signed by all members of the Board or of
such committee, as the case may be, and such written consent is filed with the
minutes of the proceedings of the Board or committee. A consent executed in
accordance herewith has the effect of a meeting vote and may be described as
such in any document.
Section 13. CONFERENCE CALL MEETINGS. Members of the Board, or
any committee of the Board, may participate in a meeting of the Board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can simultaneously
hear each other during the meeting, and participation in a meeting pursuant to
this Section shall constitute presence in person at such meeting.
ARTICLE V.
OFFICERS
Section 1. GENERALLY. The Board shall from time to time elect
or appoint such officers as it shall deem necessary or appropriate to the
management and operation of the Corporation, which officers shall hold their
offices for such terms as shall be determined by the Board and shall exercise
such powers and perform such duties as are specified in these By-Laws or in a
resolution of the Board. Except as specifically otherwise provided in
resolutions of the Board, the following requirements shall apply to election or
appointment of officers:
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<PAGE> 15
(a) The Corporation shall have, at a minimum, the following
officers, which offices shall bear the titles designated therefor by resolution
of the Board, but in the absence of such designation shall bear the titles set
forth below:
Office Title
------ -----
Chief Executive Officer Chairman of the Board
Chief Financial Officer Treasurer
Secretary Secretary
(b) All officers of the Corporation shall serve at the pleasure of
the Board, and in the absence of specification otherwise in a resolution of the
Board, each officer shall be elected to serve until the next succeeding annual
meeting of the Board and the election and qualification of his successor,
subject to his earlier death, resignation or removal.
(c) Any person may hold two or more offices simultaneously, and no
officer need be a shareholder of the Corporation.
(d) If so provided by resolution of the Board, any officer may be
delegated the authority to appoint one or more officers or assistant officers,
which appointed officers or assistant officers shall have the duties and powers
specified in the resolution of the Board.
Section 2. COMPENSATION. The salaries of the officers of the
Corporation shall be fixed by the Board, except that the Board may delegate to
any officer or officers the power to fix the compensation of any other officer.
Section 3. VACANCIES. A vacancy in any office, because of
resignation, removal or death may be filled by the Board for the unexpired
portion of the term, or if so provided by resolution of the Board, by an
officer of the Corporation to whom has been delegated the authority to appoint
the holder of such vacated office.
Section 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall have such title or titles designated by the Board and shall be the
principal executive officer of the Corporation. Subject to the control of the
Board, the Chief Executive Officer shall in general manage, supervise and
control all of the business and affairs of the Corporation. He shall, when
present, preside at all meetings of all of the stockholders. He may sign,
individually or in conjunction with any other proper officer of the Corporation
thereunto authorized by the Board, certificates for shares of the Corporation,
any deeds, mortgages, bonds, policies of insurance, contracts, investment
certificates, or other instruments which the Board has authorized to be
executed, except in cases where the execution thereof shall be expressly
delegated by the Board or by the By-Laws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed;
and in general shall perform all duties incident to the office
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<PAGE> 16
of the Chief Executive Officer of the Corporation and such other duties as may
be prescribed by the Board from time to time.
Section 5. SECRETARY. The Secretary may be designated by any
such title as determined by resolution of the Board, but shall have the duties
of the officer denominated the "Secretary" under the Code. Such officer shall:
(a) attend and keep the Minutes of the shareholders' meetings and of the
Board's meetings in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these By-Laws
or as otherwise required by law or the provisions of the Articles of
Incorporation; (c) be custodian of the corporate records and of the seal of the
Corporation and see that the seal of the Corporation is affixed to all
documents, the execution of which on behalf of the Corporation under its seal
is duly authorized; (d) maintain, or cause an agent designated by the Board to
maintain, a record of the Corporation's shareholders in a form that permits the
preparation of a list of the names and addresses of all shareholders in
alphabetical order by class of shares, showing the number and class of shares
held by each; (e) have general charge of the stock transfer books of the
Corporation or responsibility for supervision, on behalf of the Corporation, of
any agent to which stock transfer responsibility has been delegated by the
Board; (f) have responsibility for the custody, maintenance and preservation of
those corporate records which the Corporation is required by the Code or
otherwise to create, maintain or preserve; (g) in general perform all duties
incident to the legal office of "Secretary," as described in the Code, and such
other duties as from time to time may be assigned to him by the Board.
Section 6. THE CHIEF FINANCIAL OFFICER. The Chief Financial
Officer, unless otherwise determined by the Board, shall: (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
receive and give receipts for monies due and payable to the Corporation from
any source whatsoever, and deposit all such monies in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected by the Board; and (b) in general perform all the duties incident to
the office of Chief Financial Officer and such other duties as from time to
time may be assigned by the Board.
Section 7. DEPUTY OFFICERS. The Board may create one or more
deputy officers whose duties shall be, among any other designated thereto by
the Board, to perform the duties of the officer to which such office has been
deputized in the event of the unavailability, death or inability or refusal of
such officer to act. Deputy officers may hold such titles as designated
therefor by the Board; however, any office designated with the prefix "Vice" or
"Deputy" shall be, unless otherwise specified by resolution of the Board,
automatically a deputy officer to the office with the title of which the prefix
term is conjoined. Deputy officers shall have such other duties as prescribed
by the Board from time to time.
Section 8. ASSISTANT OFFICERS. The Board may appoint one or
more officers who shall be assistants to principal officers of the Corporation,
or their deputies, and who shall have such duties as shall be delegated to such
assistant officers by the Board or such principal officers, including the
authority to perform such functions of those principal officers in the place of
and with full authority of such principal officers as shall be designated by
the Board or (if so
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<PAGE> 17
authorized) by such principal officers. The Board may by resolution authorize
appointment of assistant officers by those principal officers to which such
appointed officers will serve as assistants.
ARTICLE VI.
INDEMNIFICATION
Section 1. DEFINITIONS FOR INDEMNIFICATION PROVISIONS. As used
in this Article VI, the term:
(1) "Corporation" (when spelled with an initial capital letter)
includes any domestic or foreign predecessor entity of the
"Corporation" (as defined in Article I of these By-Laws) in a
merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(2) "director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the
Corporation, is or was serving at the Corporation's request as
a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. A
director is considered to be serving an employee benefit plan
at the Corporation's request if his duties to the Corporation
also impose duties on, or otherwise involve services by, him
to the plan or to participants in or beneficiaries of the
plan. Director includes, unless the context requires
otherwise, the estate or personal representative of a
director.
(3) "expenses" include attorneys' fees.
(4) "liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan), or reasonable
expenses incurred with respect to a proceeding.
(5) "party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a proceeding.
(6) "proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or
informal.
Section 2. MANDATORY INDEMNIFICATION AGAINST EXPENSES. Unless
otherwise provided by the Articles of Incorporation, to the extent that a
director has been successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party, or in defense of any claim, issue, or
matter therein, because he is or was a director of the
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Corporation, the Corporation shall indemnify the director against reasonable
expenses incurred by him in connection therewith.
Section 3. AUTHORITY FOR PERMISSIVE INDEMNIFICATION.
(a) Except as provided in subsections (d) and (e) of this Section
3, or as otherwise provided in the Articles of Incorporation, the Corporation
may indemnify or obligate itself to indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred in the
proceeding if he acted in a manner he believed in good faith to be in or not
opposed to the best interests of the Corporation and, in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful.
(b) A director's conduct with respect to an employee benefit plan
for a purpose he believed in good faith to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection (a) of this Section 3.
(c) The termination of a proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its equivalent
is not, of itself, determinative that the director did not meet the standard of
conduct set forth in subsection (a) of this Section 3.
(d) The Corporation may not indemnify a director under this
Section 3:
(1) In connection with a proceeding by or in the right of the
Corporation in which the director was adjudged liable to the
Corporation; or
(2) In connection with any other proceeding in which he was
adjudged liable on the basis that personal benefit was
improperly received by him.
(e) Indemnification permitted under this Section 3 in connection
with a proceeding by or in the right of the Corporation is limited to
reasonable expenses incurred in connection with the proceeding.
Section 4. DETERMINATION AND AUTHORIZATION OF PERMITTED
INDEMNIFICATION.
(a) The Corporation may not indemnify a director under Section 3
of this Article VI unless a determination has been made in the specific case
that indemnification of the director is permissible in the circumstances
because he has met the standard of conduct set forth in subsection (a) of such
Section 3.
(b) The determination required by subsection (a) hereof shall be
made:
(1) By the Board by majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
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(2) If a quorum cannot be obtained under paragraph (1) of this
subsection (b), by majority vote of a committee duly
designated by the Board (in which designation directors who
are parties may participate), consisting solely of two or more
directors not at the time parties to the proceeding;
(3) By special legal counsel:
(A) Selected by the Board or its committee in the
manner prescribed in paragraph (1) or (2) of this subsection;
or
(B) If a quorum of the Board cannot be obtained
under paragraph (1) of this subsection and a committee cannot
be designated under paragraph (2) of this subsection, selected
by majority vote of the full Board (in which directors who are
parties may participate); or
(4) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the
proceeding may not be voted on the determination.
(c) Authorization of indemnification or an obligation to indemnify
and evaluation as to reasonableness of expenses shall be made in the same
manner as the determination that indemnification is permissible, as set forth
in subsection (b) hereof, except that if such determination is made by special
legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled to select counsel
under paragraph (3) of subsection (b) of this Section 4.
Section 5. SHAREHOLDER-APPROVED INDEMNIFICATION.
(a) Without regard to any limitations contained in any other
section of this Article VI, the Corporation may, if authorized by its
shareholders by a majority of votes which would be entitled to be cast in a
vote to amend the Corporation's Articles of Incorporation (which authorization
may take the form of an amendment to the Articles of Incorporation or a
contract, resolution or by-law approved or ratified by the requisite
shareholder vote), indemnify or obligate itself to indemnify a director made a
party to a proceeding, including a proceeding brought by or in the right of the
Corporation.
(b) The Corporation shall not indemnify a director under this
Section 5 for any liability incurred in a proceeding in which the director is
adjudged liable to the Corporation or is subjected to injunctive relief in
favor of the Corporation:
(1) For any appropriation, in violation of his duties, of any
business opportunity of the Corporation;
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(2) For acts or omissions which involve intentional misconduct or
a knowing violation of law;
(3) For any type of liability for unlawful distribution under
Section 14-2-832 of the Code, or any successor statute; or
(4) For any transaction from which he received an improper personal
benefit.
(c) Where approved or authorized in the manner described in
subsection (a) of this Section 5, the Corporation may advance or reimburse
expenses incurred in advance of final disposition of the proceeding only if:
(1) The director furnishes the Corporation a written affirmation
of his good faith belief that his conduct does not constitute
behavior of the kind described in subsection (b) of this
Section 5; and
(2) The director furnishes the Corporation a written undertaking,
executed personally or on his behalf, to repay any advances if
it is ultimately determined that he is not entitled to
indemnification under this Section 5.
Section 6. ADVANCES FOR EXPENSES.
(a) The Corporation may pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
(1) The director furnishes the Corporation a written affirmation
of his good faith belief that he has met the standard of
conduct set forth in subsection (a) of Section 3 of this
Article VI; and
(2) The director furnishes the Corporation a written undertaking,
executed personally or on his behalf, to repay any advances if
it is ultimately determined that he is not entitled to
indemnification under this Article.
(b) The undertaking required by paragraph (2) of subsection (a) of
this Section 6 must be an unlimited general obligation of the director but need
not be secured and may be accepted without reference to financial ability to
make repayment.
Section 7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS.
Except as otherwise provided in the Articles of Incorporation, an officer of
the Corporation who is not a director is entitled to mandatory indemnification
under Section 2 of this Article VI, and is entitled to permissive
indemnification and advancement of expenses under the standards and procedures
set forth in Section 3, 4 and 5 of this Article VI, to the same extent as a
director, consistent with public policy.
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Section 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer,
employee, or agent of the Corporation or who, while a director, officer,
employee, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against liability asserted against
or incurred by him in that capacity or arising from his status as a director,
officer, employee, or agent, whether or not the Corporation would have power to
indemnify him against the same liability under this Article VI or applicable
law.
Section 9. EXPENSES FOR APPEARANCE AS WITNESS. Nothing
contained in this Article VI shall be deemed to limit the Corporation's power
to pay or reimburse expenses incurred by a director or officer in connection
with his appearance as a witness in a proceeding at a time when he has not been
made a named defendant or respondent to the proceeding.
ARTICLE VII.
REIMBURSEMENT OF NON-DEDUCTIBLE
PAYMENTS TO OFFICERS AND EMPLOYEES
In the event any payments to an officer or employee of the
Corporation, such as salary, commission, bonus, interest or rent expenses
incurred by him, is thereafter disallowed in whole or in part by the Internal
Revenue Service as a proper deduction for income tax purposes under Section 162
of the Internal Revenue Code of 1986 (or disallowed under any similar statutory
section which may subsequently replace such Section 162), such disallowed
payments shall be deemed to be an obligation owed by such officer or employee
to the Corporation. Such disallowed payments shall be reimbursed by such
officer or employee to the Corporation on or before ninety (90) days following
the final determination of such disallowance by the Internal Revenue Service or
entry of the final judgment of such determination if adjudicated. It shall be
the duty of the Board to enforce reimbursement of each such amount disallowed,
including the withholding from future compensation payments to such officer or
employee until the amount owed to the Corporation has been recovered.
ARTICLE VIII.
FISCAL YEAR
The fiscal year of the Corporation shall be established by the Board
or, in the absence of Board action establishing such fiscal year, by the Chief
Executive Officer.
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ARTICLE IX.
ANNUAL STATEMENTS
(a) No later than four months after the close of each fiscal year,
and in any case prior to the next annual meeting of shareholders, the
Corporation shall prepare:
(i) A balance sheet showing in reasonable detail the
financial condition of the Corporation as of the
close of the fiscal year, and
(ii) A profit and loss statement showing the results of
its operation during the fiscal year.
Upon written request, the Corporation shall mail promptly to any
shareholder of record a copy of the most recent such balance sheet and profit
and loss statement. If prepared for other purposes, the Corporation shall also
furnish upon written request a statement of sources and applications of funds
and a statement of changes in shareholders' equity for the fiscal year. If
financial statements are prepared by the Corporation on the basis of generally
accepted accounting principles, the annual financial statements must also be
prepared, and disclose that they are prepared, on that basis. If financial
statements are prepared otherwise than on the basis of generally accepted
accounting principles, they must so disclose and must be prepared on the same
basis as other reports or statements prepared by the Corporation for the use of
others.
(b) If the annual financial statements are reported upon by a
public accountant, his report must accompany them. If not, the statements must
be accompanied by a statement of the Chief Executive Officer or the person
responsible for the Corporation's accounting records:
(1) Stating his reasonable belief whether the statements were
prepared on the basis of generally accepted accounting
principles and, if not, describing the basis of preparation;
and
(2) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the
statements prepared for the preceding year.
ARTICLE X.
CAPITAL STOCK
Section 1. FORM.
(a) Except as otherwise provided for in paragraph (b) of this
Section 1, the interest of each shareholder shall be evidenced by a certificate
representing shares of stock of the Corporation, which shall be in such form as
the Board may from time to time adopt and shall be numbered and shall be
entered in the books of the Corporation as they are issued. Each
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certificate shall exhibit the holder's name, the number of shares and
class of shares and series, if any, represented thereby, the name of the
Corporation and a statement that the Corporation is organized under the laws of
the State of Georgia. Each certificate shall be signed by one or more officers
of the Corporation specified by resolution of the Board, but in the absence of
such specifications, shall be valid if executed by the Chief Executive Officer
or any Deputy or Assistant thereto, and such execution is countersigned by the
Secretary, or any Deputy or Assistant thereto. Each stock certificate may but
need not be sealed with the seal of the Corporation.
(b) If authorized by resolution of the Board, the Corporation may
issue some or all of the shares of any or all of its classes or series without
certificates. The issuance of such shares shall not affect shares already
represented by certificates until they are surrendered to the Corporation.
Within a reasonable time after the issuance or transfer of any shares not
represented by certificates, the Corporation shall send to the holder of such
shares a written statement setting forth, with respect to such shares (i) the
name of the Corporation as issuer and the Corporation's state of incorporation,
(ii) the name of the person to whom such shares are issued, (iii) the number of
shares and class of shares and series, if any, and (iv) the terms of any
restrictions on transfer which, were such shares represented by a stock
certificate would be required to be noted on such certificate, by law, by the
Articles of Incorporation or these By Laws, or by any legal agreement among the
shareholders of the Corporation.
Section 2. TRANSFER. Transfers of stock shall be made on the
books of the Corporation only by the person named in the certificate, or, in
the case of shares not represented by certificates, the person named in the
Corporation's stock transfer records as the owner of such shares, or, in either
case, by attorney lawfully constituted in writing. In addition, with respect
to shares represented by certificates, transfers shall be made only upon
surrender of the certificate therefor, or in the case of a certificate alleged
to have been lost, stolen or destroyed, upon compliance with the provisions of
Section 4, Article X of these By-Laws.
Section 3. RIGHTS OF HOLDER. The Corporation shall be entitled
to treat the holder of record of any share of the Corporation as the person
entitled to vote such share (to the extent such share is entitled to vote), to
receive any distribution with respect to such share, and for all other purposes
and accordingly shall not be bound to recognize any equitable or other claim to
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
law.
Section 4. LOST OR DESTROYED CERTIFICATES. Any person claiming
a certificate of stock to be lost, stolen or destroyed shall make an affidavit
or affirmation of the fact in such manner as the Board may require and shall if
the Board so requires, give the Corporation a bond of indemnity in the form and
amount and with one or more sureties satisfactory to the Board, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
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ARTICLE XI.
SEAL
The corporate seal shall be in such form as shall be specified in the
minutes of the organizational meeting of the Corporation, or as the Board may
from time to time determine.
ARTICLE XII.
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the corporation is
3343 Peachtree Road, NE, Suite 1800, Atlanta, Georgia 30326 and the name of the
initial registered agent is Arthur Jay Schwartz. The corporation may amend
this Article XII at any time to change its registered office or registered
agent, without further action of its officers or directors, by filing with the
Secretary of State a notice of such change, in accordance with Section 14-2-502
of the Code, or any successor statute.
The corporation may have other offices at such places within or
without the State of Georgia as the Board may from time to time designate or
the business of the corporation may require or make desirable.
ARTICLE XIII.
AMENDMENTS
Section 1. AMENDMENTS GENERALLY.
(a) Except as otherwise provided in subsection (c) of this Section
1, or in the Articles of Incorporation or by applicable law, the Board may
amend or repeal any provision of these By-Laws or adopt any new by-law, unless
the shareholders have adopted, amended or repealed a particular by-law
provision and, in doing so, have expressly reserved to the shareholders the
right of amendment or repeal therefor.
(b) The Corporation's shareholders have the right to amend or
repeal any provision of these By-Laws, or to adopt new By-Law provisions, even
though such provisions may also be adopted, amended or repealed by the Board.
(c) Any provision of these By-Laws limiting the authority of the
Board or establishing staggered terms for directors may be adopted, amended or
repealed only by the shareholders.
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Section 2. BY-LAW INCREASING QUORUM OR VOTING REQUIREMENTS.
(a) Except as provided in Section 14-2-1113 of the Code or any
successor statute thereto (relating to corporate business combinations with
statutorily defined "interested shareholders"), any by-law which sets a greater
quorum or voting requirement for shareholders (or voting groups of
shareholders) than the minimum required by the Code may not be adopted, amended
or repealed by the Board.
(b) Except as otherwise provided in the Articles of Incorporation,
a by-law that fixes a greater quorum or voting requirement for the Board than
the minimum required by the Code:
(1) May be adopted, amended, or repealed by the shareholders only
by the affirmative vote of a majority of the votes entitled to
be cast; or
(2) May be adopted, amended, or repealed by the directors only by
a majority of the entire Board.
(c) A by-law adopted or amended by the shareholders that fixes a
greater quorum or voting requirement for the Board may be amended or repealed
only by a specified vote of either the shareholders or the Board, if such
by-law provision so provides.
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EXHIBIT 10.1
E HOLDINGS, INC.
1997 INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the E Holdings, Inc. 1997 Incentive Plan (the
"Plan"). The purpose of the Plan is to enable E Holdings, Inc. (the "Company")
and its Subsidiaries and Affiliates to attract and retain employees and
directors who contribute to the Company's success by their ability, ingenuity
and industry, and to enable such employees and directors to participate in the
long-term success and growth of the Company through an equity interest in the
Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Affiliate" means any corporation (other than a Subsidiary),
partnership, joint venture or any other entity in which the Company owns,
directly or indirectly, at least a 10 percent beneficial ownership interest.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony, or a
participant's willful misconduct or dishonesty, any of which is harmful to the
business or reputation of the Company or any Subsidiary or Affiliate.
d. "Code" means the Internal Revenue Code of 1986, as amended, or
any successor thereto and the Treasury Regulations and rulings promulgated
thereunder.
e. "Committee" means a committee of the Board appointed for the
purpose of administering the Plan, which committee shall at all times consist
of two or more Non-Employee Directors.
f. "Commission" means the U.S. Securities and Exchange
Commission.
g. "Company" means E Holdings, Inc., a corporation organized
under the laws of the State of Georgia (or any successor corporation).
h. "Disability" means total and permanent disability as
determined under the Company's long term disability program.
i. "Early Retirement" means retirement from active employment
with the Company, any Subsidiary and any Affiliate pursuant to the early
retirement provisions of the applicable company pension plan.
j. "Eligible Employee" means a person regularly employed by the
Company or a Subsidiary and who is responsible for or contributes to the
management, growth and/or profitability of the business of the Company or a
Subsidiary.
k. "Eligible Participant" means an Eligible Employee or a
Non-Employee Director.
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l. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any successor thereto.
m. "Fair Market Value" means, as of any given date, the mean
between the high "bid" and low "ask" prices as of the close of business for the
Company's Stock in the over-the-counter market, as reported by the Nasdaq Stock
Market (or other national quotation service), or, if the Stock is registered on
a national securities exchange, the closing price of the Stock on such national
securities exchange or, if neither traded in the over-the-counter market nor
listed on a national securities exchange, then the fair market value as
determined by the Board or the Committee, but in no case less than the par
value of such Stock.
n. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
o. "Non-Employee Director" means a member of the Board who is not
a regular salaried employee of the Company or one of its Subsidiaries. As it
relates to the members of the Committee and for the purpose of Sections 2 and
10 of the Plan, "Non-Employee Director" shall have the meaning set forth in
Rule 16b-3(b) (3) as promulgated by the Commission under the Securities
Exchange Act of 1934, as amended, or any successor definition adopted by the
Commission.
p. "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
q. "Normal Retirement" means retirement from active employment
with the Company, any Subsidiary, and any Affiliate on or after the normal
retirement date specified in the applicable company pension plan.
r. "Performance Award" means an award of shares of Stock or cash
pursuant to Section 9 contingent upon achieving certain performance goals.
s. "Plan" means this 1997 Incentive Plan.
t. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 8.
u. "Retirement" means Normal or Early Retirement.
v. "Stock" means the Class A Common Stock of the Company.
w. "Stock Appreciation Right" means a right granted under Section
7 which entitles the holder to receive a cash payment or an award of Stock in
an amount equal to the difference between (i) the Fair Market Value of the
Stock covered by such right at the date the right is granted, unless otherwise
determined by the Board or the Committee pursuant to Section 7 and (ii) the
Fair Market Value of the Stock covered by such right at the date the right is
exercised multiplied by the number of shares covered by the right.
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x. "Stock Option" means any option to purchase shares of Stock
granted to Eligible Employees or Eligible Participants under the Plan.
y. "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Board or the Committee. Subject
to the provisions of Section 10 of the Plan, the Board or the Committee shall
have the power and authority to grant to Eligible Employees or Eligible
Participants, pursuant to the terms of the Plan: (i) Incentive Stock Options;
(ii) Non-Qualified Stock Options; (iii) Stock Appreciation Rights; (iv)
Restricted Stock; or (v) Performance Awards.
In particular, the Board or the Committee shall have the authority:
(i) to select the Eligible Employees or Eligible Participants to whom
Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, or Performance Awards or a combination of the
foregoing from time to time will be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock, or
Performance Awards or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares of Stock to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder including, but not limited
to, any restriction on any Stock Option or other award and/or the shares of
Stock relating thereto based on performance and/or such other factors as the
Board or the Committee may determine, in its sole discretion, and any vesting
acceleration features based on performance and/or such other factors as the
Board or the Committee may determine, in its sole discretion;
(v) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this Plan shall
be deferred either automatically or at the election of a participant, including
providing for and determining the amount (if any) of deemed earnings on any
deferred amount during any deferral period.
Subject to Section 12, the Board or the Committee shall have the
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall, from time to time, deem advisable; to
interpret the terms and provisions of the Plan and any award issued under the
Plan (and any agreements relating thereto); and to otherwise supervise the
administration of the Plan.
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All decisions made by the Board or the Committee pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 59,242. Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares.
If any shares of Stock that have been subject to option cease to be
subject to option, or if any shares subject to any Restricted Stock award
granted hereunder are forfeited or such award is otherwise terminated, such
shares shall again be available for distribution in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in the
aggregate number of shares reserved for issuance under the Plan, in the number
and option price of shares subject to outstanding Stock Options granted under
the Plan and in the number of shares subject to Restricted Stock awards granted
under the Plan as may be determined to be appropriate by the Board or the
Committee, in its sole discretion, provided that the number of shares subject
to any award shall always be a whole number. Such adjusted option price shall
also be used to determine the amount payable by the Company upon the exercise
of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
Awards granted pursuant to Section 5 hereunder shall be granted only
to Eligible Employees. Awards granted pursuant to Sections 6, 7, 8 and 9 shall
be granted only to Eligible Participants. Awards granted pursuant to Section
10 shall be granted only to Non-Employee Directors who are serving as members
of the Committee. The optionees and participants under the Plan shall be
selected from time to time by the Board or the Committee, in its sole
discretion, from among those eligible, and the Board or the Committee shall
determine, in its sole discretion, the number of shares covered by each award
or grant.
SECTION 5. INCENTIVE STOCK OPTIONS.
Incentive Stock Options may be granted either alone or in addition to
other awards granted under the Plan. Any Incentive Stock Option granted under
the Plan shall be in such form as the Board or the Committee may from time to
time approve, and the provisions of Incentive Stock Option awards need not be
the same with respect to each optionee.
The Board or the Committee shall have the authority to grant any
Eligible Employee Incentive Stock Options (with or without Stock Appreciation
Rights) except that Incentive Stock Options shall not be granted to employees
of an Affiliate. To the extent that any Stock Option does not qualify as an
Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option.
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Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. Notwithstanding the foregoing, in the event an
optionee voluntarily disqualifies an option as an Incentive Stock Option within
the meaning of Section 422 of the Code, the Board or the Committee may, but
shall not be obligated to, make such additional grants, awards or bonuses as
the Board or the Committee shall deem appropriate, to reflect the tax savings
to the Company which results from such disqualification.
Incentive Stock Options granted under the Plan shall be evidenced by
agreements to be consistent with and subject to the following terms and
conditions and shall contain such additional terms and conditions, consistent
with the terms of the Plan, as the Board or the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock
purchasable under an Incentive Stock Option shall be the Fair Market
Value of the Stock on the date of the grant of the Incentive Stock
Option; provided, however, that the option price per share of an
Incentive Stock Option granted to an individual who, at the time the
option is granted, owns directly or indirectly more than ten percent
(10%) of the total combined voting power of all classes of stock of
the Company (a "Ten Percent Owner"), shall be not less than one
hundred ten percent (110%) of the Fair Market Value on the date the
option is granted.
(b) Option Term. The term of each Incentive Stock Option
shall be fixed by the Board or the Committee, but no Incentive Stock
Option shall be exercisable more than ten years after the date such
option is granted. Notwithstanding the foregoing, no Incentive Stock
Option granted to a Ten Percent Owner shall be exercisable more than
five (5) years from the date of grant of the option.
(c) Exercisability. Subject to paragraph (j) of this
Section 5, Incentive Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be
determined by the Board or the Committee at grant, provided, however,
that except as provided in paragraphs (f) and (g) of this Section 5
and Section 15, unless a longer vesting period is otherwise determined
by the Board or the Committee at grant, no Incentive Stock Option
shall be exercisable for a period of six months after the date of the
grant of the option. If the Board or the Committee provides, in its
discretion, that any Incentive Stock Option is exercisable only in
installments, the Board or the Committee may waive such installment
exercise provision at any time in whole or in part based on
performance and/or such other factors as the Board or the Committee
may determine in its sole discretion.
(d) Method of Exercise. Incentive Stock Options may be
exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Company specifying the number
of shares to be purchased, accompanied by payment in full of the
purchase price, in cash, by check or such other instrument as may be
acceptable to the Board or the Committee. As determined by the Board
or the Committee, in its sole discretion, at or after grant, payment
in full or in part may also be made in the form of unrestricted Stock
owned by the optionee (based on the Fair Market Value of the Stock on
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the date the option is exercised). An optionee shall have the right
to dividends or other rights of a stockholder with respect to shares
subject to the option only when the optionee has given written notice
of exercise and has paid in full for such shares.
(e) Non-transferability of Options. No Incentive Stock
Option shall be transferable by the Optionee otherwise than by will or
by the laws of descent and distribution. All Incentive Stock Options
shall be exercisable, during the optionee's lifetime, only by the
optionee.
(f) Termination by Death. Unless otherwise determined by
the Board or the Committee at grant, if any optionee's employment with
the Company, any Subsidiary, and any Affiliate terminates by reason of
death, the Incentive Stock Option may thereafter be immediately
exercised, to the extent then exercisable (or on such accelerated
basis as the Board or the Committee shall determine at or after
grant), by the legal representative of the estate or by the legatee of
the optionee under the will of the optionee, for a period of three
years from the date of such death or until the expiration of the
stated term of such Incentive Stock Option, whichever period is the
shorter.
(g) Termination by Reason of Disability. Unless
otherwise determined by the Board or the Committee at grant, if any
optionee's employment with the Company, any Subsidiary and any
Affiliate terminates by reason of Disability, any Incentive Stock
Option held by such optionee may thereafter be exercised, to the
extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Board or Committee shall
determine at or after grant), but may not be exercised after three
years from the date of such termination of employment or the
expiration of the stated term of such Incentive Stock Option,
whichever period is the shorter; provided, however, that, if the
optionee dies within such three-year period, any unexercised Incentive
Stock Option held by such optionee shall thereafter be exercisable to
the extent to which it was exercisable at the time of death for a
period of twelve months from the date of such death or for the stated
term of such Incentive Stock Option, whichever period is the shorter.
In the event of termination of employment by reason of Disability, if
an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(h) Termination by Reason of Retirement. Unless
otherwise determined by the Board or the Committee at grant, if any
optionee's employment with the Company, any Subsidiary and any
Affiliate terminates by reason of Normal or Early Retirement, any
Incentive Stock Option held by such optionee may thereafter be
exercised to the extent it was exercisable at the time of such
Retirement (or on such accelerated basis as the Board or the
Committee shall determine at or after grant), but may not be exercised
after three years from the date of such termination of employment or
the expiration of the stated term of such Incentive Stock Option,
whichever period is the shorter; provided, however, that, if the
optionee dies within such three-year period any unexercised Incentive
Stock Option held by such optionee shall thereafter be exercisable, to
the extent to which it was exercisable at the time of death, for a
period of twelve months from the date of such death or for the stated
term of the Incentive Stock Option, whichever period is the shorter.
In the event of
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termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by
the Board or the Committee at grant, if an optionee's employment with
the Company, any Subsidiary and any Affiliate terminates for any
reason other than death, Disability or Normal or Early Retirement, the
Incentive Stock Option shall thereupon terminate, except that such
option may be exercised for the lesser of three months from the date
of termination or the balance of such option's term if the optionee's
employment with the Company, any Subsidiary and any Affiliate is
involuntarily terminated by the optionee's employer without Cause.
(j) Limit on Value of Incentive Stock Option First
Exercisable Annually. To the extent that the aggregate Fair Market
Value (determined at the time the option is granted) of shares of
Stock with respect to which Incentive Stock Options are exercisable
for the first time by an individual during any calendar year (under
all of the Company's option plans) exceeds $100,000, such options
shall be treated as Non-Qualified Stock Options.
SECTION 6. NON-QUALIFIED STOCK OPTIONS.
The Board or the Committee may grant to Eligible Participants options
under the Plan which are not Incentive Stock Options under the provisions of
Section 422 of the Code. Such Non-Qualified Stock Options shall be evidenced
by agreements in such form and consistent with this Plan as the Board or the
Committee shall approve from time to time, which agreements shall contain in
substance the same terms and conditions as set forth in Section 5 hereof with
respect to Incentive Stock Options (except that references to employment with
the Company shall be deemed to mean service on the Board); provided, however,
that the limitations set forth in Sections 5(a), 5(b) or 5(j) shall not be
applicable to Non- Qualified Stock Options. Payment of the option exercise
price for a Non-Qualified Stock Option may be made in the form of Restricted
Stock owned by the optionee, in which case the shares received upon the
exercise of such Non-Qualified Stock Option shall be restricted or deferred, as
the case may be, in accordance with the original term of the Restricted Stock
award in question, except that the Board or the Committee may direct that such
restrictions or deferral provisions shall apply only to the number of such
shares equal to the number of shares of Restricted Stock surrendered upon the
exercise of such option. No shares of unrestricted Stock shall be issued until
full payment therefor has been made.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise When Granted in Conjunction With Stock
Options. Stock Appreciation Rights may be granted in conjunction with all or
part of any Stock Option granted under the Plan and may contain terms and
conditions different from those of the related Stock Option, except as
otherwise provided below. In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the grant of such
Non-Qualified Stock Option. In the case of an Incentive Stock Option, such
rights may be granted only at the time of the grant of such Incentive Stock
Option.
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A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that,
unless otherwise provided by the Board or the Committee at the time of grant, a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related Stock Option shall only be reduced if and to the
extent that the number of shares covered by the exercise or termination of the
related Stock Option exceeds the number of shares not covered by the Stock
Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (d) of this Section 7, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (d) of this Section 7. Stock Options which have been
so surrendered, in whole or in part, shall no longer be exercisable to the
extent the related Stock Appreciation Rights have been exercised.
(b) Grant and Exercise When Granted in Tandem With Stock Option.
Stock Appreciation Rights may be granted in tandem either at the time of grant
of a Non-Qualified Stock Option or at any time during the term of such Stock
Option. Stock Appreciation Rights are not permitted to be granted in tandem
with an Incentive Stock Option under this Plan.
A Stock Appreciation Right may be exercised at any time to the extent
that the Stock Option to which it relates is then exercisable, and shall be
subject to the conditions applicable to such Stock Option. When a Stock
Appreciation Right is exercised in accordance with Section 7(d), the Stock
Option to which it relates shall cease to be exercisable to the extent of the
number of shares with respect to which the Stock Appreciation Right is
exercised. Similarly, when an option is exercised, the Stock Appreciation
Right relating to the shares covered by such Stock Option exercise shall
terminate. Any Stock Appreciation Right which is outstanding on the last day
of the term of the Stock Option to which it is related shall be automatically
exercised on such date for cash or Stock, as determined by the Board or the
Committee, without any action by the optionee.
(c) Grant and Exercise When Granted Alone. Stock Appreciation
Rights may be granted at the discretion of the Board or the Committee in a
manner not related to an award of a Stock Option. A Stock Appreciation Right
granted under this Section 7(c) is not exercisable for a period of six months
from the date of grant, unless a longer period is otherwise determined by the
Board or the Committee. The Stock Appreciation Right, granted under Section
7(c), shall be exercisable in accordance with Section 7(d) over a period not to
exceed ten years. Any Stock Appreciation Right which is outstanding on the
last day of the exercisable period shall be automatically exercised on such
date for cash or Stock, as determined by the Board or the Committee, without
any action by the holder.
(d) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the provisions of
the Plan, as shall be determined from time to time by the Board or the
Committee, including the following:
(i) Stock Appreciation Rights granted pursuant to Section 7(a)
and 7(b) shall be exercisable only at such time or times and to the
extent that the Stock Options to which the
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Stock Appreciation Rights relate shall be exercisable in accordance
with the provisions of Sections 5 and 6 and this Section 7 of the
Plan; provided, however, that any Stock Appreciation Right granted
subsequent to the grant of the related Stock Option shall not be
exercisable during the first six months of the term of the Stock
Appreciation Right, except that this additional limitation shall not
apply in the event of death or Disability of the optionee prior to
the expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right granted
pursuant to Section 7(a) or 7(b), an optionee shall be entitled to
receive an amount in cash or shares of Stock equal in value to the
excess of the Fair Market Value of one share of Stock over the option
price per share specified in the related Stock Option multiplied by
the number of shares in respect of which the Stock Appreciation Right
shall have been exercised, with the Board or the Committee having the
right to determine the form of payment. Upon the exercise of a Stock
Appreciation Right granted pursuant to Section 7(c), the holder shall
be entitled to receive an amount in cash or shares of Stock equal in
value to the excess of the Fair Market Value of one share of Stock
over the Fair Market Value of one share of Stock at the date the Stock
Appreciation Right was granted multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been
exercised, with the Board or the Committee having the right to
determine the form of payment.
(iii) No Stock Appreciation Right shall be transferable by the
holder otherwise than by will or the laws of descent and distribution.
All Stock Appreciation Rights shall be exercisable, during the
holder's lifetime, only by the holder.
(iv) Upon the exercise of a Stock Appreciation Right granted
pursuant to Section 7(a) or Section 7(b), the Stock Option or part
thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set
forth in Section 3 of the Plan on the number of shares of Stock to be
issued under the Plan.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option pursuant to Section 7(a), may be exercised only
if and when the market price of the Stock subject to the Incentive
Stock Option exceeds the exercise price of such Stock Option.
(vi) In its sole discretion, the Board or the Committee may
provide, at the time of grant of a Stock Appreciation Right under this
Section 7, that such Stock Appreciation Right can be exercised only in
the event of a "Change of Control" and/or a "Potential Change of
Control" (as defined in Section 14 below).
(vii) The Board or the Committee, in its sole discretion, may
also provide that in the event of a "Change of Control" and/or a
"Potential Change of Control" (as defined in Section 14 below) the
amount to be paid upon the exercise of a Stock Appreciation Right
shall be based on the "Change of Control Price" (as defined in Section
14 below).
(viii) Any exercise by a participant of all or a portion of a
Stock Appreciation Right for cash, may only be made during the period
beginning on the third business day following the date of the
Company's release of its quarterly or annual summary statements of
sales and
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earnings to the public and ending on the twelfth business day
following such date; provided, however, that the foregoing shall
not apply to any exercise by a participant of a Stock Appreciation
Right for cash where the date of exercise is automatic or fixed in
advance under the Plan and is outside the control of the participant.
SECTION 8. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued
either alone or in addition to other awards granted under the Plan. The Board
or the Committee shall determine the Eligible Participants to whom, and the
time or times at which, grants of Restricted Stock will be made, the number of
shares to be awarded, the price, if any, to be paid by the recipient of
Restricted Stock (subject to Section 8(b) hereof), the time or times within
which such awards may be subject to forfeiture, and all other conditions of the
awards. However, in no event shall any restriction, including risk of
forfeiture, attach to the Restricted Stock for a term to exceed ten years from
the date such Stock was granted. The Board or the Committee may also condition
the grant of Restricted Stock upon the attainment of specified performance
goals, or such other criteria as the Board or the Committee may determine, in
its sole discretion. The provisions of Restricted Stock awards need not be the
same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an
award of shares of Restricted Stock shall not have any rights with respect to
such award, unless and until such recipient has executed an agreement
evidencing the award (a "Restricted Stock Award Agreement") and has delivered a
fully executed copy thereof to the Company, and has otherwise complied with the
then applicable terms and conditions.
(i) Awards of Restricted Stock must be accepted within a
period of 60 days (or such shorter period as the Board or the
Committee may specify) after the award date by executing a Restricted
Stock Award Agreement and paying whatever price, if any, is required.
(ii) Each participant who is awarded Restricted Stock shall be
issued a stock certificate in respect of such shares of Restricted
Stock. Such certificate shall be registered in the name of the
participant, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such award,
substantially in the following form:
"The transferability of this certificate and
the shares of stock represented hereby are subject
to the terms and conditions (including forfeiture) of
the E Holdings, Inc. 1997 Incentive Plan and a
Restricted Stock Agreement entered into between the
registered owner and E Holdings, Inc. Copies of such
Plan and Agreement are on file in the offices of E
Holdings, Inc., 3340 Peachtree Road, Suite 2000,
Atlanta, Georgia 30326."
(iii) The Board or the Committee shall require that the stock
certificates evidencing such shares be held in custody by the Company
until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award, the participant shall have
delivered a stock power, endorsed in blank, relating to the Stock
covered by such award.
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(c) Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to this Section 8 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of this Plan and Restricted
Stock Award Agreements, during the period of six months after the
award or such longer period as may be set by the Board or the
Committee commencing on the grant date (the "Restriction Period"), the
participant shall not be permitted to sell, transfer, pledge or assign
shares of Restricted Stock awarded under the Plan. Within these
limits, the Board or the Committee may, in its sole discretion,
provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions in whole or in part based on
performance and/or such other factors as the Board or the Committee
may determine, in its sole discretion.
(ii) Except as provided in paragraph (c)(i) of this Section 8,
the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a stockholder of the Company, including
the right to receive any dividends.
Dividends paid in cash with respect to shares of Restricted
Stock shall not be subject to any restrictions or subject to
forfeiture. Dividends paid in stock of the Company or stock received
in connection with a stock split with respect to Restricted Stock
shall be subject to the same restrictions as on such Restricted Stock.
Certificates for shares of unrestricted Stock shall be delivered to
the participant promptly after, and only after, the period of
forfeiture shall expire without forfeiture in respect of such shares
of Restricted Stock.
(iii) Subject to the provisions of the Restricted Stock Award
Agreement and this Section 8, upon termination of employment for any
reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant, and the participant
shall only receive the amount, if any, paid by the participant for
such forfeited Restricted Stock.
(iv) In the event of special hardship circumstances of a
participant whose employment is involuntarily terminated (other than
for Cause), the Board or the Committee may, in it sole discretion,
waive in whole or in part any or all remaining restrictions with
respect to such participant's shares of Restricted Stock.
SECTION 9. PERFORMANCE AWARDS.
(a) Administration. Shares of Stock or a payment in cash may be
distributed under the Plan upon the attainment of achievement objectives to a
participant as a Performance Award. The Board or the Committee shall determine
the Eligible Participants to whom the Performance Award is granted, the terms
and conditions of the achievement objectives, the term of the performance
period, and the level and form of the payment of the Performance Award.
(b) Achievement Objectives. The Board or the Committee, at its
sole discretion may establish, under this Section 9, achievement objectives
either in terms of Company-wide objectives or in terms of objectives that are
related to the specific performance of the participant or the division,
subsidiary, department or function within the Company in which the participant
is engaged. A minimum level of acceptance, at the discretion of the Board or
the Committee, may be established.
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If at the end of the performance period the specified objectives have
been attained, the participant is deemed to have fully earned the Performance
Award. If such achievement objectives have not been attained, the participant
is deemed to have partly earned the Performance Award and becomes eligible to
receive a portion of the total award, as determined by the Board or the
Committee. If a required minimum level of achievement has not been met, the
participant is entitled to no portion of the Performance Award. The Company
may adjust the payment of awards or the achievement objectives if events occur
or circumstances arise which would cause a particular payment or set of
achievement objectives to be inappropriate as a measure of performance.
(c) Terms and Conditions. A participant to whom a Performance
Award has been granted is given achievement objectives to be reached over a
specified period, the "performance period." Generally this period shall be not
less than one year but in no case shall the period exceed five years.
Any participant granted a Performance Award pursuant to this Section 9
who by reason of death, disability or retirement terminates his position with
the Company before the end of the performance period is entitled to receive a
portion of any earned Performance Award.
A participant who terminates his position with the Company for any
other reason forfeits all rights under the Performance Award.
SECTION 10. PARTICIPATION OF NON-EMPLOYEE DIRECTOR COMMITTEE MEMBERS.
Each Non-Employee Director serving on the Committee shall be eligible
to receive awards granted pursuant to Sections 6, 7, 8 and 9 of the Plan only
upon authorization and approval of the Board or the stockholders of the
Company.
SECTION 11. LOAN PROVISIONS.
With the consent of the Board or the Committee, the Company may make,
or arrange for, a loan or loans to an Eligible Employee or Eligible Participant
with respect to the exercise of any Stock Option granted under the Plan and/or
with respect to the payment of the purchase price, if any, of any Restricted
Stock awarded hereunder. The Board or the Committee shall have full
authority to decide whether to make a loan or loans hereunder and to determine
the amount, term and provisions of any such loan or loans, including the
interest rate to be charged in respect of any such loan or loans, whether the
loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and the conditions, if any, under which
the loan or loans may be forgiven.
SECTION 12. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the right of an
optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, or Performance Award theretofore granted, without the
optionee's or participant's consent, or which without the approval of the
shareholders would:
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(a) except as expressly provided in this Plan, increase
the total number of shares reserved for the purpose of the Plan;
(b) decrease the option price of any Stock Option to less
than 100% of the Fair Market Value on the date of the granting of the
option;
(c) change the participants or class of participants
eligible to participate in the Plan so as to add directors or
executive officers to the class of Eligible Participants;
(d) extend the maximum option period under paragraph (b)
of Section 5 of the Plan;
(e) otherwise materially modify the requirements as to
eligibility for participation in the Plan; or
(f) otherwise materially increase the benefits accruing
to participants under the Plan.
The Plan may at any time or from time to time be terminated, modified
or amended by the affirmative vote of not less than a majority of the votes
entitled to be cast thereon by the Company's stockholders. The Board or the
Committee may amend the terms of any award or option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights
of any holder without his consent. The Board or the Committee may also
substitute new Stock Options for previously granted Stock Options including
options granted under other plans applicable to the participant and previously
granted Stock Options having higher option prices.
SECTION 13. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing set forth herein shall give any
such participant or optionee any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Board or the
Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Stock or a payment in lieu of
or with respect to awards hereunder, provided, however, that the existence of
such trusts or other arrangements is consistent with the unfunded status of the
Plan.
SECTION 14. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall apply in the
event of a "Change of Control" or "Potential Change of Control," as defined in
this Section 14:
(a) In the event of a "Change of Control" as defined in paragraph
(b) of this Section 14, unless otherwise determined by the Board or the
Committee in writing at or after grant, but prior to the occurrence of such
Change of Control, or, if and to the extent so determined by the Board or the
Committee in writing at or after grant (subject to any right of approval
expressly reserved by the
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Board or the Committee at the time of such determination) in the event of a
"Potential Change of Control," as defined in paragraph (c) of this Section 14:
(i) any Stock Appreciation Rights and any Stock Options
awarded under the Plan which have been outstanding for at least six
months, if not previously exercisable and vested shall become fully
exercisable and vested;
(ii) with the exception of the six month restriction in
Section 8(c)(i), the restrictions and deferral limitations applicable
to any Restricted Stock award under the Plan shall lapse and such
shares and awards shall be deemed fully vested; and
(iii) the value of all outstanding Stock Options, Stock
Appreciation Rights, Restricted Stock or Performance Awards shall, to
the extent determined by the Board or the Committee at or after grant,
be cashed out on the basis of the "Change of Control Price" (as
defined in paragraph (d) of this Section 14) as of the date the Change
of Control occurs or Potential Change of Control is determined to have
occurred, or such other date as the Board or the Committee may
determine prior to the Change of Control or Potential Change of
Control.
(b) For purpose of paragraph (a) of this Section 14, a "Change of
Control" means the happening of any of the following:
(i) when any "person," as such term used in Section 13(d) and
14(d) of the Exchange Act (other than Steven Bostic or any affiliate
of Steven Bostic, the Company or a Subsidiary or any Company employee
benefit plan (including its trustee)), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding
securities;
(ii) when, during any period of two consecutive years during
the existence of the Plan, the individuals who, at the beginning of
such period, constitute the Board cease, for any reason other than
death, to constitute at least a majority thereof, unless each director
who was not a director at the beginning of such period was elected by,
or on the recommendation of, at least two-thirds of the directors at
the beginning of such period; or
(iii) the occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than
the Company or a Subsidiary through purchase of assets, or by merger,
or otherwise.
(c) For purposes of paragraph (a) of this Section 14, a "Potential
Change of Control" means the happening of any of the following:
(i) the entering into an agreement by the Company, the
consummation of which would result in a Change of Control of the
Company as defined in paragraph (b) of this Section 14; or
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(ii) the acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than Steven Bostic
or any affiliate of Steven Bostic, the Company or a Subsidiary or any
Company employee benefit plan (including its trustee)) of securities
of the Company representing five percent or more of the combined
voting power of the Company's outstanding securities and the adoption
by the Board of Directors of a resolution to the effect that a
Potential Change of Control of the Company has occurred for purposes
of this Plan.
(d) For purposes of this Section 14, "Change of Control Price"
means the highest price per share paid in any transaction reported on the
Nasdaq Stock Market or the New York Stock Exchange Composite Tape, whichever
then applies to the Stock, or paid or offered in any transaction related to a
potential or actual Change of Control of the Company at any time during the
preceding 60 day period as determined by the Board or the Committee, except
that in the case of Incentive Stock Options and Stock Appreciation Rights
relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Board or the Committee decides
to cash out such options.
SECTION 15. GENERAL PROVISIONS.
(a) All certificates for shares of Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as the
Board or the Committee may deem advisable under the rules, regulations, and
other requirements of the Commission, any stock exchange upon which the Stock
is then listed, and any applicable federal or state securities law, and the
Board or the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee or director of the Company, any
Subsidiary or any Affiliate, any right to continued employment (or, in the case
of a director, continued retention as a director) with the Company, a
Subsidiary or an Affiliate, as the case may be, nor shall it interfere in any
way with the right of the Company, a Subsidiary or an Affiliate to terminate
the employment of any of its employees at any time.
(c) Each participant shall, no later than the date as of which the
value of an award first becomes includable in the gross income of the
participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Board or the Committee regarding payment of,
any federal, state, or local taxes of any kind required by law to be withheld
with respect to the award. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements and the Company (and, where
applicable, its Subsidiaries and Affiliates), shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the participant. A participant may irrevocably elect to have
the withholding tax obligations or, in the case of all awards hereunder except
Stock Options which have related Stock Appreciation Rights, if the Board or the
Committee so determines, any additional tax obligation with respect to any
awards hereunder satisfied by (a) having the Company withhold shares of Stock
-15-
<PAGE> 16
otherwise deliverable to the participant with respect to the award or (b)
delivering to the Company shares of unrestricted Stock.
(d) At the time of grant or purchase, the Board or the Committee
may provide in connection with any grant or purchase made under this Plan that
the shares of Stock received as a result of such grant or purchase shall be
subject to a right of first refusal, pursuant to which the participant shall be
required to offer the Company any shares that the participant wishes to sell,
with the price being the then Fair Market Value of the Stock, subject to
provisions of Section 15 hereof and to such other terms and conditions as the
Board or the Committee may specify at the time of grant.
(e) No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all members of the Board or
the Committee and each and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
SECTION 16. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is approved by a majority
vote of the Company's stockholders.
SECTION 17. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock or
Performance Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the date of stockholder approval, but awards theretofore granted
may extend beyond that date.
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<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 1
TO THE
E HOLDINGS, INC.
1997 INCENTIVE PLAN
WHEREAS, the Board of Directors of EduTrek International, Inc. (the
"Company") has previously adopted, and the shareholders of the Company have
approved, the E Holdings, Inc. 1997 Incentive Plan (the "Plan") pursuant to
which options to purchase stock of the Company may be issued to eligible
directors and employees of the Company; and
WHEREAS, the Company changed its name from E Holdings, Inc. to EduTrek
International, Inc., such name change being effective as of April 8, 1997;
WHEREAS, the Board of Directors of the Company deems it desirable to
amend the Plan as provided herein to provide for an increase of the total
number of shares of Class A Common Stock of the Corporation reserved and
available for issuance under the Plan;
NOW, THEREFORE, the Plan is amended upon the terms, and subject to the
conditions, set forth herein:
ARTICLE I
AMENDMENT TO PLAN
1.1 Section 3 of the Plan, entitled "Stock Subject to Plan", shall
be amended by deleting the first sentence thereof in its entirety and
substituting therefor the following:
"The total number of shares of Stock reserved and
available for distribution under the Plan shall be 118,484."
ARTICLE II
EFFECTIVE DATE OF AMENDMENT
2.1 The amendments effected hereby shall be effective on or after
the date this amendment is approved by the Board of Directors of the Company,
but subject to approval of a majority of the shares of Common Stock of the
Company entitled to vote thereon represented in person and by proxy at a
meeting of shareholders.
<PAGE> 1
EXHIBIT 10.3
EDUTREK INTERNATIONAL, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT ("Option Agreement") made and
entered into this _______ day of _____________ ______, 199___ by and between
EduTrek International, Inc. (the "Company") and _________________________
("Employee");
W I T N E S S E T H:
The Board of Directors of the Company has adopted that certain 1997
Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit "A"
and incorporated herein by reference. Pursuant to the terms of the Plan and in
consideration of the efforts of Employee on behalf of the Company, the Board
of Directors has selected Employee to participate in the Plan and desires to
grant to Employee certain incentive stock options to purchase shares of the
Company's authorized Class A Common Stock, without par value ("Stock"), subject
to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, agreements and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. INCORPORATION OF PLAN PROVISIONS
This Option Agreement is subject to and is to be construed in all
respects in a manner which is consistent with the terms of the Plan, the
provisions of which are hereby incorporated by reference into this Option
Agreement. Unless specifically provided otherwise, all terms used in this
Option Agreement shall have the same meaning as in the Plan.
2. GRANT OF OPTION
Subject to the further terms and conditions of this Option Agreement,
Employee is hereby granted a stock option to purchase ____________________
shares of Stock, effective as of the date first written above. This stock
option is intended to be an Incentive Stock Option as provided in Section 422
of the Internal Revenue Code.
3. FAIR MARKET VALUE OF STOCK
The Board of Directors has determined, in good faith and in its best
judgment, that the fair market value per share of Stock as of the date this
stock option is granted is $_______________.
4. OPTION PRICE
The Board of Directors has determined that the price for each share of
Stock purchased under this Option Agreement shall be $____________________.
<PAGE> 2
5. VESTING AND EXPIRATION OF OPTIONS
The option to acquire Stock pursuant to this Option Agreement shall vest
as to ________________ shares of Stock on each of the first, second, third,
fourth and fifth anniversary dates hereof. The option shall lapse and shall
not be exercisable, and this Option Agreement shall terminate (to the extent
not previously fully exercised) upon the first to occur of the following:
(a) 20_____ (the tenth anniversary of the date of grant of
the option);
(b) The date which is three (3) months following the date
which Employee ceases his employment with the Company or any subsidiary of the
Company, otherwise than as a result of Employee's death, total disability or
retirement; or
(c) The date which is the third anniversary of the date
upon which Employee ceases to be employed by the Company, or any subsidiary of
the Company, by reason of Employee's death, total disability or retirement.
6. EXERCISE OF OPTION
Unless options hereunder shall earlier lapse or expire pursuant to
Article 5 hereof, this option may be exercised with respect to the aggregate
number of shares subject to this Option Agreement which are vested at any time
after the first anniversary of the date hereof.
To the extent such options become exercisable in accordance with the
foregoing, Employee may exercise this stock option, in whole or in part, from
time to time. The option exercise price may be paid by Employee either in
cash, or, in the event that an organized trading market in the Stock exists on
the date of exercise of the option, by surrender of unrestricted Stock held by
Employee (provided that such shares have been owned by Employee for more than
six months on the date of surrender).
For the purposes of this Article 6, an "organized trading market" shall
be deemed to exist on the date of exercise of the option if: (a) the Stock is
listed on a national securities exchange, or (b) the Stock has been quoted on
the Nasdaq Stock Market ("Nasdaq") for the 15 trading days preceding the date
of exercise of the option, or (c) bid and asked quotations for the Stock have
been published by the National Quotation Bureau or other recognized
inter-dealer quotation publication (other than Nasdaq) during 20 of the 30
trading days preceding the date of exercise of the option. In the event that
an organized trading market for the Stock exists on the date of exercise of the
option, Employee shall be given credit against the option exercise price
hereunder for such shares surrendered equal to the average of the high "bid"
and low "asked" price quotations on the day of exercise of the option, or, if
there were no price quotations for such date, on the date next preceding such
date on which there were high "bid" and low "asked" price quotations for the
Stock.
7. MANNER OF EXERCISE
This stock option may be exercised by written notice to the Secretary of
the Company specifying the number of shares to be purchased and signed by
Employee or such other person who may be entitled to acquire Stock under this
Option Agreement. If any such notice is signed by a person other than
Employee, such person shall also provide such other information and
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<PAGE> 3
documentation as the Secretary of the Company may reasonably require to assume
that such person is entitled to acquire Stock under the terms of the Plan and
this Option Agreement. After receipt of the notice and any other assurances
requested by the Company under this Article 7, and upon receipt of the full
option price, the Company shall issue to the person giving notice of exercise
under this Option Agreement the number of shares specified in such notice.
8. RESTRICTIONS ON TRANSFERABILITY
The stock option granted hereunder shall not be transferable by Employee
otherwise than by will or by the laws of descent and distribution, and such
stock option shall be exercisable during Employee's lifetime only by Employee.
9. FURTHER RESTRICTIONS ON EXERCISE AND SALE OF STOCK
Employee acknowledges and understands that the Stock subject to this
Option Agreement is not registered under the Federal Securities Act of 1933, as
amended ("Federal Act") or under the Georgia Securities Act of 1973, as amended
(the "State Act"). Each option shall be subject to the requirement that if at
any time the Board of Directors shall determine, in its discretion, that the
listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option or the issue
or purchase of shares thereunder, such option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Board of Directors. The costs of any such listing, registration,
qualification, consent or approval shall be paid by the Company.
Alternatively, the Company shall not permit any exercise of this stock option
unless it receives such representations, factual assurances, and legal opinions
as it may deem necessary to determine and document the availability of an
exemption from registration under both the Federal Act and the State Act with
respect to any particular issuance of shares under this Option Agreement.
Further, the Board of Directors shall require that Stock issued in respect of
any exercise of this stock option shall bear such restrictions on further
transfer as shall be necessary to insure the availability of any exemption so
claimed.
10. REORGANIZATION
In the event that dividends are payable in Stock or in the event there
are splits, subdivisions or combinations of shares of Stock, the number of
shares available under the Plan shall be increased or decreased
proportionately, as the case may be, and the number of shares deliverable upon
the exercise thereafter of any Option theretofore granted shall be increased or
decreased proportionately, as the case may be, without change in the aggregate
purchase price.
In case the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or in case the property or
stock of the Company is acquired by another corporation, or in case of a
separation, reorganization, recapitalization or liquidation of the Company, the
Board of Directors of the Company, or the Board of Directors of any corporation
assuming the obligations of the Company hereunder, shall either (i) make
appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which
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<PAGE> 4
will be issuable in respect to the shares of Stock, provided only that the
excess of the aggregate fair market value of the shares subject to option
immediately after such substitution over the purchase price thereof is not more
than the excess of the aggregate fair market value of the shares subject to
option immediately before such substitution over the purchase price thereof.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed by a member of the Board of Directors or a designated committee
thereof, or a duly authorized officer of the Company, and Employee has executed
this Option Agreement as of the date first written above.
EDUTREK INTERNATIONAL, INC.
By: _______________________________
Its: ______________________________
"EMPLOYEE"
___________________________________
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<PAGE> 1
EXHIBIT 10.4
EDUTREK INTERNATIONAL, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT ("Option Agreement") made and
entered into this_____ day of _____________, 199__ by and between EduTrek
International, Inc. (the "Company") and ___________________ ("Participant");
W I T N E S S E T H:
The Board of Directors of the Company has adopted that certain 1997
Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit "A"
and incorporated herein by reference. Pursuant to the terms of the Plan and in
consideration of the efforts of Participant on behalf of the Company, the
Board of Directors has selected Participant to participate in the Plan and
desires to grant to Participant certain stock options to purchase shares of the
Company's authorized Class A Common Stock, without par value ("Stock"), subject
to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, agreements and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. INCORPORATION OF PLAN PROVISIONS
This Option Agreement is subject to and is to be construed in all
respects in a manner which is consistent with the terms of the Plan, the
provisions of which are hereby incorporated by reference into this Option
Agreement. Unless specifically provided otherwise, all terms used in this
Option Agreement shall have the same meaning as in the Plan.
2. GRANT OF OPTION
Subject to the further terms and conditions of this Option Agreement,
Participant is hereby granted a stock option to purchase _____________ shares
of Stock, effective as of the date first written above.
3. OPTION PRICE
The Board of Directors has determined that the price for each share of
Stock purchased under this Option Agreement shall be $___________.
<PAGE> 2
4. VESTING AND EXPIRATION OF OPTIONS
The option to acquire Stock pursuant to this Option Agreement shall vest
as to ________ shares of Stock on each of the first, second, third, fourth and
fifth anniversary dates hereof. The option shall lapse and shall not be
exercisable, and this Option Agreement shall terminate (to the extent not
previously fully exercised) upon the first to occur of the following:
(a) __________________, 200__ (the tenth anniversary of the
date of grant of the option);
(b) The date which is three (3) months following the date
which Participant ceases his association with the Company or any subsidiary of
the Company, otherwise than as a result of Participant's death, total
disability or retirement; or
(c) The date which is the third anniversary of the date
upon which Participant ceases his association with the Company, or any
subsidiary of the Company, by reason of Participant's death, total disability
or retirement.
5. EXERCISE OF OPTION
Unless options hereunder shall earlier lapse or expire pursuant to
Article 4 hereof, this option may be exercised with respect to the aggregate
number of shares subject to this Option Agreement which are vested at any time
after the first anniversary of the date hereof.
To the extent such options become exercisable in accordance with the
foregoing, Participant may exercise this stock option, in whole or in part,
from time to time. The option exercise price may be paid by Participant either
in cash, or, in the event that an organized trading market in the Stock exists
on the date of exercise of the option, by surrender of Stock held by
Participant (provided that such shares have been owned by Participant for more
than six months on the date of surrender).
For the purposes of this Article 5, an "organized trading market" shall
be deemed to exist on the date of exercise of the option if: (a) the Stock is
listed on a national securities exchange, or (b) the Stock has been quoted on
the Nasdaq Stock Market ("Nasdaq") for the 15 trading days preceding the date
of exercise of the option, or (c) bid and asked quotations for the Stock have
been published by the National Quotation Bureau or other recognized
inter-dealer quotation publication (other than Nasdaq) during 20 of the 30
trading days preceding the date of exercise of the option. In the event that
an organized trading market for the Stock exists on the date of exercise of the
option, Participant shall be given credit against the option exercise price
hereunder for such shares surrendered equal to the average of the high "bid"
and low "asked" price quotations on the day of exercise of the option, or, if
there were no price quotations for such date, on the date next preceding such
date on which there were high "bid" and low "asked" price quotations for the
Stock.
6. MANNER OF EXERCISE
This stock option may be exercised by written notice to the Secretary of
the Company specifying the number of shares to be purchased and signed by
Participant or such other person who may be entitled to acquire Stock under
this Option Agreement. If any such notice is signed by a
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<PAGE> 3
person other than Participant, such person shall also provide such other
information and documentation as the Secretary of the Company may reasonably
require to assume that such person is entitled to acquire Stock under the terms
of the Plan and this Option Agreement. After receipt of the notice and any
other assurances requested by the Company under this Article 6, and upon
receipt of the full option price, the Company shall issue to the person giving
notice of exercise under this Option Agreement the number of shares specified
in such notice.
7. RESTRICTIONS ON TRANSFERABILITY
The stock option granted hereunder shall not be transferable by
Participant otherwise than by will or by the laws of descent and distribution,
and such stock option shall be exercisable during Participant's lifetime only
by Participant.
8. FURTHER RESTRICTIONS ON EXERCISE AND SALE OF STOCK
Participant acknowledges and understands that the Stock subject to this
Option Agreement is not registered under the Federal Securities Act of 1933, as
amended ("Federal Act") or under the Georgia Securities Act of 1973, as amended
(the "State Act"). Each option shall be subject to the requirement that if at
any time the Board of Directors shall determine, in its discretion, that the
listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option or the issue
or purchase of shares thereunder, such option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Board of Directors. The costs of any such listing, registration,
qualification, consent or approval shall be paid by the Company.
Alternatively, the Company shall not permit any exercise of this stock option
unless it receives such representations, factual assurances, and legal opinions
as it may deem necessary to determine and document the availability of an
exemption from registration under both the Federal Act and the State Act with
respect to any particular issuance of shares under this Option Agreement.
Further, the Board of Directors shall require that Stock issued in respect of
any exercise of this stock option shall bear such restrictions on further
transfer as shall be necessary to insure the availability of any exemption so
claimed.
9. REORGANIZATION
In the event that dividends are payable in Stock or in the event there
are splits, subdivisions or combinations of shares of Stock, the number of
shares available under the Plan shall be increased or decreased
proportionately, as the case may be, and the number of shares deliverable upon
the exercise thereafter of any Option theretofore granted shall be increased or
decreased proportionately, as the case may be, without change in the aggregate
purchase price.
In case the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or in case the property or
stock of the Company is acquired by another corporation, or in case of a
separation, reorganization, recapitalization or liquidation of the Company, the
Board of Directors of the Company, or the Board of Directors of any corporation
assuming the obligations of the Company hereunder, shall either (i) make
appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate
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<PAGE> 4
stock of the Company, or of the merged, consolidated or otherwise reorganized
corporation which will be issuable in respect to the shares of Stock, provided
only that the excess of the aggregate fair market value of the shares subject
to option immediately after such substitution over the purchase price thereof
is not more than the excess of the aggregate fair market value of the shares
subject to option immediately before such substitution over the purchase price
thereof.
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed by a member of the Board of Directors or a designated committee
thereof, or a duly authorized officer of the Company, and Participant has
executed this Option Agreement as of the date first written above.
EDUTREK INTERNATIONAL, INC.
By: _______________________________
Its: ______________________________
"PARTICIPANT"
___________________________________
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EXHIBIT 10.5
================================================================================
CREDIT AGREEMENT
DATED AS OF OCTOBER 8, 1996
BETWEEN
E HOLDINGS, INC.,
AS BORROWER,
AND
NATIONSBANK, N.A. (SOUTH),
AS AGENT AND AS LENDER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - DEFINITIONS.......................................................................... 1
1.1 Certain Defined Terms.......................................................... 1
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations
Under Agreement................................................................ 21
1.3 Other Definitional Provisions.................................................. 21
ARTICLE II - AMOUNTS AND TERMS OF LOANS/LETTERS OF CREDIT........................................ 22
2.1 Loans/Letters of Credit........................................................ 22
(A) Term Loans............................................................ 22
(B) Revolving Loans....................................................... 23
(C) Letters of Credit..................................................... 23
(D) Borrowing Mechanics................................................... 24
(E) Notes................................................................. 25
2.2 Interest....................................................................... 25
(A) Rate of Interest...................................................... 25
(B) Computation and Payment of Interest................................... 26
(C) Interest Laws......................................................... 26
2.3 Continuation................................................................... 26
2.4 Conversion..................................................................... 27
2.5 Fees........................................................................... 27
(A) Closing Fees.......................................................... 27
(B) Letter of Credit Fees................................................. 27
(C) No Prepayment Fees.................................................... 28
2.6 Payments and Prepayments....................................................... 28
(A) Manner and Time of Payment............................................ 28
(B) Payments on Business Days............................................. 28
(C) Mandatory Prepayments................................................. 28
(D) Voluntary Prepayments and Repayments.................................. 29
(E) Application of Prepayments and Repayments............................. 30
2.7 Borrower's Loan Account and Statements......................................... 30
2.8 Other Letter of Credit Provisions.............................................. 31
(A) Obligations Absolute.................................................. 31
(B) Nature of the Lenders' Duties......................................... 31
2.9 Credit Adequacy and Other Adjustments.......................................... 33
2.10 Taxes.......................................................................... 33
(A) No Deductions......................................................... 33
(B) Changes in Tax Laws................................................... 33
2.11 Suspension of LIBOR Loans...................................................... 34
2.12 Illegality..................................................................... 35
</TABLE>
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2.13 Compensation................................................................... 35
2.14 Assumptions Concerning Funding of Fixed Rate Loans............................. 35
ARTICLE III - CONDITIONS TO LOANS................................................................ 36
3.1 Conditions to Initial Loans/Letters of Credit.................................. 36
3.2 Conditions to All Loans/Letters of Credit...................................... 36
(A) Notice of Borrowing................................................... 36
(B) Representations Still True............................................ 36
(C) No Default............................................................ 36
(D) No Order.............................................................. 36
(E) No Material Adverse Change............................................ 37
(F) Solvency.............................................................. 37
(G) Approvals-Governmental and Accrediting Bodies......................... 37
3.3 Conditions Subsequent.......................................................... 38
3.4 Conditions to LA Loan.......................................................... 39
ARTICLE IV - BORROWER'S REPRESENTATIONS AND WARRANTIES........................................... 39
4.1 Organization; Powers; Capitalization; Good Standing; Business and
Subsidiaries................................................................... 40
(A) Organization and Powers............................................... 40
(B) Capitalization........................................................ 40
(C) Qualification......................................................... 40
(D) Conduct of Business................................................... 40
(E) Subsidiaries.......................................................... 40
4.2 Authorization of Borrowing; Etc................................................ 41
(A) Authorization of Borrowing............................................ 41
(B) No Conflict........................................................... 41
(C) Governmental Consents................................................. 41
(D) Binding Obligation.................................................... 41
(E) Valid Issuance of Securities.......................................... 41
4.3 Financial Condition............................................................ 42
(A) Financial Statements.................................................. 42
(B) Pro Forma............................................................. 42
(C) Projections........................................................... 42
4.4 Indebtedness and Contingent Obligations........................................ 42
4.5 No Material Adverse change; No Stock Payments.................................. 42
4.6 Title to Properties; Liens; Leases............................................. 43
4.7 Litigation; Adverse Facts...................................................... 43
4.8 Payment of Taxes............................................................... 43
4.9 Adverse Contracts.............................................................. 44
4.10 Performance of Agreements...................................................... 44
4.11 Governmental Regulation........................................................ 44
</TABLE>
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<TABLE>
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4.12 Employee Benefit Plans......................................................... 44
(A) No Other Plans........................................................ 44
(B) ERISA and IRC Compliance and Liability................................ 44
(C) Funding............................................................... 45
(D) Prohibited Transactions and Payments.................................. 45
(E) No ERISA Termination Event............................................ 45
(F) ERISA Litigation...................................................... 45
4.13 Intellectual Property.......................................................... 45
4.14 Broker's Fees.................................................................. 46
4.15 Environmental Compliance....................................................... 46
(A) No Environmental Claims............................................... 46
(B) Storage of Hazardous Materials........................................ 46
(C) Compliance With Environmental Laws.................................... 46
4.16 Employee Matters............................................................... 47
4.17 Solvency....................................................................... 47
4.18 Disclosure..................................................................... 47
4.19 Use of Proceeds and Margin Security............................................ 48
4.20 Insurance...................................................................... 48
4.21 Bank Accounts.................................................................. 48
4.22 Representations and Warranties From the Purchase Agreement..................... 48
4.23 Compliance With Laws/Accreditation............................................. 48
4.24 Investments.................................................................... 49
ARTICLE V - BORROWER'S AFFIRMATIVE COVENANT...................................................... 50
5.1 Financial Statements and Other Reports......................................... 50
(A) Monthly Financials.................................................... 50
(B) Year-End Financials................................................... 50
(C) Borrower Compliance Certificate....................................... 51
(D) Accountants' Certification............................................ 51
(E) Accountants' Report................................................... 51
(F) Management Report..................................................... 51
(G) Projections........................................................... 52
(H) SEC Filings and Press Releases........................................ 52
(I) Subordinated Indebtedness Notices..................................... 52
(J) Events of Default; Etc................................................ 52
(K) Litigation............................................................ 52
(L) Employee Benefit Plans................................................ 53
(M) ERISA Termination Events.............................................. 53
(N) ERISA Notices......................................................... 53
(O) Insurance............................................................. 54
(P) Supplemented Schedules; Notice of Corporate Changes................... 54
(Q) Tuition Program/Accreditation Reports................................. 54
</TABLE>
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<TABLE>
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<S> <C> <C> <C>
(R) Other Information..................................................... 54
5.2 Access to Accountants.......................................................... 54
5.3 Corporate Existence; Etc....................................................... 54
5.4 Payment of Taxes and Claims; Tax Consolidation................................. 55
5.5 Maintenance of Properties; Insurance........................................... 55
(A) Maintenance of Properties............................................. 55
(B) Insurance............................................................. 55
5.6 Inspection; Lender Meeting..................................................... 55
5.7 Environmental Compliance....................................................... 56
(A) Environmental Laws.................................................... 56
(B) Remedial Action....................................................... 56
(C) Further Assurances.................................................... 56
5.8 Environmental Disclosure....................................................... 57
(A) Releases.............................................................. 57
(B) Proposed Activities................................................... 57
5.9 Compliance With Laws/Government Tuition Program/Accreditation.................. 58
5.10 Covenants in Acquisition Documents............................................. 58
5.11 Further Assurances............................................................. 58
5.12 Enforcement of Remedies Under Acquisition Documents............................ 59
5.13 Fiscal Year.................................................................... 59
5.14 After-Acquired Real Property................................................... 59
ARTICLE VI - FINANCIAL COVENANTS................................................................. 59
6.1 Capital Expenditure Limit...................................................... 60
6.2 Liabilities to Net Worth....................................................... 60
6.3 Total Capitalization........................................................... 61
6.4 Debt Service coverage Ratio.................................................... 61
6.5 Interest Coverage Ratio........................................................ 61
6.6 Government Required Ratios..................................................... 62
6.7 Enrollment..................................................................... 62
6.8 Government Default Rate........................................................ 62
ARTICLE VII - BORROWER'S NEGATIVE COVENANTS...................................................... 63
7.1 Indebtedness................................................................... 63
7.2 Liens and Related Matters...................................................... 64
(A) No Liens.............................................................. 64
(B) No Negative Pledges................................................... 64
(C) No Restrictions on Subsidiary Distributions to the Borrower........... 64
7.3 Acquisitions; Investments; Joint Ventures...................................... 64
(A) Cash Equivalents...................................................... 64
(B) Intercompany Loans.................................................... 64
</TABLE>
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(C) Travel Advances....................................................... 64
(D) Investments........................................................... 65
7.4 Contingent Obligations......................................................... 65
7.5 Restricted Payments; No Amendment of Subordinated Indebtedness................. 66
(A) Subordinated Indebtedness............................................. 66
(B) Restricted Payments by Subsidiaries................................... 66
(C) No Amendment.......................................................... 66
7.6 Restriction on Fundamental Changes............................................. 66
7.7 Disposal of Assets or Subsidiary Stock......................................... 67
(A) Assets................................................................ 67
(B) Subsidiary Capital Stock.............................................. 67
7.8 Restriction on Leases.......................................................... 67
7.9 Sales and Lease-Backs.......................................................... 68
7.10 Transactions With Affiliates................................................... 68
7.11 Management Fees and Compensation............................................... 68
(A) Management Fees....................................................... 68
(B) Compensation.......................................................... 68
7.12 Environmental Liabilities...................................................... 69
7.13 Conduct of Business............................................................ 69
7.14 Fiscal Year.................................................................... 69
7.15 Compliance With ERISA.......................................................... 69
7.16 Press Release; Public Offering Materials....................................... 70
7.17 Subsidiaries................................................................... 70
7.18 Bank Accounts.................................................................. 70
ARTICLE VIII - DEFAULT, RIGHTS AND REMEDIES...................................................... 70
8.1 Events of Default.............................................................. 70
(A) Default in Payment.................................................... 71
(B) Default in Other Agreements........................................... 71
(C) Breach of Certain Provisions.......................................... 71
(D) Breach of Warranty.................................................... 71
(E) Other Defaults Under Loan Documents................................... 71
(F) Involuntary Bankruptcy; Appointment of Receiver; Etc.................. 71
(G) Voluntary Bankruptcy; Appointment of Receiver; Etc.................... 72
(H) Governmental Liens.................................................... 72
(I) Judgments and Attachments............................................. 72
(J) Dissolution........................................................... 72
(K) Solvency.............................................................. 72
(L) Injunction............................................................ 73
(M) ERISA - Pension Plans................................................. 73
(N) ERISA - Multiemployer Plans........................................... 73
(O) Invalidity of Loan Documents.......................................... 73
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
(P) Damage; Strike; Casualty.............................................. 73
(Q) Licenses and Permits.................................................. 73
(R) Failure of Security................................................... 73
(S) Change in Control..................................................... 74
(T) Change in Management.................................................. 74
(U) Indemnification Claim................................................. 74
8.2 Suspension of Commitments...................................................... 74
8.3 Acceleration; Termination of Facilities........................................ 74
(A) Automatic............................................................. 74
(B) Optional.............................................................. 75
8.4 Loan Documents................................................................. 75
8.5 Applicable Law................................................................. 75
8.6 Appointment of Receiver........................................................ 75
8.7 Performance by the Agent....................................................... 75
8.8 Rights Cumulative.............................................................. 76
ARTICLE IX - ASSIGNMENT AND PARTICIPATION........................................................ 76
9.1 Assignments and Participations in Loans and Notes.............................. 76
(A) NationsBank May Assign................................................ 76
(B) Each Lender May Assign................................................ 76
(C) Participations........................................................ 77
(D) No Relief From Obligations............................................ 77
(E) Notice to the Borrower................................................ 77
9.2 NationsBank as the Agent....................................................... 77
9.3 Set Off and Sharing of Payments................................................ 78
9.4 Disbursement of Funds.......................................................... 78
ARTICLE X - MISCELLANEOUS........................................................................ 79
10.1 Notices........................................................................ 79
10.2 Expenses....................................................................... 80
10.3 Stamp; Intangible and Recording Taxes.......................................... 81
10.4 Litigation; Jurisdiction; Other Matters; Waivers............................... 81
10.5 Successors and Assigns......................................................... 83
10.6 Amendments..................................................................... 83
10.7 Nonliability of the Lenders/the Agent.......................................... 84
10.8 Confidentiality................................................................ 84
10.9 Indemnification................................................................ 84
10.10 Survival....................................................................... 86
10.11 Titles and Captions............................................................ 86
10.12 Severability of Provisions..................................................... 87
10.13 Governing Law.................................................................. 87
10.14 Counterparts................................................................... 87
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C> <C> <C>
10.15 Obligations With Respect to Loan Parties....................................... 87
10.16 Retention of the Borrower's Documents.......................................... 87
10.17 Marshaling; Payments Set Aside................................................. 87
10.18 Independence of Covenants...................................................... 88
10.19 Independent Nature of the Lenders' Rights...................................... 88
10.20 No Fiduciary Relationship...................................................... 88
10.21 Limitation of Liability........................................................ 88
10.22 No Duty........................................................................ 89
10.23 Entire Agreement............................................................... 89
10.24 Construction................................................................... 89
10.25 EDGAR Filings.................................................................. 89
EXHIBIT 1.1(A) Form of Compliance Certificate
EXHIBIT 1.1(B) Form of Notice of Borrowing
EXHIBIT 1.1(C) Form of Notice of Letter of Credit Issuance
EXHIBIT 1.1(D) Form of Notice of Continuation
EXHIBIT 1.1(E) Form of Notice of Conversion
EXHIBIT 1.1(F) Form of Revolving Note
EXHIBIT 1.1(G) Form of Term Note
SCHEDULE 1.1(A) Pro Forma
SCHEDULE 1.1(C) Existing Liens
SCHEDULE 4.1(A) Organization of Loan Parties
SCHEDULE 4.1(B) Capitalization of Loan Parties/Existing Joint Ventures
SCHEDULE 4.1(C) Qualification of Loan Parties
SCHEDULE 4.2(B) Required Consents
SCHEDULE 4.2(C) Required Government Approvals
SCHEDULE 4.3 Projections
SCHEDULE 4.4 Indebtedness and Contingent Liabilities
SCHEDULE 4.6 Leases
SCHEDULE 4.7 Litigation
SCHEDULE 4.12 Employee Benefit Plans
SCHEDULE 4.13 Intellectual Property
SCHEDULE 4.14 Broker's Fees
SCHEDULE 4.15(A) Environmental Claims
SCHEDULE 4.15(B) Hazardous Materials
SCHEDULE 4.15(C) Compliance With Environmental Laws
SCHEDULE 4.16 Employee Matters/Employment Contracts
SCHEDULE 4.20 Insurance Policies of Borrower
SCHEDULE 4.21 Bank Accounts
</TABLE>
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<TABLE>
<S> <C>
SCHEDULE 4.23 Compliance with Laws/Accreditation
SCHEDULE 4.24 Investments
SCHEDULE 7.4 Contingent Obligations
SCHEDULE 7.10 Transactions With Shareholders and Affiliates
SCHEDULE 7.11(A) Management Fees
SCHEDULE 7.11(B) List of Officers Subject to Compensation Levels
</TABLE>
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<PAGE> 10
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of October 8, 1996 (this
"Agreement"), and entered into by and between E HOLDINGS, INC. (the "Borrower")
with its principal place of business at One Buckhead Plaza, Suite 1420, 3060
Peachtree Road, Northwest, Atlanta, Georgia 30305, Attention: R. Steven Bostic
and NATIONSBANK, N.A. (SOUTH) (in its individual capacity, "NationsBank"), with
offices at 600 Peachtree Street, Suite 1100, Atlanta, Georgia 30308, Attention:
Julie Iarossi Davis - Private Client Group, for itself, as the Lender, and as
the Agent for any other Lender (such term and other capitalized terms used
herein are defined in Article I of this Agreement).
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as of
July 25, 1996, as amended by a First Amendment to Stock Purchase Agreement dated
as of August 30, 1996 (the "Purchase Agreement") by and between EDUTREK
INTERNATIONAL, INC., a Georgia corporation ("International") on the one hand,
and THOMAS J. BARNETTE and PHILLIP J. MARKERT, on the other hand (the
"Sellers"), International will acquire (the "Acquisition") directly and
indirectly all of the issued and outstanding capital stock of American European
Corporation, a Georgia corporation ("AEC"), all of the issued and outstanding
capital stock of The American College in London, Ltd., a District of Columbia
corporation ("ACIL"), and 85% of the issued and outstanding shares of American
European Middle East Corporation, L.L.C., a Georgia limited liability company
("AEMEC"); and
WHEREAS, the Borrower desires that the Lender extend a term loan and
revolving credit facility to the Borrower to fund the Acquisition, to provide
working capital financing to the Borrower and its Subsidiaries and to provide
funds for other general corporate purposes of the Borrower and its Subsidiaries;
NOW, THEREFORE, in consideration of the foregoing premises, the
agreements, provisions and covenants herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are mutually
acknowledged by the parties hereto, the Borrower, the Lender and the Agent,
intending to be legally bound, do hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS
The terms defined below are used in this Agreement as so defined. Terms
defined in the "Whereas" clauses to this Agreement are used in this Agreement as
so defined.
<PAGE> 11
"ACIL" has the meaning set forth in the first "Whereas" clause hereof.
"ACIL-UK" means The American College in London, Ltd., a United Kingdom
corporation.
"Acquisition" has the meaning set forth in the first "Whereas" clause
hereof.
"Acquisition Documents" means the Purchase Agreement and all other
documents, agreements and certificates executed in connection therewith;
excluding, however, all Loan Documents and Subordinated Loan Documents.
"Adjusted LIBO Rate" means, with respect to each Interest Period for
any LIBOR Loan, the rate obtained by dividing (a) LIBOR for such Interest Period
by (b) a percentage equal to 1 minus the stated maximum rate (stated as a
decimal) of all reserves, if any, required to be maintained against
"Eurocurrency liabilities" as specified in Regulation D of the Board of
Governors of the Federal Reserve System (or against any other category of
liabilities which includes deposits by reference to which the interest rate on
LIBOR Loans is determined or any category of extensions of credit or other
assets which includes loans by an office of the Agent outside of the United
States of America to residents of the United States of America).
"AEC" has the meaning set forth in the first "Whereas" clause hereof.
"AEMEC" has the meaning set forth in the first "Whereas" clause hereof.
"Affiliate" means any Person (other than the Agent or any Lender): (a)
directly or indirectly controlling, controlled by, or under common control with,
the Borrower; (b) directly or indirectly owning or holding 5% or more of any
equity interest in the Borrower; (c) 5% or more of whose voting stock or other
equity interest is directly or indirectly owned or held by the Borrower; (d) any
Person controlled by R. Steven Bostic or any Related Party with respect to R.
Steven Bostic; or (e) any executive officer of the Borrower. For purposes of
this definition, "control" (including with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities or by contract or otherwise.
"Agent" means NationsBank, N.A. (South) in its capacity as agent for
the Lenders under this Agreement and any successor in such capacity appointed
pursuant to Section 9.2.
"Agreement" means this Credit Agreement (including all schedules,
exhibits, annexes and appendices hereto).
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<PAGE> 12
"Applicable Law" means all applicable provisions of constitutions,
statutes, ordinances, laws (including common law), rules, regulations and orders
of all Governmental Authorities and all orders, rulings, writs and decrees of
all courts, tribunals and arbitrators.
"Asset Disposition" means the disposition whether by lease, transfer,
sale, loss, damage, destruction, condemnation or otherwise of any assets or
properties of the Borrower or any Subsidiary (if any) other than: (i) sales of
inventory in the ordinary course of business; (ii) sales of obsolete equipment;
or (iii) transfers, sales or other dispositions of Securities of any Subsidiary
of the Borrower.
"Attributable Indebtedness" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Bank Agency Agreement" means an agreement satisfactory to the Agent
among the Agent, for the benefit of the Lenders, the Borrower and each bank at
which the Borrower maintains depository accounts.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time and all rules and regulations
promulgated thereunder.
"Base Rate" means the rate per annum announced from time to time by the
Agent as its "Prime Rate" in Atlanta, Georgia; it being understood that such
rate is a reference
rate and may not necessarily represent the lowest or best rate actually charged
to any customer. Unless otherwise set forth herein, the interest rate of any
Obligations bearing interest at the "Base Rate" shall change simultaneously with
any change in the Prime Rate.
"Base Rate Loan" means Loans which bear interest based on the Base
Rate.
"Big Six Accounting Firm" means any of Arthur Andersen & Co., KPMG Peat
Marwick, Coopers & Lybrand, Ernst & Young, Deloitte & Touche and Price
Waterhouse or any of their respective successors.
"Borrower" has the meaning set forth in the first paragraph hereof.
"Business" means the business of (i) operating private, for profit,
colleges and institutions of higher education and (ii) conducting corporate
training and education.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of Georgia or is a day on
which banking
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<PAGE> 13
institutions located in any such state are closed. In the case of LIBOR Loans,
"Business Day" also must be a day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London.
"Business Unit" means the assets constituting the business or a
division or operating unit thereof of any Person.
"Capital Expenditures" means, without duplication, for any period, the
aggregate of all expenditures on a consolidated basis including deposits
(whether paid in cash or property or accrued as liabilities and including the
aggregate amount of all principal payments due for the entire term of all
Capital Leases which are required to be capitalized on the balance sheet) made
by the Borrower and its Subsidiaries that, in conformity with GAAP, are required
to be included in the property, plant, or equipment, or similar fixed asset
account.
"Capital Lease" means any lease of any property (whether real, personal
or mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
commercial paper maturing no more than one year from the date issued and, at the
time of acquisition, having a rating of at least A-1 from Standard & Poor's
Ratings Services or at least P-1 from Moody's Investors Service, Inc.; (c)
certificates of deposit or bankers' acceptances maturing within one year from
the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $500,000,000 and not subject to
setoff rights in favor of such bank; (d) time deposits maturing no more than
thirty days from the date of creation thereof with commercial banks having
membership in the Federal Deposit Insurance Corporation in amounts not exceeding
the maximum amount of insurance applicable to the aggregate amount of the
Borrower's deposits at such institution; and (e) deposits or investments in
mutual or similar funds offered or sponsored by brokerage or other companies
having membership in the Securities Investor Protection Corporation in amounts
not exceeding the maximum amount of insurance applicable to the aggregate amount
of the Borrower's deposits at such institution.
"Closing Date" means October 8, 1996.
"Collateral" means any collateral security at any time granted or
pledged by any Loan Party or other Person to secure the payment or performance
of all or any part of the Obligations.
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<PAGE> 14
"Commitment" or "Commitments" means the commitment or commitments of a
the Lender or the Lenders to make the Loans described in Section 2.1 and of
NationsBank to issue the Letters of Credit as set forth in Section 2.1.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit 1.1(A).
"Consolidated Current Maturities" means, with respect to the Borrower
and its Subsidiaries, the aggregate amount of all regularly scheduled payments
of principal of Indebtedness of the Borrower and its Subsidiaries to be made
during the four consecutive fiscal quarters immediately following the
determination of the Consolidated Debt Service Coverage Ratio.
"Consolidated Debt Service Coverage Ratio" means, as of any date of the
computation thereof, the ratio obtained by dividing (i) Consolidated EBIDA for
the Four-Quarter Period ending on the date of computation thereof by (ii) the
sum of: (A) Consolidated Current Maturities outstanding at such date plus (B)
Consolidated Interest Expense for such Four-Quarter Period plus (C) Restricted
Payments paid or declared by the Borrower and its Subsidiaries (other than to
the Borrower or other Subsidiaries) during such Four-Quarter Period.
"Consolidated EBIDA" means, with respect to the Borrower and its
Subsidiaries for any period of computation thereof, the sum of, without
duplication, (i) Consolidated Net Income plus, (ii) Consolidated Interest
Expense for such period plus (iii) amortization for such period plus (iv)
depreciation for such period, but in each case only to the extent deducted when
calculating Consolidated Net Income.
"Consolidated Interest Expense" means, with respect to any period of
computation thereof, the gross interest expense of the Borrower and its
Subsidiaries, including, without limitation: (i) the amortization of debt
discounts; (ii) the payment or amortization of all fees (including, without
limitation, fees payable in respect of any letters of credit and acceptances,
swap or hedging arrangements) payable in connection with the incurrence of
Indebtedness to the extent included in interest expense; (iii) the portion of
any liabilities incurred in connection with Capitalized Lease Obligations
allocable to interest expense; (iv) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period; and (v) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Subsidiaries or secured by a Lien on assets of such Person
or one of its Subsidiaries (whether or not such Guaranty or Lien is called
upon).
"Consolidated Net Income" means, for any period of computation thereof,
the consolidated net income of the Borrower and its Subsidiaries; provided,
however, that the following shall be excluded when determining Consolidated Net
Income: (i) net gains on the acquisition, retirement, sale or other disposition
of capital stock and other securities of the Borrower or its Subsidiaries; (ii)
net gains on the collection of proceeds of life
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<PAGE> 15
insurance policies; (iii) any write-up of any asset; and (iv) any other net gain
or credit of an extraordinary nature (other than net gains on the sale,
conversion or other disposition of capital assets). Further, monies paid to Mark
Barnette pursuant to the arrangements described in item 1 of Schedule 7.10 shall
be treated as an expense item and deduction when calculating Consolidated Net
Income.
"Consolidated Net Worth" means at any time as of which the amount
thereof is to be determined, the sum of the following in respect of the Borrower
and its Subsidiaries (determined on a consolidated basis but excluding
intercompany items among the Borrower and its Subsidiaries and any upward
adjustment after the Closing Date due to revaluation of assets): (i) the amount
of issued and outstanding share capital plus (ii) the amount of additional
paid-in capital and retained income (or, in the case of a deficit, minus the
amount of such deficit).
"Consolidated Total Liabilities" means, at any time, without
duplication, the sum of: (a) all Indebtedness of the Borrower, its Subsidiaries
and any other Loan Party outstanding (whether such Indebtedness has a maturity
of longer, equal to or shorter than one year and including all reimbursement
obligations under letters of credit and bankers acceptances and all current
maturities of any Indebtedness and including any Indebtedness Guaranteed by such
Person) plus (b) the aggregate amount the Borrower or any of its Subsidiaries is
required to pay in cash with respect to any capital stock (or options or
warrants to purchase capital stock) of the Borrower or any of its Subsidiaries
that the Borrower and/or its Subsidiaries is required to redeem from the holder
thereof within the next twelve-month period following a determination of
Consolidated Total Liabilities hereunder.
"Contingent Obligation," as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person: (a) with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (b) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (c) under
Interest Rate Agreements; or (d) under any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
that Person against fluctuations in currency values. Contingent Obligations
shall include (i) the direct or indirect guaranty, endorsement (other than for
collection or deposit in the ordinary course of business), comaking, discounting
with recourse or sale with recourse by such Person of the obligation of another,
(ii) the obligation to make take or pay or similar payments if required
regardless of nonperformance by any other party or parties to an agreement, and
(iii) any liability of such Person for the obligations of another through any
agreement to purchase, repurchase or otherwise acquire such obligation or any
property constituting security therefor, to provide funds for the payment or
discharge of such obligation or to
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<PAGE> 16
maintain the solvency, financial condition or any balance sheet item or level of
income of another. The amount of any Contingent Obligation shall be equal to the
amount of the obligation so guaranteed or otherwise supported or, if not a fixed
and determined amount, the maximum amount so guaranteed.
"Continue," "Continuation" and "Continued" each refers to the
continuation of a Fixed Rate Loan from one Interest Period to another Interest
Period pursuant to Section 2.3.
"Contractual Obligation," as applied to any Person, means (i) any
indenture, mortgage, deed of trust, security document, loan or credit agreement
or other debt or equity financing agreement or (ii) any other material contract,
undertaking, agreement or other instrument, in each case, to which that Person
is a party or by which it or any of its properties is bound or to which it or
any of its properties is subject including, without limitation, the Related
Transaction Documents.
"Convert," "Conversion" and "Converted" each refers to the conversion
of a Loan of one Type into a Loan of another Type pursuant to Section 2.4.
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"DOE" means the United States Department of Education.
"Dollars" and the sign "$" mean the lawful money of the United States
of America.
"Eligible Person" means: (i) any Affiliate of the Agent or any Lender;
or (ii) any bank, finance company or other financial institution approved from
time to time by the Borrower for purposes of Article IX from a list of such
Persons submitted to the Borrower by the Agent or any Lender (such approval not
to be unreasonably withheld, conditioned or delayed). Without limiting the
generality of the foregoing, the Borrower shall have the right to disapprove of
a proposed Eligible Person to the extent assignment of any portion of the Loans
to such Person could reasonably be expected to result in increased costs to the
Borrower by virtue of the application of Section 2.9 below.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Loan Party or any ERISA Affiliate or (b) has at any time within the preceding
six years been maintained for the employees of any Loan Party or any current or
former ERISA Affiliate.
"Environmental Claims" has the meaning set forth in Section 4.15(A).
"Environmental Laws" means all present and future federal, state or
local laws, statutes, ordinances, codes, rules, regulations, orders, decrees or
directives imposing
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<PAGE> 17
liability or standards of conduct for relating to the environment, industrial
hygiene, land use or the protection of natural resources, pollution or waste
management.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
all rules and regulations promulgated thereunder.
"ERISA Affiliate," as applied to any Loan Party, means any Person who
is a member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the meaning
of Section 414(b) and (c) of the IRC.
"ERISA Termination Date" means: (a) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder; or (b) the
withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) or 4068(f) of ERISA; or (c) the termination of a Pension Plan, the
filing of a notice of intent to terminate a Pension Plan or the treatment of a
Pension Plan amendment as a termination under Section 4041 of ERISA; or (d) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension Plan by the PBGC; or (e) any other event or condition
which would constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan;
or (f) the partial or complete withdrawal of any Loan Party or any ERISA
Affiliate from a Multiemployer Plan; or (g) the imposition of a Lien pursuant to
Section 412 of the IRC or Section 302 of ERISA; or (h) any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Section 4241 or 4245 of ERISA; or (i) any event or condition which results in
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by the PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"Event of Default" means each of the events set forth in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Funds Effective Rate" means, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is no published for any Business Day, the average of the quotations
for the day of the requested Loan received by the Agent from three Federal funds
brokers of recognized standing selected by the Agent.
"Fiscal Year" means the fiscal year of the Borrower and its
Subsidiaries; it being understood that, for purposes of this Agreement, (i) the
first Fiscal Year of the Borrower and its Subsidiaries shall commence on the
Closing Date and end on December 31, 1996 and (ii) thereafter, each fiscal year
of the Borrower and each Subsidiary shall commence on January 1 and end on
December 31.
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<PAGE> 18
"Fixed Rate Loan" means, with respect to the Term Loan or the LA Loan,
either a LIBOR Loan or a Treasury Rate Loan.
"Four-Quarter Period" means a period of four full consecutive calendar
quarters of the Borrower, taken together as one accounting period, and unless
set forth herein to the contrary, shall mean such four full consecutive quarters
most recently ending as of the day of any computation of any given financial
ratio or covenant contained herein.
"Funding Date" means the date of each funding of a Loan or issuance of
a Letter of Credit.
"GAAP" means generally accepted accounting principles as set forth in
statements from Auditing Standards No. 69 entitled "The Meaning of 'Present
Fairly in Conformance with Generally Accepted Accounting Principles in the
Independent Auditors Reports'" issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"Government Funded Tuition Programs" means all or any of the following:
(a) those federal student assistance and financial aid programs contained in
Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.), as
amended from time to time, including, but not limited to, Federal Pell Grants,
Federal Supplemental Educational Opportunity Grants, State Student Incentive
Grants, Federal Family Education Loans, Federal Work-Study Programs, Federal
Direct Student Loans, and Federal Perkins Loans; and (b) any similar student
assistance or financial aid program run and/or funded by a state.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, all Governmental
Authorities.
"Governmental Authority" means any national, state or local government
(whether domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, body, agency, bureau or entity or any arbitrator with authority to
bind a party at law.
"GSL Program" means all or any of the following: (a) the Federal Family
Education Loan Program (20 U.S.C. 1071 et seq.) or any successor program of
federally guaranteed student loans; (b) the Federal Direct Student Loan Program
(20 U.S.C. 1087a et seq.) or any successor program of direct federal student
loans; and (c) any similar state direct or guaranteed loan program.
"Guaranty" means a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any
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<PAGE> 19
manner (including, without limitation, letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Indebtedness.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Environmental Laws as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances" or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
"TLCP" toxicity, or "EP toxicity"; (b) oil, petroleum or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources; (c)
any flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million.
"Indebtedness," as applied to any Person, means: (a) all indebtedness
for borrowed money and all reimbursement obligations with respect to letters of
credit and bankers acceptances; (b) that portion of obligations with respect to
Capital Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money;
(d) any obligation owed for all or any part of the deferred purchase price of
property or services if the purchase price is due more than six months from the
date the obligation is incurred or is evidenced by a note or similar written
instrument; and (e) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person.
"Initial Public Offering" means an initial public offering of
Securities pursuant to the Securities Act of 1933, as amended, and the filing of
a registration statement with the Securities and Exchange Commission pursuant to
such Act.
"Interest Coverage Ratio" means, as of any date of the computation
thereof, the ratio obtained by dividing (i) Consolidated EBIDA for the
Four-Quarter Period ending on the date of the computation thereof by (ii)
Consolidated Interest Expense for such Four- Quarter Period.
"Interest Period" means, (a) with respect to any LIBOR Loan, each
period commencing on the date such LIBOR Loan is made or Converted into such
Loan or is Continued and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as the Borrower may
select in a Notice of Borrowing, Notice of Continuation or Notice of Conversion,
as the case may be, except that each Interest Period that commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar
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<PAGE> 20
month and (b) with respect to any Treasury Rate Loan, each period commencing on
the date such Treasury Rate Loan is made or Converted into such Loan or
Continued and ending on the numerically corresponding day one year thereafter.
Notwithstanding the foregoing: (i) the Borrower may not select an Interest
Period which extends beyond the final maturity date of the Term Loan or the LA
Loan, as applicable; and (ii) each Interest Period that would otherwise end on a
day which is not a Business Day shall end on the next succeeding Business Day
(or, if such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day). Further, the Term Loan and the LA
Loan may have only one Interest Period at any time.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect the Borrower or any of its
Subsidiaries against fluctuations in interest rates.
"International" has the meaning set forth in the first "Whereas" clause
hereof.
"Investment" means (a) any direct or indirect purchase or other
acquisition of any beneficial interest in, including stock, partnership interest
or other Securities of, any other Person (other than a Person that prior to the
relevant purchase or acquisition was a Subsidiary of the Borrower), (b) any
direct or indirect purchase or other acquisition of any assets of any other
Person or (c) any direct or indirect loan, advance or capital contribution to
any other Person (other than a Subsidiary of the Borrower), including all
indebtedness and accounts receivable from that other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without and adjustments for
increases or decreases in value, or write- ups, write-downs or write-offs with
respect to such investment.
"IRC" means the Internal Revenue Code of 1986, as amended, and any rule
or regulation promulgated thereunder from time to time.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, regardless of the legal form of such arrangement.
"LA Loan" means a term loan up to $500,000 in principal amount pursuant
to Section 2.1(A)(ii), the proceeds of which will be used to finance the
furniture, fixtures and equipment and leasehold improvements for the new Los
Angeles campus.
"LA Term Note" means a term note substantially in the form of Exhibit
1.1(G) and evidencing the LA Loan.
"Lender" or "Lenders" means NationsBank together with its successors
and permitted assigns pursuant to Section 9.1.
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<PAGE> 21
"Lender Addition Agreement" means an agreement among the Agent, a
Lender and such Lender's assignee regarding their respective rights and
obligations with respect to assignments of the Loans, the Commitments and other
interests under this Agreement and the other Loan Documents.
"Lender Guaranty Liability" means, as to the Letter of Credit, all
reimbursement obligations of the Borrower to the Agent and the Lenders in
connection with the Letter of Credit issued, whether contingent or otherwise,
including with respect to any Letter of Credit: (a) the amount available to be
drawn or which may become available to be drawn; (b) all amounts which have been
paid or made available by the Agent to the extent not reimbursed; and (c) all
unpaid interest, fees and expenses.
"Lender Guaranty Reserve" means, at any time, an amount equal to (a)
the aggregate amount of the Lender Guaranty Liability with respect to all the
Letters of Credit outstanding at such time plus (b) to the extent not included
in clause (a), the aggregate amount theretofore paid by any Lender under the
Letters of Credit for which the Agent or such Lender has not been reimbursed or
which has not been debited to the Loan Account pursuant to Section 2.1(C)(2).
"Letter of Credit" has the meaning set forth in Section 2.1(C).
"LIBOR" means, for any LIBOR Loan for any Interest Period therefor, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "LIBOR" shall mean, for any LIBOR Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, however, if more than
one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
"LIBOR Loan" means the Term Loan or the LA Loan when bearing interest
at a rate based on LIBOR.
"Lien" means any lien, mortgage, pledge, security interest, or other
encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means the Term Loan, the LA Loan and each advance
under the Revolving Loan Commitment.
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<PAGE> 22
"Loan Account" has the meaning set forth in Section 2.7.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Warrant and all other guaranties, instruments, documents and
agreements executed by or on behalf of any Loan Party and delivered concurrently
herewith or at any time hereafter to or for the benefit of the Agent or any
Lender in connection with the Loans and other transactions contemplated by this
Agreement, all as amended, supplemented or modified from time to time, but
excluding all Acquisition Documents and Subordinated Loan Documents.
"Loan Party" means each of the Borrower, International, AEC, ACIL,
Systems, AEMEC, ACIL-UK and each other Person that guaranties or otherwise
becomes obligated to pay in whole or in part any of the Obligations and any
other Person (other than the Agent or any Lender) which is or becomes a party to
any Loan Document.
"Loan Year" means each period of twelve consecutive months commencing
on the Closing Date and on each anniversary thereof.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets, prospects or condition (financial or
otherwise) of the Borrower or any Loan Party or (b) the impairment of the
ability of the Borrower or the Borrower and each Loan Party to perform its
obligations under any Loan Document to which it is a party or of the Agent or
any Lender to enforce or collect any of the Obligations, including the
obligations of any Loan Party to perform or of the Agent or any Lender to
enforce any Loan Document. In determining whether any individual event would
result in a Material Adverse Effect, notwithstanding that such event does not of
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which any Loan Party or any ERISA Affiliate is making, or
is accruing an obligation to make, contributions or has made, or been obligated
to make, contributions within the preceding six years.
"Nationally Recognized Accrediting Agency" means an accrediting agency
or association recognized by the United States Department of Education, for
purposes of the Higher Education Act of 1965, as amended, or for other federal
purposes, as a reliable authority with respect to the quality of education or
training offered by an institution of higher education.
"Net Proceeds" means cash proceeds (including insurance proceeds)
received by the Borrower or any of its Subsidiaries from any Asset Disposition
(including payments under notes or other debt securities received in connection
with any Asset Disposition and insurance proceeds and awards of condemnation but
excluding proceeds permitted under
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<PAGE> 23
this Agreement to be used for replacement assets), net of (a) the costs of such
sale, lease, transfer or other disposition (including taxes attributable to such
sale lease or transfer) (b) amounts applied to repayment of Indebtedness (other
than the Obligations) secured by a lien, security interest, claim or encumbrance
on the asset or property disposed and (c) reasonable transaction costs required
to be paid by the Borrower (or such Subsidiary) in connection with such sale,
lease, transfer or disposition.
"Note" or "Notes" means one or more of the Term Notes or Revolving
Notes or LA Term Note, or any combination thereof.
"Notice of Borrowing" means a notice substantially in the form of
Exhibit 1.1(B).
"Notice of Continuation" means a notice substantially in the form of
Exhibit 1.1(D).
"Notice of Conversion" means a notice substantially in the form of
Exhibit 1.1(E).
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to the Agent or any
Lender under the Loan Documents including the principal amount of all debts,
claims and indebtedness, accrued and unpaid interest and all fees, costs and
expenses, whether primary, secondary, direct, contingent, fixed or otherwise,
heretofore, now and/or from time to time hereafter owing, due or payable whether
before or after the filing of a proceeding under the Bankruptcy Code by or
against the Borrower or other Loan Party, and all yield protections, breakage
costs, indemnification obligations, damages and other liabilities payable or due
under any Loan Document. With respect to any specified Loan Party, "Obligations"
of such specified Loan Party means all obligations, liabilities and indebtedness
of such Loan Party to any Lender or the Agent under any Loan Document to which
such Loan Party is a party.
"Operating Lease" means any lease, sublease, license or similar
arrangement (other than a Capital Lease or Real Property Lease) pursuant to
which a Person leases, subleases or otherwise is granted the right to occupy,
take possession of, or use property.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Part 3 of Title I of
ERISA, Title IV of ERISA or Section 412 of the IRC and which (a) is maintained
for employees of any Loan Party or any of their ERISA Affiliates or (b) has at
any time within the preceding six years been maintained for the employees of any
Loan Party or any of their current or former ERISA Affiliates.
"Permitted Encumbrances" means the following:
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<PAGE> 24
(a) Liens (other than Liens relating to Environmental Claims or ERISA)
for taxes, assessments or other governmental charges not yet due and payable;
(b) Statutory Liens of landlords, carriers, warehousemen, mechanics,
materialmen and other similar liens imposed by law, which are incurred in the
ordinary course of business for sums not more than thirty days delinquent or
which are being contested in good faith; provided, however, that a reserve or
other appropriate provision shall have been made therefor;
(c) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety, stay, customs
and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(d) Deposits made in the ordinary course of business to secure
liability to insurance carriers;
(e) Liens securing purchase money obligations with respect to equipment
purchases; provided that: (i) the purchase of the asset subject to any such Lien
is permitted under Section 6.1; (ii) the Indebtedness secured by any such Lien
is permitted under Section 7.1; and (iii) any such Lien was incurred
simultaneously with the acquisition of such equipment and encumbers only the
equipment so purchased;
(f) Any attachment or judgment Lien not constituting an Event of
Default under Section 8.1(I) of this Agreement;
(g) Leases or subleases granted to others not interfering in any
material respect with the business of any Loan Party or any of its Subsidiaries;
(h) Easements, rights-of-way, restrictions, and other similar charges
or encumbrances not interfering in any material respect with the ordinary
conduct of the business of any Loan Party or any of its Subsidiaries;
(i) Any interest or title of a lessor or sublessor under any lease
permitted by Section 7.8 of this Agreement;
(j) Liens arising from filing UCC financing statements regarding leases
permitted by this Agreement;
(k) Liens in favor of the Agent, on behalf of the Lenders; and
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(l) Liens existing on the date hereof and renewals and extensions
thereof, which Liens are set forth on Schedule 1.1(C) hereto other than Liens in
favor of Fidelity National Bank, National Westminster Bank and NationsBank
(relating, in the case of NationsBank, to two aircraft) securing Indebtedness
which is to be repaid in full on the Closing Date pursuant to the Statement of
Funds Flow; provided, however, that such Liens may remain of record for a period
of 10 days after the Closing Date (or, in the case of National Westminster Bank,
90 days) without constituting an Event of Default; provided further, however,
that in no event may any Indebtedness secured by such Liens be outstanding
during such 10-day (or 90-day, as applicable) period.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof
and their respective permitted successors and assigns (or in the case of a
governmental person, the successor functional equivalent of such Person).
"Pro Forma" means the unaudited consolidated balance sheet of the
Borrower and its Subsidiaries as of the Closing Date after giving effect to the
Related Transactions. Notwithstanding any other term contained in this
Agreement, should the application of purchase or other accounting principles
permit the Borrower, in accordance with GAAP, to characterize certain
expenditures as capital items rather than expense, then such expenditures shall
be treated as expense in the period such expenditures were incurred or paid for
all purposes under this Agreement unless such expenditure was identified and
capitalized in the Pro Forma. The Pro Forma is annexed hereto as Schedule
1.1(A).
"Pro Rata Share" means (a) with respect to matters relating to a
particular Commitment of a Lender (including the making or repayment of Loans
pursuant to that Commitment), the percentage obtained by dividing (i) such
Commitment of that the Lender by (ii) all such Commitments of all the Lenders
and (b) with respect to all other matters, the percentage obtained by dividing
(i) the Total Loan Commitment of a Lender by (ii) the Total Loan Commitments of
all the Lenders, in either case as such percentage maybe adjusted by assignments
permitted pursuant to Section 9.1.
"Projections" means the Borrower's forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and
(d) capitalization statements, all prepared and otherwise consistent with AEC
and its Subsidiaries historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions concerning the
Business.
"Purchase Agreement" has the meaning set forth in the first "Whereas"
clause hereof.
"Quarterly Date" means each January 31, April 30, July 31 and October
31 of each year during the period any Obligations are outstanding.
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"Real Property Lease" means any lease of the Borrower or any of its
Subsidiaries relating to real property.
"Real Property Rental Limit" means $3,100,000; provided, that, (a) the
Real Property Rental Limit shall increase by $500,000 in each fiscal year of the
Borrower commencing with the fiscal year commencing January 1, 1997 and ending
on December 31, 1997, (b) the Real Property Rental Limit for the Company's
fiscal year commencing on the Closing Date and ending December 31, 1996 and for
the fiscal year ended December 31, 1997 shall be further increased by an amount
equal to the incremental increase in annual Rentals payable under the Borrower's
Real Property Leases for its new Los Angeles, California campus over that
payable under its Real Property Leases for its prior Los Angeles, California
campus, and (c) the Real Property Rental Limit otherwise in effect under this
definition for the Company's fiscal year commencing on the Closing Date and
ending on December 31, 1996 shall be prorated based on the ratio of the actual
number of days in such fiscal year to 365.
"Related Party" with respect to R. Steven Bostic ("SB") means (a) any
spouse or immediate family member of SB or (b) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding a 66- 2/3% or more controlling interest of which
consist of SB and/or such other Persons referred to in the immediately preceding
clause (a).
"Related Transactions" means the Acquisition, the execution and
delivery of the Related Transactions Documents and the consummation of the
transaction contemplated therein, the funding of the Term Loan and each
borrowing under the Revolving Loan on the Closing Date, the execution and
delivery of the Subordinated Loan Documents (including the Stratford Warrant)
and the incurring of the Subordinated Indebtedness thereunder and the payment of
all fees, costs and expenses associated with all of the foregoing.
"Related Transactions Documents" means the Acquisition Documents, the
documents and instruments pursuant to which any capital stock of any Loan Party
is issued or otherwise executed and delivered in connection with the issuance of
such capital stock, the Loan Documents and the Subordinated Loan Documents.
"Rentals" means amounts payable by a lessee under a lease.
"Requisite Lenders" means the Lenders having (a) 66-2/3% or more of the
Total Loan Commitments or, (b) if the Term Loan Commitments have been
terminated, 66-2/3% or more of the sum of the Revolving Loan Commitments and the
aggregate outstanding principal amount of the Term Loans, if any, or (c) if all
Commitments have been terminated, 66-2/3% or more of the aggregate outstanding
principal amount of the Revolving Loan and the Term Loan.
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<PAGE> 27
"Restricted Payment" means: (a) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of the
Borrower or any of its Subsidiaries now or hereafter outstanding, except a
dividend payable solely in shares of that class of stock to the holders of that
class; (b) any redemption, conversion, exchange, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of stock of the Borrower or any of its Subsidiaries now
or hereafter outstanding; (c) any prepayment (whether mandatory or optional) or
other payment that is not a regularly scheduled payment of principal of,
premium, if any, or interest on, redemption, conversion, exchange, purchase,
retirement, defeasance, sinking fund or similar payment with respect to, any
Subordinated Indebtedness; and (d) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of the Borrower or any of its Subsidiaries now or
hereafter outstanding.
"Revolving Loan" means all advances made by the Lenders pursuant to
Section 2.1(B) and any amounts added to the principal balance of the Revolving
Loan pursuant to this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment
of such Lender to make Revolving Loans as set forth on the signature page of
this Agreement opposite such Lender's signature or in the most recent the Lender
Addition Agreement, if any, executed by such Lender and (b) as to all the
Lenders, the aggregate commitment of all the Lenders to make Revolving Loans and
to purchase participations in the Letter of Credit pursuant to Article II.
"Revolving Note" means each promissory note of the Borrower
substantially in the form of Exhibit 1.1(F).
"Revolving Termination Date" means October 8, 1999.
"SACS" means the Southern Association of Colleges and Schools
Commission on Colleges, a Nationally Recognized Accrediting Agency.
"Securities" means any stock, shares, voting trust certificates, bonds,
debentures, options, warrants, notes, or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing or any warrants, options or other rights to purchase or acquire any of
the foregoing.
"Security Documents" means all instruments, documents and agreements
executed by or on behalf of any Loan Party to guaranty or provide collateral
security with respect to the Obligations and other transactions contemplated by
this Agreement, including, without limitation, those executed pursuant to
Article III hereof and pursuant to Section 5.14
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<PAGE> 28
hereof and all instruments, documents and agreements executed pursuant to the
terms of the foregoing.
"Sellers" has the meaning set forth in the first "Whereas" clause
hereof.
"Solvent" has the meaning set forth in Section 4.17 hereof.
"Statement of Funds Flow" means that certain Statement of Funds Flow of
even date herewith by and between the Borrower and the Agent.
"Stratford Indebtedness" means that certain 13% Subordinated Promissory
Note in the original principal amount of $7,000,000 executed and delivered by
the Borrower in favor of Stratford Capital Partners, L.P., together with all
accrued interest on, premium, if any, and other amounts owing with respect
thereto.
"Stratford Warrant" means that certain Warrant in effect as of the
Closing Date dated the date hereof issued by Borrower in favor of Stratford
Capital Partners, L.P.
"Subordinated Indebtedness" means the Stratford Indebtedness and all
other Indebtedness of the Borrower or any of its Subsidiaries which is at any
time subordinated in right of payment and claim to the Obligations.
"Subordinated Loan Documents" means, individually and collectively, any
promissory note, note agreement or other document, instrument, certificate or
agreement at any time evidencing any Subordinated Indebtedness.
"Subordination Agreement" means that certain Subordination Agreement
dated as of the date hereof, by and among the Borrower, Stratford Capital
Partners, L.P. and NationsBank, as Agent and Lender, as the same may be amended,
modified or supplemented from time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which more than fifty
percent (50%) of the total voting power of shares of stock (or equivalent
ownership or controlling interest) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof, and "Subsidiary" shall, in any event, include a Subsidiary of any
Subsidiary.
"Systems" means EduTrek Systems, Inc., a Georgia corporation.
"Term Loan" means the term loan made pursuant to Section 2.1(A).
"Term Loan Commitment" means (a) as to any Lender, the commitment of
such Lender to make the Term Loan as set forth on the signature page of this
Agreement
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<PAGE> 29
opposite such Lender's signature or in the most recent the Lender Addition
Agreement, if any, executed by such Lender and (b) as to all the Lenders, the
aggregate commitment of all the Lenders to make the Term Loan.
"Term Note" means each promissory note of the Borrower substantially in
the form of Exhibit 1.l(G).
"Total Capitalization" means, with respect to the Borrower and its
Subsidiaries at any time, the sum of (i) Consolidated Net Worth at such time
plus (ii) the principal amount of Subordinated Indebtedness.
"Total Loan Commitment" means the aggregate commitments of any Lender
with respect to the Revolving Loan Commitment, the Term Loan Commitment and the
Letters of Credit.
"Transaction Costs" means, with respect to a given transaction, all
reasonable brokerage, agency and investment banking fees, fees and expenses of
appraisers and accountants, fees and disbursements of legal counsel and other
out-of-pocket costs and expenses incurred by the Borrower or a Subsidiary (or
required to be paid by the Borrower or a Subsidiary) in connection with such
transaction.
"Treasury Rate" means the most recent monthly average of the daily
yields on all outstanding United States Treasury securities adjusted to a
constant maturity of one year, as made available by the Federal Reserve Board,
and such rate then rounded upwards to the nearest 0.125%.
"Treasury Rate Loan" means the Term Loan or the LA Loan when it is
bearing interest based on the Treasury Rate.
"Type" with respect to the Term Loan, refers to whether such Loan is a
LIBOR Loan, Treasury Rate Loan or Base Rate Loan.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Georgia, or as in effect in any jurisdiction in which Collateral
is located.
"Voting Stock" means capital stock or equity interests of any Person of
any class having, by the terms thereof, voting power to elect the directors (or
Persons performing similar functions) of such Person in the absence of a default
or failure to pay dividends with respect to any class or classes of capital
stock. Any percentage of Voting Stock held by any Person shall be determined by
dividing the total number of votes that such Person may cast based upon the
Voting Stock held by such Person by the total number of votes that may be cast
based upon the total issued and outstanding Voting Stock.
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"Warrant" means that certain Warrant Agreement dated as of the date
hereof by and between Borrower and NationsBank and the Warrants to purchase
Common Stock of International issued pursuant thereto.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS
UNDER AGREEMENT
For purposes of this Agreement, all accounting terms not otherwise
defined herein including any determination of "Consolidated Current Maturities,"
"Consolidated Current Ratio," "Consolidated EBIDA," "Consolidated Interest
Expense," "Consolidated Net Income," "Consolidated Total Liabilities" and other
accounting or financial terms (including any item expressly added to or deducted
or excluded from any such financial term), and any determination of whether the
Borrower is in compliance with Article VI hereof shall be made on a consolidated
basis in accordance with GAAP as in effect on the Closing Date and applied in a
manner consistent in all material respects with the most recent financial
statements delivered to the Agent prior to the date hereof. Financial statements
and other information furnished to the Agent or any Lender pursuant to Section
5.1 shall be prepared in accordance with GAAP as in effect at the time of such
preparation. No "Accounting Changes" (as defined below) shall affect financial
covenants, standards or terms in this Agreement; provided, however, that the
Borrower shall prepare footnotes to each Compliance Certificate and the
financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) as the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "Accounting Changes" means: (a)
changes in accounting principles required by GAAP and implemented by the
Borrower; (b) changes in accounting principles recommended by the Borrower's
certified public accountants; and (c) changes in carrying value of the
Borrower's (or any of its Subsidiaries') assets, liabilities or equity accounts
resulting from (i) the application of purchase accounting principles (A.P.B. 16
and/or 17 and EITF 88-16 and FASB 109) to the Related Transactions or (ii) as
the result of any other adjustments that, in each case, were applicable to, but
not included in, the Pro Forma. All such adjustments resulting from expenditures
made subsequent to the Closing Date (including, but not limited to,
capitalization of costs and expenses or payment of pre-Closing Date liabilities)
shall be treated as expenses in the period the expenditures are made and
deducted as part of the calculation of Consolidated EBIDA in such period.
1.3 OTHER DEFINITIONAL PROVISIONS
References herein to "Sections," "subsections," "Exhibits" and
"Schedules" shall be to Sections, subsections, Exhibits and Schedules,
respectively, of this Agreement unless otherwise specifically provided. Any of
the terms defined in Section II may, unless the context otherwise requires, be
used in the singular or the plural depending on the reference. In this
Agreement, "hereof," "herein," "hereto," "hereunder" and the like mean and refer
to this Agreement as a whole and not merely to the specific section, paragraph
or clause in which the respective word appears; words importing any gender
include the
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other genders; references to "writing" include printing, typing, lithography and
other means of reproducing words in a tangible visible form; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement or any
other Loan Document; references to Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons; and all references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations.
ARTICLE II
AMOUNTS AND TERMS OF LOANS/LETTERS OF CREDIT
2.1 LOANS/LETTERS OF CREDIT
(A) Term Loans. (i) Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the
Borrower contained herein, each Lender agrees, severally and not jointly, to
lend to the Borrower on the Closing Date its Pro Rata Share of the Term Loan.
The aggregate amount of the Term Loan shall be $21,000,000. The Term Loan shall
be funded in one drawing. Amounts borrowed under this Section 2.1(A)(i) and
repaid may not be reborrowed. For the period from the Closing Date to but
excluding October 31, 1997, the Borrower shall be obligated to pay only accrued
interest on the Term Loan on each Quarterly Date occurring prior to October 31,
1997. The Borrower shall, in addition to any mandatory prepayments required
hereunder, repay the principal amount of the Term Loan in 22 equal consecutive
quarterly installments of principal equal to $875,000 plus accrued and unpaid
interest on each Quarterly Date, commencing on October 31, 1997, and a
twenty-third and final installment of principal equal to $1,750,000 plus accrued
and unpaid interest payable on March 31, 2003.
(ii) Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of the Borrower herein set
forth, each Lender agrees, severally and not jointly, to lend to the Borrower
its Pro Rata Share of the LA Loan. The principal amount of the LA Loan shall be
up to, but not exceeding, $500,000 in amount. The LA Loan may be funded in up to
six advances having a minimum amount equal to $50,000 and integral multiples of
$10,000 in excess thereof during the period from the date hereof to but
excluding October 31, 1997. Amounts borrowed under the LA Loan and repaid may
not be reborrowed. For the period from the Closing Date to but excluding October
31, 1997, the Borrower shall be obligated to pay only accrued interest on the LA
Loan on each Quarterly Date occurring prior to October 31, 1997. The Borrower
shall repay the principal amount of the LA Loan outstanding as of October 31,
1997 in 20 equal consecutive quarterly installments, with
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the first such installment being due on October 31, 1997 and the last such
installment being due on October 31, 2002.
(B) Revolving Loans. (1) Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the
Borrower contained herein, each Lender agrees, severally and not jointly, to
lend to the Borrower from time to time during the period from the Closing Date
to but excluding the Revolving Termination Date, its Pro Rata Share of the
Revolving Loan. The aggregate amount of all Revolving Loan Commitments shall not
exceed the amounts set forth for the respective periods in the table below, as
reduced from time to time pursuant to Section 2.6(C) and/or 2.6(D):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERIOD Revolving Loan
Commitments
- --------------------------------------------------------------------------------
<S> <C>
Closing through September 30, 1997 $2,500,000
- --------------------------------------------------------------------------------
October 1, 1997 through September 30, 1998 1,750,000
- --------------------------------------------------------------------------------
October 1, 1998 through Revolving Termination Date 1,000,000
- --------------------------------------------------------------------------------
</TABLE>
If at any time the aggregate amount of Revolving Loans outstanding exceeds the
Revolving Loan Commitments as set forth in the above table, the Borrower shall
immediately repay a principal amount of Revolving Loans equal to such excess. On
the terms and conditions set forth herein, amounts borrowed under this Section
2.1(B) may be repaid and reborrowed at any time prior to the Revolving
Termination Date.
(2) Notwithstanding paragraph (1) above, during each calendar
year this Agreement is in effect (excluding the calendar year ending December
31, 1996), there shall be (and, accordingly, the Borrower shall repay the
Revolving Loan such that there shall be) at least two periods of thirty
consecutive days in which the outstanding Revolving Loan shall equal zero ($0)
and in which the Borrower has not borrowed advances under the Revolving Loan.
(3) The Borrower shall repay the entire outstanding principal
amount of, and all accrued but unpaid interest on, the Revolving Loans on the
Revolving Termination Date.
(C) Letters of Credit. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the
Borrower herein set forth, the Agent shall issue on behalf of the Lenders,
during the period from the date hereof to and excluding the Revolving
Termination Date, letter(s) of credit (each a "Letter of Credit") in favor of
the DOE (or any agency subject thereto) in an aggregate amount at any time
outstanding not to exceed the lesser of (i) $4,000,000 and (ii) 50% of the
aggregate Title IV program funds received by the Borrower and its Subsidiaries
during the most recent complete award year (as defined in Title IV).
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(1) Expiration Date of Letters of Credit/Form. The
expiration date of any Letter of Credit shall be the earlier of (i) the one-year
anniversary date of the date of issuance of such Letter of Credit and (ii) the
Revolving Termination Date. Each Letter of Credit shall be in form and substance
reasonably satisfactory to the Agent.
(2) Reimbursement. The Borrower shall be absolutely,
irrevocably and unconditionally obligated forthwith without presentment, demand,
protest or other formalities of any kind, to reimburse the Agent for any amounts
paid by the Agent with respect to a the Letter of Credit. The Borrower hereby
authorizes and directs the Agent, at the Agent's option, to debit the Loan
Account (by increasing the principal balance of the Revolving Loan) in the
amount of any payment made by the Agent with respect to any Letter of Credit.
All amounts paid by the Agent with respect to any Letter of Credit that are not
immediately repaid by the Borrower with the proceeds of the Revolving Loan or
otherwise shall bear interest at the interest rate applicable to the Revolving
Loan. In the event that the Borrower shall fail to reimburse the Agent on the
date of any payment by the Agent under a the Letter of Credit in an amount equal
to the amount of such payment, the Agent shall promptly notify each Lender of
the unreimbursed amount of such payment together with accrued interest thereon
and each Lender agrees to purchase, and shall be deemed to have purchased, a
participation in such Letter of Credit in an amount equal to its Pro Rata Share
of the unpaid amount together with accrued interest thereon. Upon one Business
Day's notice from the Agent, each Lender shall deliver to the Agent an amount
equal to its participation in same-day funds, at the place and on the date and
at the time notified by the Agent. The obligation of each Lender to deliver to
the Agent an amount equal to its respective participation pursuant to the
foregoing sentence shall be absolute and unconditional and such remittance shall
be made notwithstanding the occurrence or continuation of an Event of Default or
Default or the failure to satisfy any condition set forth in Article III. In the
event any Lender fails to make available to the Agent the amount of such
Lender's participation in such Letter of Credit as provided in this Section
2.1(C)(2), the Agent shall be entitled to recover such amount on demand from
such Lender together with interest at the Base Rate.
(3) Request for Letters of Credit or Guaranties. The
Borrower shall give the Agent at least three (3) Business Days prior notice
specifying the date the Letter of Credit is to be issued, identifying the
beneficiary and describing the nature of the transactions proposed to be
supported thereby, such notice to be in the form of Exhibit 1.1(C) (a "Notice of
Issuance").
(D) Borrowing Mechanics. When the Borrower desires to borrow advances
under the Revolving Loan or the LA Loan, it shall deliver to the Agent a fully
and properly completed Notice of Borrowing no later than 11:00 a.m. (Atlanta
time) on the proposed Funding Date. In lieu of delivering the above described
Notice of Borrowing, the Borrower may give the Agent telephonic notice by the
required time of the proposed borrowing; provided, however, that such notice
shall be promptly, and in any event within one (1) Business Day, confirmed in
writing by delivery of a Notice of Borrowing to the Agent. Neither the Agent nor
any Lender shall incur any liability to the Borrower for
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<PAGE> 34
acting upon any telephonic notice that the Agent believes in good faith to have
been authorized officer or other person authorized to borrow on behalf of the
Borrower or for otherwise acting in good faith under this Section 2.1(D). The
making of an advance pursuant to telephonic notice shall constitute a Loan under
this Agreement. Unless otherwise agreed, each such advance to the Borrower under
the Revolving Loan or LA Loan shall, on the Funding Date, be deposited, in
immediately available funds, in a demand deposit account of the Borrower
maintained with NationsBank.
(E) Notes. The Borrower shall execute and deliver to each Lender (1)
a Revolving Note to evidence the Revolving Loan, such Revolving Note to be in
the principal amount of the Revolving Loan Commitment of such Lender and with
other appropriate insertions, (2) a Term Note to evidence the Term Loan, such
Term Note to be in the principal amount of the Term Loan Commitment of such
Lender and with other appropriate insertions and (3) a LA Term Note to evidence
the LA Term Loan, such LA Term Note to be in the principal amount of $500,000.
In the event of an assignment under Section 9.1, the Borrower shall, upon
surrender of the assigning the Lender's Notes, issue new Notes (to be prepared
and tendered to the Borrower by the Agent) to reflect the new Commitments of the
assigning the Lender and its assignee.
2.2 INTEREST
(A) Rate of Interest. Advances under the Revolving Loan shall bear
interest at a variable rate equal to the Base Rate plus 1% per annum from the
date each advance is made until it is fully paid. The principal balance of the
Term Loan and the LA Loan from time to time outstanding shall bear interest:
(i) during such periods as the Term Loan and/or the LA Loan is
a Base Rate Loan, at the Base Rate in effect from time to time plus 1.25%;
(ii) during such periods as the Term Loan and/or the LA Loan
is a LIBOR Loan, at the Adjusted LIBO Rate for such Loan for the Interest Period
therefor plus 4.2%; or
(iii) during such periods as the Term Loan and/or the LA Loan
is a Treasury Rate Loan, at the Treasury Rate for such Loan for the Interest
Period therefor plus 4.5%.
All other Obligations shall, unless otherwise expressly provided in the Loan
Document evidencing same or giving rise thereto, bear interest at the same rate
as advances under the Revolving Loan. Notwithstanding the foregoing, at the
election of the Agent, in its sole discretion, after the occurrence of an Event
of Default and for so long as such Event of Default continues, the Loans and all
other Obligations shall bear interest until paid in full at a rate per annum
that is 2% in excess of the rate of interest otherwise payable under this
Agreement (the "Post-Default Rate").
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<PAGE> 35
(B) Computation and Payment of Interest. Interest on the Loans and
all other Obligations shall be computed on the daily principal balance on the
basis of a 360-day year for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of funding
of the Loan shall be included and the date of payment of such Loan shall be
excluded; provided, however, that if a Loan is repaid on the same day on which
it is made, one (1) day's interest shall be paid on that Loan. Accrued interest
on each Loan shall be payable quarterly in arrears on each Quarterly Date this
Agreement is in effect and upon the payment or prepayment thereof (but only on
the principal amount so paid or prepaid). Interest payable at the Post-Default
Rate shall be payable from time to time on demand. Promptly after the
determination of any interest rate provided for herein or any change therein,
the Agent shall give notice thereof to the Borrower. All determinations by the
Lender of an interest rate hereunder shall be conclusive and binding on the
Borrower for all purposes, absent manifest error.
(C) Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or the other Loan Documents, the Borrower shall not
be required to pay, and neither the Agent nor any Lender shall be permitted to
collect, any amount of interest in excess of the maximum amount of interest
permitted by law ("Excess Interest"). If any Excess Interest is provided for or
determined by a court of competent jurisdiction to have been provided for in
this Agreement or in any of the other Loan Documents, then in such event: (1)
the provisions of this Section shall govern and control; (2) neither the
Borrower nor any other Loan Party shall be obligated to pay any Excess Interest;
(3) any Excess Interest that the Agent or any Lender may have received hereunder
shall be, at the Agent's option, (a) applied as a credit against the outstanding
principal balance of the Obligations or accrued and unpaid interest (not to
exceed the maximum amount permitted by law), (b) refunded to the payor thereof,
or (c) any combination of the foregoing; (4) the interest rate(s) provided for
herein shall be automatically reduced to the maximum lawful rate allowed from
time to time under applicable law (the "Maximum Rate"), and this Agreement and
the other Loan Documents shall be deemed to have been and shall be, reformed and
modified to reflect such reduction; and (5) neither the Borrower nor any other
Loan Party shall have any action against the Agent or any Lender for any damages
arising out of the payment or collection of any Excess Interest. Notwithstanding
the foregoing, if for any period of time interest on any Obligation is
calculated at the Maximum Rate rather than the applicable rate under this
Agreement, and thereafter such applicable rate becomes less than the Maximum
Rate, the rate of interest payable on such Obligations shall remain at the
Maximum Rate until each Lender shall have received the amount of interest which
such Lender would have received during such period on such Obligations had the
rate of interest not been limited to the Maximum Rate during such period.
2.3 CONTINUATION
So long as no Default or Event of Default shall have occurred and be
continuing, the Borrower may on any Business Day, with respect to the Term Loan
or the LA Loan, elect to maintain such Loan as the same Type of Loan by
selecting a new Interest Period
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<PAGE> 36
for such Loan. Each new Interest Period selected under this Section shall
commence on, and only on, the last day of then current Interest Period. Each
selection of a new Interest Period shall be made by the Borrower giving to the
Agent a Notice of Continuation not later than 12:00 noon (Atlanta time) on the
third Business Day prior to the date of any such Continuation. Such notice by
the Borrower of a Continuation shall be by telephone or telecopy, confirmed
immediately in writing if by telephone, in the form of a Notice of Continuation,
specifying (a) the proposed date of such Continuation and (b) the duration of
the selected Interest Period, all of which shall be specified in such manner as
is necessary to comply with all limitations on Loans outstanding hereunder. Each
Notice of Continuation shall be irrevocable by and binding on the Borrower once
given. If the Borrower shall fail to select in a timely manner a new Interest
Period for any Fixed Rate Loan in accordance with this Section, such Loan will
automatically, on the last day of the then current Interest Period therefor,
Convert into a Base Rate Loan. The Term Loan may only be one Type of Loan at any
one time. The LA Loan may only be one Type of Loan at any one time.
2.4 CONVERSION
So long as no Default or Event of Default shall have occurred and be
continuing, the Borrower may, on any Business Day, upon the Borrower's giving of
a Notice of Conversion to the Agent, Convert the Term Loan or the LA Loan of one
Type into the Term Loan of another Type. Any Conversion of a Fixed Rate Loan
into a Base Rate Loan shall be effective on, and only on, the last day of an
Interest Period for such Fixed Rate Loan and, upon Conversion of a Base Rate
Loan into a Fixed Rate Loan, the Borrower shall pay accrued interest to the date
of Conversion on the principal amount so Converted. Each such Notice of
Conversion shall be given not later than 12:00 noon (Atlanta time) on the
Business Day prior to the date of any proposed Conversion into Base Rate Loans
and on the third Business Day prior to the date of any proposed Conversion into
Fixed Rate Loans. Subject to the restrictions specified above, each Notice of
Conversion shall be by telephone or telecopy confirmed immediately in writing if
by telephone in the form of a Notice of Conversion specifying (a) the requested
date of such Conversion, (b) the Type of Loan to be Converted, (c) the Type of
Loan such Loan is to be Converted into and (d) if such Conversion is into a
Fixed Rate Loan, the requested duration of the Interest Period of such Loan.
Each Notice of Conversion shall be irrevocable by and binding on the Borrower
once given.
2.5 FEES
(A) Closing Fees. The Borrower shall pay to NationsBank, on the
Closing Date, the unpaid balance of the total closing fee equal to $577,500.
NationsBank acknowledges receipt of a prior payment by the Borrower of a portion
of the closing fee equal to $192,500 against the total closing fee amount equal
to $770,000.
(B) Letter of Credit Fees. The Borrower shall pay to the Agent, for
the ratable benefit of the Lenders, a usage fee for each Letter of Credit for
the period from and
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<PAGE> 37
including the date of issuance of same to and excluding the date of expiration
or termination, equal to the daily average face amount of the Lender Guaranty
Liability multiplied by 4% per annum. The Letter of Credit fee shall be payable
in advance on the date of issuance of each Letter of Credit on the basis that
each such Letter of Credit shall be outstanding for one year; provided, however,
that, if such Letter of Credit does not remain outstanding for a full year, then
the Agent shall rebate to the Borrower an amount equal to the pro rata share of
such fee allocable to the portion of the year during which such Letter of Credit
is not outstanding.
(C) No Prepayment Fees. Subject to Section 2.13 hereof and to the
notice and minimum prepayment requirements set forth in Section 2.6(C) and (D),
the Borrower may prepay any Loan in whole or in part at any time without penalty
or premium.
2.6 PAYMENTS AND PREPAYMENTS
(A) Manner and Time of Payment. All payments by the Borrower of the
Obligations shall be made without deduction, defense, setoff or counterclaim and
in same day funds and delivered to the Agent by wire transfer to the Agent's
account, ABA No. 061000052, Wire Transfer General Ledger Account No.
1720101109330422, 600 Peachtree Street, Atlanta, Georgia 30308, Notify: Juanita
Wortkoetter at (404) 607-5174; Ref.: Loan in the name of E Holdings, Inc. or at
such other place as the Agent may direct from time to time by notice to the
Borrower. The Borrower shall receive credit for such funds on the date received
if such funds are received by the Agent by 12:00 noon (Atlanta time) on such
day. In the absence of timely receipt, such funds shall be deemed to have been
paid by the Borrower on the next succeeding Business Day. In order to cause
timely payment to be made to the Agent of all Obligations as and when due, the
Borrower hereby authorizes and directs the Agent, at the Agent's option, to
debit the Loan Account (by increasing the principal balance of the Revolving
Loan) when such Obligations become due.
(B) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day, the payment may be made
on the next succeeding Business Day and such extension of time shall be included
in the computation of the amount of interest or fees due hereunder.
(C) Mandatory Prepayments
(1) Prepayments From Asset Dispositions. Immediately upon
receipt by the Borrower or any Subsidiary of the Net Proceeds of any Asset
Disposition, the Borrower shall prepay the Loans in an amount equal to one
hundred percent (100%) of the Net Proceeds of such Asset Disposition in
accordance with Section 2.6(C)(4); provided, however, that, in connection with
the sale of equipment or other fixed assets permitted by Section 7.7(A) hereof,
in the event the Borrower or such Subsidiary receiving such Net Proceeds from
such sale uses such Net Proceeds to purchase
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<PAGE> 38
replacement or substitute equipment or fixed assets within 180 days following
such sale and executes any necessary documentation to grant to the Agent on
behalf of the Lenders a first priority Lien in such equipment or fixed asset,
the Borrower shall not be required to make the mandatory prepayment required by
this Section 2.6(C).
(2) Prepayment From Acquisition Documents Proceeds.
Immediately upon receipt by International of any amounts payable under or
pursuant to the Acquisition Documents after the Closing Date (other than (i)
amounts payable as a result of a claim by International for indemnification
under the Acquisition Documents to the extent that the amounts so recovered are
applied by International for the purpose of replacing, repairing or restoring
any assets or properties of International, or satisfying claims made against
International, or otherwise remedying or correcting the condition giving rise to
the claim for indemnification or otherwise covering any fees or expenses
incurred by the Borrower in obtaining such indemnification and (ii) any Internal
Revenue Service tax deposit or refund in an aggregate amount of $364,000 or
less), the Borrower shall prepay the Loans in an amount equal to one hundred
percent (100%) of all such amounts so received by International (or any
Affiliate thereof). Concurrently with the making of any such payment, the
Borrower shall deliver to the Agent a certificate of the Borrower's chief
executive officer or chief financial officer demonstrating its calculation of
the amount required to be paid. All such prepayments shall be applied in
accordance with Section 2.6(C)(4).
(3) Prepayment From Pension Plan Reversion. Upon the
return to the Borrower or any of its Subsidiaries of any surplus assets of any
Pension Plan, the Borrower shall prepay the Loans in an amount equal to such
returned surplus assets net of transaction costs (including income, excise or
other taxes) incurred in obtaining such return in accordance with Section
2.6(C)(4). Concurrently with the making of any such payment, the Borrower shall
deliver to the Agent a certificate of the Borrower's chief executive officer or
chief financial officer demonstrating its calculation of the amount required to
be paid.
(4) Application of Proceeds. Each mandatory prepayment
described above shall be applied to the remaining outstanding principal
installments of principal of the Term Loan in the inverse order of maturity;
and, at any time after the Term Loan shall have been prepaid in full as a result
of such mandatory prepayments or otherwise, each such mandatory payment shall be
applied, first, to any outstanding amount under the LA Loan in the inverse order
of maturity and, after such Loan is paid in full, second, to any outstanding
advances under the Revolving Loan and the Revolving Loan Commitment shall be
automatically, irrevocably and permanently reduced by an amount equal to such
mandatory prepayment amount.
(D) Voluntary Prepayments and Repayments. The Borrower may prepay any
outstanding advance under the Revolving Loan, in whole or in part, and/or reduce
the amount of the Revolving Loan Commitments without penalty or premium. The
Borrower may prepay all or a portion of the Term Loan or the LA Loan; provided,
however, that
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<PAGE> 39
(i) any such prepayment of all or any portion of the Term Loan or the LA Loan
shall occur at the end of the then current Interest Period therefor. The
Borrower shall give the Agent notice of such prepayment, in the case of any Base
Rate Loan, on or before 11:00 a.m. (Atlanta time) on the same Business Day of
such prepayment and, in the case of any Fixed Rate Loan on or before 11:00 a.m.
(Atlanta time) three Business Days' prior to such prepayment. Upon prepayment in
full of the Term Loan or the LA Loan and termination of the Revolving Loan
Commitment, the Borrower shall cause the Agent and each Lender to be released
from all liability under all the Letters of Credit or, at the Agent's option,
the Borrower will deposit cash collateral with the Agent in an amount equal to
the Lender Guaranty Liability with respect to each Letter of Credit that will
remain outstanding after prepayment in full. After notice of prepayment is
given, the amount specified to be prepaid in such notice shall become due and
payable on the prepayment date.
(E) Application of Prepayments and Repayments. All prepayments and
repayments under Section 2.6 shall include payment of accrued interest on the
principal amount so prepaid and repaid and shall be applied to the payment of
interest before application to principal.
2.7 BORROWER'S LOAN ACCOUNT AND STATEMENTS
The Agent shall maintain a loan account (the "Loan Account") on its
books to record: (a) all Loans and payments made under the Letters of Credit;
(b) all payments made by the Borrower; and (c) all other appropriate debits and
credits as provided in this Agreement with respect to the Obligations. All
entries in the Loan Account shall be made in accordance with the Agent's
customary accounting practices as in effect from time to time. The Borrower
promises to pay all of its Obligations as such amounts become due or are
declared due pursuant to the terms of this Agreement. After the occurrence and
during the continuance of an Event of Default, the Borrower irrevocably waives
the right to direct the application of any and all payments at any time or times
thereafter received by the Agent or any Lender from or on behalf of the
Borrower, and the Borrower hereby irrevocably agrees that the Agent shall have
the continuing exclusive right to apply and to reapply any and all payments
received at any time or times after the occurrence and during the continuance of
an Event of Default against the Obligations in such manner as the Agent may deem
advisable notwithstanding any previous entry by the Agent upon the Loan Account
or any other books and records. The balance in the Loan Account, as recorded on
the Agent's most recent printout or other written statement, shall be
presumptive evidence of the amounts due and owing the Lenders by the Borrower;
provided, however, that any failure to so record or any error in so recording
shall not limit or otherwise affect the Borrower's obligation to pay the
Obligations. Not more than thirty days after the last day of each calendar
quarter, the Agent shall render to the Borrower a statement setting forth the
principal balance of the Loan Account and the calculation of interest due
thereon. Each statement shall be subject to subsequent adjustment by the Agent,
but shall absent manifest error be presumed correct and binding upon the
Borrower, and shall constitute an account stated unless, within thirty days
after receipt of such statement, the Borrower shall deliver to the Agent its
written objection thereto
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<PAGE> 40
specifying the error or errors, if any, contained in such statement. In the
absence of a written objection delivered to the Agent as set forth above, the
Agent's statement of the Loan Account shall absent manifest error be conclusive
evidence against the Borrower of the amount of the Obligations.
2.8 OTHER LETTER OF CREDIT PROVISIONS
(A) Obligations Absolute. The obligation of the Borrower to reimburse
the Agent and the Lenders for payments made under any Letter of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including the following
circumstances:
(1) any lack of validity or enforceability of any Letter of
Credit or any other agreement;
(2) the existence of any claim, set-off, defense or other
right which the Borrower or any of its Affiliates, the Agent or any Lender may
at any time have against a beneficiary or any transferee of any Letter of Credit
(or any persons or entities for whom any such transferee may be acting), the
Agent, any Lender, or any other Person, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction
(including any underlying transaction between the Borrower or any of its
Affiliates and the beneficiary for which the Letter of Credit was procured);
(3) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(4) payment by the Agent or any Lender under any Letter of
Credit against presentation of a demand, draft or certificate or other document
which does not comply with the terms of such Letter of Credit; provided,
however, that, in the case of any payment by the Agent or any Lender under any
Letter of Credit, the Agent or such Lender has not acted with gross negligence
or willful misconduct (as determined by a court of competent jurisdiction) in
determining that the demand for payment under such Letter of Credit complies on
its face with any applicable requirements for a demand for payment under such
Letter of Credit;
(5) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(6) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(B) Nature of the Lenders' Duties. As between the Agent and the
Borrower and each Lender and the Borrower, the Borrower assumes all risks of the
acts and omissions of, or misuse of any Letter of Credit by beneficiaries of any
Letter of Credit. In
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furtherance and not in limitation of the foregoing,, neither the Agent nor any
Lender shall be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document by any party in connection with the
application for and issuance of any Letter of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged; (ii) for the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (iii) for failure of the
beneficiary of any Letter of Credit to comply fully with conditions required in
order to demand payment under such Letter of Credit; provided, however, that, in
the case of any payment by the Agent under any Letter of Credit, the Agent has
not acted with gross negligence or willful misconduct (as determined by a court
of competent jurisdiction) in determining that the demand for payment under such
Letter of Credit complies on its face with any applicable requirements for a
demand for payment under such Letter of Credit; (iv) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for
errors in interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a payment
under any Letter of Creditor of the proceeds thereof; (vii) for the credit of
the proceeds of any drawing under any Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of the Agent or any Lender.
None of the above shall affect, impair, or prevent the nesting of any of the
Agent's or any Lender's rights or powers hereunder. In furtherance and extension
of and not in limitation of the specific provisions hereinabove set forth, any
action taken or omitted by the Agent or any Lender under or in connection with
any Letter of Credit, if taken or omitted in good faith, shall not result in any
liability to the Borrower.
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2.9 CAPITAL ADEQUACY AND OTHER ADJUSTMENTS
In the event that any Lender shall have determined that the adoption
after the date hereof of any law, treaty, governmental or quasi-governmental)
rule, regulation, guideline or order regarding capital adequacy, reserve
requirements or similar requirements or compliance by any Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy, reserve requirements or similar requirements (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) from any central bank or governmental agency or body having
jurisdiction does or shall have the effect of increasing the amount of capital,
reserves or other funds required to be maintained by such Lender or any
corporation controlling such Lender and thereby reducing the rate of return on
such Lender's or such corporation's capital as a consequence of its obligations
hereunder, then the Borrower shall from time to time within fifteen days after
notice and demand from such Lender (together with the certificate referred to in
the next sentence and with a copy to the Agent) pay to the Agent, for the
account of such Lender, additional amounts sufficient to compensate such Lender
for such reduction. A certificate as to the amount of such cost and showing the
basis of the computation of such cost submitted by such Lender to the Borrower
and the Agent shall, absent manifest error, be final, conclusive and binding for
all purposes.
2.10 TAXES
(A) No Deductions. Any and all payments or reimbursements of
Obligations made hereunder or under the Notes or any other Loan Document shall
be made free and clear of and without deduction for any and all taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto; excluding, however, the following: taxes imposed on he net income of a
the Lender or the Agent by the jurisdiction under the laws of which such Lender
or the Agent is organized or doing business or any political subdivision thereof
and taxes imposed on its net income by the jurisdiction of such Lender's or the
Agent's applicable lending office or any political subdivision thereof (all such
taxes, levies, imposts, deductions, charges or withholdings and all liabilities
with respect thereto excluding such taxes imposed on net income, herein "Tax
Liabilities"). If the Borrower shall be required by law to deduct any such
amounts from or in respect of any sum payable hereunder to any Lender or the
Agent, then the sum payable hereunder shall be increased as may be necessary so
that, after making all required deductions, such Lender or the Agent receives an
amount equal to the sum it would have received had no such deductions been made.
(B) Changes in Tax Laws. In the event that, subsequent to the Closing
Date, (1) any changes in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (2) any new law, regulation, treaty
or directive enacted or any interpretation or application thereof, or (3)
compliance by the Agent or any Lender with any request or directive (whether or
not having the force of law) from any governmental authority, agency or
instrumentality: (i) does or shall subject the Agent or any Lender to any tax of
any kind whatsoever with respect to this Agreement, the other Loan Documents
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or any Loans made or the Lender Guaranties or the Letters of Credit issued
hereunder, or change the basis of taxation of payments to the Agent or such
Lender of principal, fees, interest or any other amount payable hereunder
(except for net income taxes, or franchise taxes imposed in lieu of net income
taxes, imposed generally by federal, state or local taxing authorities with
respect to interest or commitment or other fees payable hereunder or changes in
the rate of the Agent or tax on the overall net income of the Agent or such
Lender); or (ii) does or shall impose on the Agent or any Lender any other
condition or increased cost (other than those determined in accordance with
Section 2.9) in connection with the transactions contemplated hereby or
participations herein; and the result of any of the foregoing is to increase the
cost to the Agent or any such Lender of issuing any Letter of Credit or making
or continuing any Loan hereunder, as the case may be, or to reduce any amount
receivable hereunder, then, in any such case, the Borrower shall promptly pay to
the Agent or such Lender, upon its demand, any additional amounts necessary to
compensate the Agent or such Lender, on an after-tax basis, for such additional
cost or reduced amount receivable, as determined by the Agent or such Lender
with respect to this Agreement or the other Loan Documents. If the Agent or such
Lender becomes entitled to claim any additional amounts pursuant to this
Section, it shall promptly notify the Borrower of the event by reason of which
the Agent or such Lender has become so entitled. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by the
Agent or such Lender to the Borrower and the Agent shall, absent manifest error,
be final, conclusive and binding for all purposes.
2.11 SUSPENSION OF LIBOR LOANS
Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any Adjusted LIBO Rate for any Interest Period:
(A) the Agent reasonably determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits referred
to in the definition of LIBOR are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of interest for
LIBOR Loans as provided herein or is otherwise unable to determine the Adjusted
LIBO Rate; or
(B) the Agent reasonably determines (which determination shall be
conclusive) that the relevant rates of interest referred to in the definition of
LIBOR upon the basis of which the rate of interest for LIBOR Loans for such
Interest Period is to be determined are not likely adequate to cover the cost to
the Lenders of making or maintaining LIBOR Loans for such Interest Period,
then the Agent shall give the Borrower and each Lender prompt notice thereof
and, so long as such condition remains in effect, the Lenders shall be under no
obligation to, and shall not, make additional LIBOR Loans, Continue LIBOR Loans
or Convert Base Rate Loans into LIBOR Loans and the Borrower shall, on the last
day of each current Interest Period for each outstanding LIBOR Loan, either
prepay such LIBOR Loan or Convert such LIBOR Loan into a Base Rate Loan.
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2.12 ILLEGALITY
Notwithstanding any other provision of this Agreement, if it becomes
unlawful for any Lender to honor its obligation to make or maintain LIBOR Loans
hereunder, then such Lender shall promptly notify the Borrower thereof (with a
copy of such notification to the Agent) and such Lender's obligation to make or
Continue, or to Convert Loans of any other Type into LIBOR Loans shall be
suspended until such time as such Lender may again make and maintain LIBOR Loans
(in which case such Loan shall be Converted into a Base Rate Loan).
2.13 COMPENSATION
The Borrower shall pay to the Agent for account of each Lender, upon
the request of such Lender through the Agent, such amount or amounts as shall be
sufficient to compensate it for any loss, loss of profit, cost or expense that
such Lender determines is attributable to:
(A) any payment or prepayment (whether mandatory or optional) of a
Fixed Rate Loan or Conversion of a Fixed Rate Loan for any reason (including,
without limitation, by reason of Section 2.6(C) or acceleration) on a date other
than the last day of the Interest Period for such Fixed Rate Loan; or
(B) any failure by the Borrower for any reason (including, without
limitation, the failure of any of the applicable conditions precedent specified
in Article III to be satisfied) to borrow a Fixed Rate Loan from such Lender on
the date for such borrowing, or to Convert a Base Rate Loan into a Fixed Rate
Loan or Continue a Fixed Rate Loan on the requested date of such Conversion or
Continuation,
such compensation to include, without limitation, an amount equal to the excess,
if any, of (i) the amount of interest that otherwise would have accrued on the
principal amount so paid, prepaid or Converted or not borrowed or Converted for
the period from the date of such payment, prepayment, Conversion or failure to
borrow or Convert to the last day of then current Interest Period for such Loan
(or, in the case of a failure to borrow or Convert, the Interest Period for such
Loan that would have commenced on the date specified for such borrowing or
Conversion) at the applicable rate of interest plus such Lender's normal
administrative charges, if any, associated with such payment, prepayment,
Conversion or failure to borrow over (ii) the amount of interest that otherwise
would have accrued on such principal amount at a rate per annum equal to the
applicable Fixed Rate minus any interest rate margin referred to in Section
2.2(A)(ii) or (iii), as applicable.
2.14 ASSUMPTIONS CONCERNING FUNDING OF FIXED RATE LOANS
Calculation of all amounts payable to a the Lender under this Article
II shall be made as though the Lender had actually funded its relevant Fixed
Rate Loans through the
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purchase of deposits in the relevant market bearing interest at the rate
applicable to such Fixed Rate Loans in an amount equal to the amount of such
Fixed Rate Loans and having a maturity comparable to the relevant Interest
Period; provided, however, that each Lender may fund each of its Fixed Rate
Loans in any manner it sees fit and the foregoing assumption shall be used only
for calculation of amounts payable under this Article II.
ARTICLE III
CONDITIONS TO LOANS
The obligations of each Lender to make Loans and the obligations of the
Agent to issue the Letters of Credit are subject to satisfaction of all of the
applicable conditions set forth below.
3.1 CONDITIONS TO INITIAL LOANS/LETTERS OF CREDIT
The Borrower shall deliver or cause to be delivered the agreements,
documents, instruments, certificates, opinions and other items referred to in a
certain Closing Index relating to this Credit Agreement, each of which shall be
in form and substance satisfactory to the Agent and the Lenders.
3.2 CONDITIONS TO ALL LOANS/LETTERS OF CREDIT
The obligations of the Agent and each Lender to make Loans or the
obligation of the Agent to issue the Letters of Credit on each Funding Date are
subject to the further conditions precedent set forth below.
(A) Notice of Borrowing. The Agent shall have received, in accordance
with the provisions of Section 2.1, a Notice of Borrowing or Notice of Issuance,
as applicable.
(B) Representations Still True. The representations and warranties
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except for any representation or warranty
limited by its terms to a specific date and taking into account any amendments
to the Schedules or Exhibits as a result of any disclosures made in writing by
the Borrower to the Agent after the Closing Date and approved by the Agent.
(C) No Default. No event shall have occurred and be continuing or
would result from the consummation of the borrowing contemplated by such Notice
of Borrowing (or Notice of Issuance) that would constitute an Event of Default
or a Default.
(D) No Order. No order, judgment or decree of any court, arbitrator
or governmental authority shall purport to enjoin or restrain the Agent or any
Lender from making any Loans or issuing any Letters of Credit.
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(E) No Material Adverse Change. Since the Closing Date, there shall
not have occurred any material adverse change in the assets, liabilities,
business, operations or condition (financial or otherwise) of the Borrower or
any of its Subsidiaries, or any event, condition, or state of facts which would
be expected materially and adversely to affect the prospects of the Borrower or
any of its Subsidiaries subsequent to the making of such Loan to the Borrower or
issuance of such Letter of Credit.
(F) Solvency. The Agent shall be satisfied that, giving effect to the
making of such Loan or issuance of such Letter of Credit, the Borrower is
Solvent.
(G) Approvals-Governmental and Accrediting Bodies. The Borrower and
all of its Subsidiaries shall have received all Governmental Approvals and all
consents and approvals of accrediting bodies necessary or appropriate to carry
on its business operations; provided, however, that the approval of the DOE to
the Acquisition shall not be a condition precedent to the initial Loans or
Revolving Loans made within 90 days of the Closing Date.
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3.3 CONDITIONS SUBSEQUENT
The Borrower shall, as a separate covenant, execute and deliver, and
cause to be executed and delivered, and/or obtain, the following documents,
instruments and items
within the time set forth below corresponding to such document, instrument or
item, each of which shall be in form and substance satisfactory to the Agent:
(A) Within 90 days of the Closing Date, the Borrower shall deliver to
the Agent the consent of the DOE to the Acquisition;
(B) Within 60 days of the Closing Date the Borrower shall deliver the
following:
(i) a security agreement or equivalent executed by ACIL-UK
in favor of NationsBank covering the tangible and intangible assets of
ACIL-UK together with such other documents necessary to perfect a Lien
in such assets;
(ii) a leasehold mortgage and/or collateral assignment of
lease with respect to the leases covering the buildings comprising the
London campus, together with a consent of the lessor(s) thereto;
(iii) an opinion of Ragg & Co. or other UK counsel reasonably
acceptable to NationsBank addressed to NationsBank affirming the due
authorization, execution, validity and creation of the foregoing
documents to which ACIL-UK is a party and the validity and perfection of
the Liens created pursuant thereto;
(iv) certificates of hazard insurance and appropriate loss
payable clauses in favor of NationsBank;
(v) evidence of the termination of existing Liens in favor
of National Westminster Bank covering ACIL-UK assets;
(C) Within 30 days of the Closing Date, delivery of a policy or
policies of life insurance in the aggregate face amount of $28,000,000 insuring
the life of R. Steven Bostic naming the Borrower as the insured, together with
an assignment document in favor of NationsBank and physical delivery to
NationsBank of the original of such policy;
(D) Within 10 days of the Closing Date, a lessor consent to
collateral assignments of leases from Regent Tower Holdings, Inc.;
The failure to obtain such documents, instruments and items within the
time set forth above for each such item shall constitute an Event of Default
hereunder.
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3.4 CONDITIONS TO LA LOAN
The obligation to fund the initial portion of the LA Loan shall be
subject to the following conditions:
(a) the execution and delivery after the date hereof of a lease
agreement (the "LA Lease") between AEC and the lessor (the "LA Lessor") with
respect to a new site for the new Los Angeles campus having a term of not less
than 10 years;
(b) the execution and delivery of an intercorporate note by AEC in
favor of the Borrower in the face amount of $500,000, such note to evidence the
advances by the Borrower to AEC of proceeds of the LA Loan and in form and
substance satisfactory to the Agent;
(c) the execution and delivery of a leasehold mortgage and
collateral assignment of lease by AEC covering the LA Lease and the premises
covered thereby in form and substance satisfactory to the Agent;
(d) the execution and delivery of a lessor consent to leasehold
mortgage and collateral assignment of lease executed by the LA Lessor in form
and substance satisfactory to the Agent; and
(e) a hazard insurance certificate covering the premises, together
with a loss payee clause in favor of the Agent.
The Borrower covenants that the proceeds of each advance under the LA
Loan shall be advanced to AEC to reimburse AEC for costs and expenses of, or to
finance the purchase of, the furniture, fixtures, equipment and leasehold
improvements relating to the new Los Angeles campus. As a further condition to
each funding of the LA Loan, the Borrower and/or AEC shall deliver to the Agent
such invoices or other evidence or details regarding the incurring of such
costs, expenses and purchases as the Agent shall reasonably request.
ARTICLE IV
BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and each Lender to enter into this
Agreement, to make Loans and to issue the Letters of Credit, the Borrower
represents and warrants to the Agent and each Lender that the following
statements are and, after giving effect to the Related Transactions, will be
true, correct and complete:
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4.1 ORGANIZATION; POWERS; CAPITALIZATION; GOOD STANDING; BUSINESS AND
SUBSIDIARIES
(A) Organization and Powers. Each of the Loan Parties is a
corporation or limited liability company duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation (which
jurisdiction is set forth on Schedule 4.1(A)). Each of the Loan Parties has all
requisite corporate power and authority to own and operate its properties, to
carry on the Business as now conducted and proposed to be conducted, to enter
into each Related Transactions Document to which it is a party and to carry out
the Related Transactions.
(B) Capitalization. The authorized capital stock and interests of
each of the Loan Parties is as set forth on Schedule 4.1(B). All issued and
outstanding shares of capital stock and interests of each of the Loan Parties
are duly authorized and validly issued, fully paid, nonassessable, free and
clear of all Liens other than those in favor of the Agent, for the benefit of
the Lenders, and such shares were issued in compliance with all applicable state
and federal laws concerning the issuance of securities. The capital stock and
interests of each of the Loan Parties is owned by the stockholders and in the
amounts set forth on Schedule 4.1(B). No shares of the capital stock of any Loan
Party, other than those described above, are issued and outstanding. Except as
set forth in Schedule 4.1(B), (i) there are no preemptive or other outstanding
rights, options, warrants, conversion rights or similar agreements or
understandings for the purchase or acquisition from any Loan Party of any shares
of capital stock or other securities of any such entity and (ii) there are no
put or other mandatory redemption obligations with respect to any capital stock
or interests of any Loan Party.
(C) Qualification. Each of the Loan Parties is duly qualified and in
good standing wherever necessary to carry on Business as now conducted and
proposed to be conducted, except in jurisdictions in which the failure to be
qualified and in good standing could not reasonably be expected to have a
Material Adverse Effect. All jurisdictions in which each Loan Party is qualified
to do business are set forth on Schedule 4.1(C).
(D) Conduct of Business. Prior to the Closing Date, neither the
Borrower nor International has engaged in any business or incurred any
liabilities except for activities, expenses and liabilities incident to its
organization and to the carrying out of the transactions contemplated hereby and
by the Related Transactions Documents. On the date hereof and after the
Acquisition, the Loan Parties will be engaged only in the Business.
(E) Subsidiaries. All Subsidiaries of the Borrower (and the
Subsidiaries of such Subsidiaries) are set forth in Schedule 4.1(B).
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4.2 AUTHORIZATION OF BORROWING; ETC.
(A) Authorization of Borrowing. The Borrower has the corporate power
and authority to incur the Indebtedness pursuant hereto and evidenced by the
Notes. The execution, delivery and performance of each of the Related
Transactions Documents and the consummation of the Related Transactions by the
Borrower have been duly authorized by all necessary corporate and shareholder
action. On the Closing Date, the execution, delivery and performance of the
Related Transactions Documents by each other Loan Party and signatory thereto
will have been duly authorized by all necessary corporate (or entity) action and
all shareholder or equity holder action.
(B) No Conflict. The execution, delivery and performance by each
Loan Party of each Related Transactions Document to which it is a party and the
consummation of the Related Transactions do not and will not: (1) violate any
provision of law applicable to any Loan Party, the certificate of incorporation
or bylaws or any Loan Party, or any order, judgment or decree of any court or
other agency of government binding any Loan Party; (2) conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of any Loan Party; (3) result in or require the
creation or imposition of any material Lien upon any of the properties or assets
of any Loan Party (other than Liens in favor of the Agent, for the benefit of
the Lenders); or (4) require any approval or consent of any Person under any
Contractual Obligation of any Loan Party, except, with respect to each of the
clauses (1) through (4) above, for (a) such approvals or consents to be obtained
on or before the Closing Date (other than the consent of the DOE), which are
disclosed on Schedule 4.2(B) and (b) such violations, conflicts, breaches, Liens
and defaults which could not reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect.
(C) Governmental Consents. The execution, delivery and performance
by each Loan Party of each Related Transactions Document to which it is a party,
and the consummation of the Related Transactions, do not and will not require
any Governmental Approval other than those set forth in Schedule 4.2(C). All
such Governmental Approvals have been obtained other than consent of the DOE.
The Related Transactions do not require a filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
(D) Binding Obligation. This Agreement is, and the Acquisition
Documents and the other Related Transactions Documents, including the Notes,
when executed and delivered will be, the legally valid and binding obligations
of the applicable Loan Parties, each enforceable against the Loan Parties in
accordance with their respective terms except to the extent limited by
applicable bankruptcy, insolvency, moratorium and other laws affecting the
rights of creditors generally and by equitable principles.
(E) Valid Issuance of Securities. The Securities of each Loan Party
to be sold on or before the Closing Date will be duly authorized, validly
issued, fully paid and nonassessable. The issuance and sale of the Securities of
each Loan Party, upon issuance and sale, will either have been registered or
qualified under applicable federal and state
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securities laws or be exempt therefrom. The Borrower has delivered to the Agent
and each of the Lenders a complete and correct copy of the Subordinated Loan
Documents and each of the representations and warranties given by the Borrower
therein is true and correct in all material respects.
4.3 FINANCIAL CONDITION
(A) Financial Statements. All financial statements concerning the
Borrower which have been or will hereafter be furnished by the Borrower to the
Agent or any Lender pursuant to this Agreement have been or will be prepared in
accordance with GAAP consistently applied (except as disclosed therein) and do
or will present fairly the financial condition of the corporations covered
thereby as at the dates thereof and the results of their operations for the
periods then ended.
(B) Pro Forma. The Pro Forma was prepared by the Borrower in accordance
with GAAP, with only such adjustments thereto as would be required in accordance
with GAAP, except for normal year-end adjustments and the absence of footnote
disclosures.
(C) Projections. The Projections delivered and to be delivered
(including the Projections annexed hereto as Schedule 4.3 have been and will be
prepared by the Borrower in light of the past operations of the Business. The
Projections represent and will represent as of the date thereof the good faith
estimate of the Borrower and its senior management concerning the most probable
course of the Business; provided, however, that the Projections shall not
constitute a guaranty of the financial performance projected therein.
4.4 INDEBTEDNESS AND CONTINGENT OBLIGATIONS
As of the Closing Date after giving effect to the Related Transactions,
neither the Borrower nor any Subsidiary has any Indebtedness or Contingent
Obligations (including, without limitation, any such Indebtedness or Contingent
Obligations assumed pursuant to the Purchase Agreement), except (a) as set forth
on the Pro Forma and (b) as set forth on Schedule 4.4.
4.5 NO MATERIAL ADVERSE CHANGE; NO STOCK PAYMENTS
Since May 31, 1996, no event or change has occurred with respect to any
Loan Party that has caused or evidences, either individually or together with
such other events or changes, a Material Adverse Effect. Since July 25, 1996,
and except for dividends aggregating not in excess of $1,900,000 as contemplated
by Schedule 1.5(d) of the First Amendment to the Purchase Agreement, no Loan
Party has or will have, as of the Closing Date, directly or indirectly declared,
ordered, paid or made or set apart any sum or property for any Restricted
Payment or agreed to do so except as permitted by Section 7.5.
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4.6 TITLE TO PROPERTIES; LIENS; LEASES
Each of the Loan Parties has good, sufficient and legal title, subject
to Permitted Encumbrances, to all their respective material properties and
assets. Except for Permitted Encumbrances, all such properties and assets are
free and clear of Liens. To the best knowledge of the Borrower after due
inquiry, there are no actual, threatened or alleged defaults with respect to any
Real Property Leases under which the Borrower is lessee or lessor which, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Schedule 4.6 attached hereto contains a complete and
accurate description of all Operating Leases and Real Property Leases to which
the Borrower or any of its Subsidiaries is a party as of the date hereof which
require rental payments of $25,000 or more per year. The aggregate amount of all
rental payments under all Operating Leases and Real Property Leases to which the
Borrower and its Subsidiaries are parties does not exceed $200,000 and
$2,600,000, respectively, per year.
4.7 LITIGATION; ADVERSE FACTS
Except as set forth on Schedule 4.7, as of the Closing Date there are
no judgments outstanding against, or assumed by, any Loan Party or affecting any
property of any Loan Party nor is there any action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration now pending or,
to the best knowledge of the Borrower after due inquiry, threatened against or
assumed by, any Loan Party or affecting any property of any Loan Party. No Loan
Party has received any opinion or memorandum or legal advice from legal counsel
to the effect that it is exposed to any liability or disadvantage which could
reasonably be expected to result in any Material Adverse Effect. The actions,
charges, claims, demand, suits, proceedings, petitions, investigations and
arbitrations set forth on Schedule 4.7 or disclosed pursuant to Section 5.1(K)
will not result, if adversely determined, and could not reasonably be expected
to result, either individually or in the aggregate, in any Material Adverse
Effect and do not relate to and will not affect the consummation of the Related
Transactions.
4.8 PAYMENT OF TAXES
Except to the extent permitted by Section 5.4, as of the Closing Date
all material tax returns and reports of the Borrower and each of its
Subsidiaries (and their predecessors in interest) required to be filed by any of
them have been timely filed, and all taxes, assessments, fees and other
governmental charges upon such Persons and upon their respective properties,
assets, income and franchises which are shown on such returns as due and payable
have been paid when due and payable. None of the United States income tax
returns of the Borrower and each of its Subsidiaries are under audit. No tax
liens have been filed and no claims are being asserted with respect to any such
taxes. The charges, accruals and reserves on the books of the Borrower and each
of its Subsidiaries in respect of any taxes or other governmental charges are in
accordance with GAAP.
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4.9 ADVERSE CONTRACTS
None of the Loan Parties has assumed liability under or is a party to
nor is it or any of its property subject to or bound by any forward purchase
contract, futures contract, covenant not to compete, unconditional purchase,
take or pay or other agreement which restricts its ability to conduct its
business or, either individually or in the aggregate, has a Material Adverse
Effect or could reasonably be expected to have a Material Adverse Effect.
4.10 PERFORMANCE OF AGREEMENTS
None of the Loan Parties is in default in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained in
any Contractual Obligation of any such Person where such default would have a
Material Adverse Effect, and no condition exists that, with the giving of notice
or the lapse of time or both, would constitute such a default.
4.11 GOVERNMENTAL REGULATION
None of the Loan Parties is, or after giving effect to any Loan will
be, subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act or the Investment Company Act of 1940 or to any federal or
state statute or regulation limiting its ability to incur indebtedness for
borrowed money.
4.12 EMPLOYEE BENEFIT PLANS
(A) No Other Plans. No Loan Party, nor any ERISA Affiliate thereof,
maintains or contributes to, or has any obligation under, any Employee Benefit
Plans other than those identified on Schedule 4.12. The Borrower has provided
the Agent accurate and complete copies of all contracts, agreements and
documents described on Schedule 4.12.
(B) ERISA and IRC Compliance and Liability. Each Loan Party, and each
ERISA Affiliate thereof, is in compliance with all applicable provisions of
ERISA and the regulations and published interpretations thereunder with respect
to all Employee Benefit Plans except where failure to comply would not result in
a material liability to any Loan Party and except for any required amendments
for which the remedial amendment period as defined in Section 401(b) of the Code
has not yet expired. Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the IRC has been determined by the Internal Revenue
Service to be so qualified, and each trust related to such plan has been
determined to be exempt under Section 501(a) of the IRC. No material liability
has been incurred by any Loan Party or ERISA Affiliate which remains unsatisfied
for any taxes or penalties with respect to any Employee Benefit Plan or any
Multiemployer Plan.
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(C) Funding. No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the IRC) been
incurred (without regard to any waiver granted under Section 412 of the IRC),
nor has any funding waiver from the IRS been received or requested with respect
to any Pension Plan, nor has any Loan Party or any ERISA Affiliate failed to
make any contributions or to pay any amounts due and owing as required by
Section 412 of the IRC, Section 302 of ERISA or the terms of any Pension Plan
prior to the due dates of such contributions under Section 412 of the IRC or
Section 302 of ERISA, nor has there been any event requiring any disclosure
under Section 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA with respect to any
Pension Plan.
(D) Prohibited Transactions and Payments. No Loan Party nor any ERISA
Affiliate has: (1) engaged in a nonexempt prohibited transaction described in
Section 406 of ERISA or Section 4975 of the IRC; (2) incurred any liability to
the PBGC which remains outstanding other than the payment of premiums and there
are no prepayments which are due and unpaid; (3) failed to make a required
contribution or payment to a Multiemployer Plan; or (4) failed to make a
required installment or other required payment under Section 412 of the IRC.
(E) No ERISA Termination Event. No ERISA Termination Event has
occurred or is reasonably expected to occur.
(F) ERISA Litigation. No material proceeding, claim, lawsuit and/or
investigation is existing or, to the best knowledge of the Borrower after due
inquiry, threatened concerning or involving any (1) employee welfare benefit
plan (as defined in Section 3(1) of ERISA) currently maintained or contributed
to by any Loan Party, or any ERISA Affiliate, (2) Pension Plan or (3)
Multiemployer Plan.
4.13 INTELLECTUAL PROPERTY
The Borrower and each of its Subsidiaries owns, is licensed to use or
otherwise has the right to use, all patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary for the
conduct of its business as currently conducted that are material to the
condition (financial or other), business or operations of the Borrower or its
Subsidiaries (collectively called "Intellectual Property") and all such
Intellectual Property is identified on Schedule 4.13 and fully protected and/or
in the case of Intellectual Property, the protection of which requires
governmental registration, duly and properly registered, filed or issued in the
appropriate office and jurisdictions for such registrations, filings or
issuances. All Intellectual Property that is registered or for which application
for registration is pending is identified on Schedule 4.13. Except as disclosed
in Schedule 4.13, no material claim has been asserted by any Person with respect
to the use of any Intellectual Property, or challenging or questioning the
validity or effectiveness of any Intellectual Property. Except as disclosed in
Schedule 4.13, the use of such Intellectual Property by the Borrower and its
Subsidiaries, does not infringe on the rights of any Person, subject to such
claims and infringements as do not, in the aggregate, give
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rise to any liabilities on the part of the Borrower and its Subsidiaries that
could reasonably be expected to have a Material Adverse Effect.
4.14 BROKER'S FEES
Except as set forth in Schedule 4.14, no broker's or finder's fee,
commission or similar compensation will be payable with respect to the issuance
and sale of the Notes or any of the other transactions contemplated hereby or by
any Related Transactions Documents. No other similar fees or commissions will be
payable by any Loan Party for any other services rendered to the Borrower or any
of its Subsidiaries ancillary to the transactions contemplated hereby.
4.15 ENVIRONMENTAL COMPLIANCE
(A) No Environmental Claims. To the Borrower's knowledge, after
reasonable investigation, except as set forth on Schedule 4.15(A), as of the
Closing Date, there are no claims, liabilities, investigations, litigation,
administrative proceedings, whether pending or threatened, or judgments or
orders relating to any Hazardous Materials (collectively called "Environmental
Claims") asserted or threatened against any Loan Party or relating to any real
property currently or formerly owned, leased or operated by any Loan Party,
including any such property in which an ownership, or lessee's interest has been
acquired pursuant to the Purchase Agreement. To the best knowledge of the
Borrower after due inquiry and diligence, no Loan Party has caused or permitted
any Hazardous Material to be used, generated, reclaimed, transported, released,
treated, stored or disposed of in a manner which could form the basis for an
Environmental Claim against any Loan Party. Except as set forth on Schedule
4.15(A), no Loan Party has assumed (by contract or by operation of law) any
liability of any Person for cleanup, remediation compliance or required Capital
Expenditures in connection with any Environmental Claim. Any items disclosed
pursuant to Schedule 4.15(A) could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
(B) Storage of Hazardous Materials. Except as set forth on Schedule
4.15(B), to the best knowledge of the Borrower after due inquiry and diligence,
no Hazardous Materials are or were stored or otherwise located, and no
underground storage tanks or surface impoundments are or were located, on real
property currently or formerly owned, leased or operated by any Loan Party or to
the best knowledge of the Borrower after due inquiry, on adjacent parcels of
real property, and no part of such real property or, to the best knowledge of
the Borrower after due inquiry, no part of such adjacent parcels of real
property, including the groundwater located thereon, is presently contaminated
by Hazardous Materials. Any items disclosed pursuant to Schedule 4.15(B) could
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
(C) Compliance With Environmental Laws. Except as set forth on Schedule
4.15(C), each Loan Party has been and is currently in compliance with all
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applicable Environmental Laws, including obtaining and maintaining in effect all
permits, licenses or other authorizations required by applicable Environmental
Laws. Any items disclosed pursuant to Schedule 4.15(C) could not reasonably be
expected to have, either individually or in the aggregate, have a Material
Adverse Effect.
4.16 EMPLOYEE MATTERS
Except as set forth on Schedule 4.16, as of the Closing Date (a) no
Loan Party nor any of their respective employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
the Borrower after due inquiry, threatened between any Loan Party and its
respective employees, other than employee grievances arising in the ordinary
course of business which could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. Except as set forth
on Schedule 4.16, neither the Borrower nor any of its Subsidiaries is subject to
an employment contract.
4.17 SOLVENCY
As of and from and after the date of this Agreement and after giving
effect to the consummation of the Related Transactions, the Borrower: (a) owns
and will own assets the value of which, when taken as a going concern, are (i)
greater than the total amount of liabilities (including contingent liabilities)
of the Borrower and (ii) greater than the amount that will be required to pay
the probable liabilities of the Borrower's then existing debts as they become
absolute and matured considering all financing alternatives and potential asset
sales reasonably available to the Borrower; (b) has capital that is not
unreasonably small in relation to its business as presently conducted or any
contemplated or undertaken transaction; and (c) does not intend to incur and
does not believe that it will incur debts beyond its ability to pay such debts
as they become due (referred to herein as "Solvent").
4.18 DISCLOSURE
No representation or warranty of the Borrower, any of its Subsidiaries
or any other Loan Party contained in this Agreement, the financial statements
referred to in Section 4.3, the other Related Transactions Documents or any
other document, certificate or written statement furnished to the Agent or any
Lender by or on behalf of any such Person for use in connection with the Loan
Documents or the Related Transactions Documents contain any untrue statement of
a material fact or omitted, omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made. The
Projections and pro forma financial information contained in such materials are
based upon good faith estimates and assumptions believed by such Persons to be
reasonable at the time made, it being recognized by the Lenders that such
projections as to future events are
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not to be viewed as facts and that actual results during the period or periods
covered by any such Projections may differ from the projected results. There is
no material fact known to the Borrower that has had or could reasonably be
expected to have a Material Adverse Effect and that has not been disclosed
herein or in such other documents, certificates and statements furnished to the
Agent or any Lender for use in connection with the transactions contemplated
hereby.
4.19 USE OF PROCEEDS AND MARGIN SECURITY
The Borrower shall use the proceeds of all Loans for proper business
purposes (as described in the "Whereas" clauses to this Agreement) consistent
with all applicable laws, statutes, rules and regulations. No portion of the
proceeds of any Loan shall be used by the Borrower or any of its Subsidiaries in
any manner that might cause the borrowing or the application of such proceeds to
violate Regulation G, Regulation U, Regulation T or Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the Exchange Act.
4.20 INSURANCE
Schedule 4.20 sets forth a complete and accurate description of all
policies of insurance that will be in effect as of the Closing Date for the
Borrower. The Borrower is adequately insured under such policies, no notice of
cancellation has been received with respect to such policies and the Borrower is
in compliance with all conditions contained in such policies.
4.21 BANK ACCOUNTS
Schedule 4.21 sets forth the account numbers and location of all bank
accounts of the Borrower.
4.22 REPRESENTATIONS AND WARRANTIES FROM THE PURCHASE AGREEMENT
The Borrower represents and warrants that each of the representations
and warranties given by International and, to its knowledge, each other party to
the Purchase Agreement, are true and correct in all material respects as of the
date hereof (except to the extent such representations and warranties expressly
relate to a specific earlier date but, in such case, such representations and
warranties are, to the knowledge of the Borrower, true and correct in all
material respects as of such earlier date).
4.23 COMPLIANCE WITH LAWS/ACCREDITATION
(A) No Loan Party is in violation of any law, ordinance, rule,
regulation, order, policy, guideline or other requirement of any domestic or
foreign government or any instrumentality or agency thereof, having jurisdiction
over the conduct of their respective businesses or the ownership of their
respective properties, including, without limitation,
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any violation relating to any use, release, storage, transport or disposal of
any Hazardous Material, which violation would subject any Loan Party or any such
Subsidiary, or any of their respective officers to criminal liability or could
reasonably be expected to have, either individually or together with all such
other violations, a Material Adverse Effect and no such violation has been
alleged. Each Loan Party has filed in a timely manner all reports, documents and
other materials required to be filed by them with any governmental bureau,
agency or instrumentality (and the information contained in each of such filings
is true, correct and complete in all respects), except where failure to make
such filings would not have a Material Adverse Effect. Each Loan Party has
retained all records and documents required to be retained by it pursuant to any
law, ordinance, rule, regulation, order, policy, guideline or other requirement
of any governmental authority, except where failure to retain such records would
not subject any Loan Party or any of their respective officers to criminal
liability and could not reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect. Further, and except as set forth on
Schedule 4.23, the Borrower and each Subsidiary operating an educational
institution is in compliance with all Applicable Law promulgated by any
Governmental Authority having jurisdiction over, or relating to, postsecondary
educational institutions and Government Funded Tuition Programs.
(B) AEC owns The American College, which has campuses in Atlanta,
Georgia and Los Angeles, California, both of which are accredited by and in good
standing with SACS. In addition, the Atlanta campus is accredited by the
Foundation for Interior Design Education Research (FIDER) to award the Bachelor
of Fine Arts in Interior Design, and in good standing with said accrediting
body. Both SACS and FIDER are Nationally Recognized Accrediting Agencies. AEC is
not in violation of any rule, regulation, policy, guideline, or other
requirement of any Nationally Recognized Accrediting Agency to which it has
applied or from which it has received accreditation. AEC has filed in a timely
manner all reports, documents and other materials required to be filed by it
with any Nationally Recognized Accrediting Agency (and the information contained
in each of such filings is true, correct and complete in all respects), except
where failure to make such filings would not have a Material Adverse Effect. AEC
has retained all records and documents required to be retained by it pursuant to
any rule, regulation, policy, guideline or other requirement of any Nationally
Recognized Accrediting Agency, except where failure to retain such records would
not subject AEC or any of its officers to criminal liability and could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
4.24 INVESTMENTS
Except as set forth on Schedule 4.24, neither the Borrower nor any of
its Subsidiaries has an Investment in any Person other than Investments
permitted under Section 7.3.
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ARTICLE V
BORROWER'S AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall be in effect and until payment in full of all
Obligations and termination of
all the Letters of Credit, unless the Requisite Lenders shall otherwise give
their prior written consent, the Borrower shall perform and comply with, and
shall cause each of its Subsidiaries to perform and comply with, all covenants
in this Article V applicable to such Person.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS
The Borrower will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of financial statements in
conformity with GAAP. The Borrower will deliver to the Agent and each Lender
(unless specified to be delivered to the Agent) the financial statements and
other reports described below.
(A) Monthly Financials. As soon as available and in any event within
thirty days after the end of each month, the Borrower will deliver (1) the
consolidated and consolidating balance sheet of the Borrower (showing
intercompany eliminations), as at the end of such month and the related
consolidated an consolidating statements of income (showing intercompany
eliminations), stockholders' equity, cash flow and changes in financial position
for such month and for the period from the beginning of then current calendar
year and fiscal year to the end of such month and (2) a schedule of the
outstanding Indebtedness for borrowed money of the Borrower and its Subsidiaries
describing in reasonable detail each such debt issue or loan outstanding and the
principal amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan.
(B) Year-End Financials. As soon as available and in any event within
120 days after the end of each Fiscal Year, the Borrower will deliver: (1) the
consolidated and consolidating balance sheet of the Borrower as at the end of
such year and the related consolidated and consolidating statements of income,
stockholders' equity, cash flow and changes in financial position for such
fiscal year; (2) a schedule of the outstanding Indebtedness for borrowed money
of the Borrower and its Subsidiaries describing in reasonable detail each such
debt issue or loan outstanding and the principal amount and amount of accrued
and unpaid interest with respect to each such debt issue or loan; and
(3) a report with respect to the financial statements from a Big Six Accounting
Firm selected by the Borrower, which report shall be without Qualification and
shall state that (a) such consolidated and consolidating financial statements
present fairly the consolidated and consolidating financial position of the
Borrower and its Subsidiaries as at the dates indicated and the results of their
operations and cash flow for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years and (b) that the
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examination by such accountants in connection with such consolidated and
consolidating financial statements has been made in accordance with generally
accepted auditing standards. The Borrower shall deliver preliminary drafts of
the foregoing statements within 90 days after the end of each Fiscal Year. As
used in this Section 5.1(B), "Qualification" means, with respect to any
certificate covering financial statements, a qualification to such certificate
(such as a "subject to" or "except for" statement or emphasis paragraph therein)
(a) resulting from a limitation on the scope of examination of such financial
statements or the underlying data, (b) as to the capability of the Person whose
financial statements are certified to continue operations as a going concern, or
(c) which could be eliminated by changes in financial statements or notes
thereto covered by such certificate (such as by the creation of or increase in a
reserve or a decrease in the carrying value of assets) and which if so
eliminated by the making of any such change and after giving effect thereto
would occasion a Default or an Event of Default; provided, however, without
limitation, neither of the following shall constitute a Qualification: (x) a
consistency exception relating to a change in accounting principles with which
the independent public accountants for the Person whose financial statements are
being certified have concurred, or (y) a qualification relating to the outcome
or disposition of threatened litigation, pending litigation being contested in
good faith, pending or threatened claims or other contingencies, the impact of
which litigation, claims or contingencies cannot be determined with sufficient
certainty to permit quantification in such financial statements.
(C) Borrower Compliance Certificate. As soon as available and in any
event within thirty days after the end of each calendar quarter of each year
during which this Agreement is in effect, the Borrower will deliver a fully and
properly completed Compliance Certificate signed by the Borrower's chief
executive officer or chief financial officer.
(D) Accountants' Certification. Together with each delivery of
consolidated and consolidating financial statements of the Borrower and its
Subsidiaries pursuant to Section 5.1(B), the Borrower will deliver a written
statement by its independent certified public accountants (a) stating that the
examination has included a review of the terms of this Agreement as same relate
to accounting matters and (b) stating whether, in connection with the
examination, any condition or event that constitutes a Default or an Event of
Default has come to their attention and, if such a condition or event has come
to their attention, specifying the nature and period of existence thereof.
(E) Accountants' Report. Promptly upon receipt thereof, the Borrower
will deliver copies of all significant reports submitted to the Borrower by
independent public accountants in connection with each annual, interim or
special audit of the financial statements of the Borrower made by such
accountants, including the comment letter submitted by such accountants to
management in connection with their annual audit.
(F) Management Report. Together with each delivery of financial
statements of the Borrower and its Subsidiaries pursuant to subdivisions (A) and
(B) of this
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Section 5.1, the Borrower will deliver a management report: (1)
describing the operations and financial condition of the Borrower and its
Subsidiaries for the month then ended and the portion of the current fiscal year
then elapsed (or for the Fiscal Year then ended in the case of year-end
financials); (2) setting forth in comparative form the corresponding figures for
the corresponding periods of the previous Fiscal Year and the corresponding
figures from the most recent Projections for the current Fiscal Year delivered
to the Lenders pursuant to Section 5.1(G); and (3) discussing the reasons for
any significant variations. The information above shall be presented in
reasonable detail and shall be certified by the chief financial officer of the
Borrower to the effect that such information fairly presents the results of
operations and financial condition of the Borrower and its Subsidiaries as at
the dates and for the periods indicated.
(G) Projections. As soon as available and in any event no later than
thirty days prior to the end of each Fiscal Year of the Borrower, the Borrower
will deliver Projections of the Borrower and its Subsidiaries for the
forthcoming three Fiscal Years, year by year, and for the forthcoming Fiscal
Year, month by month.
(H) SEC Filings and Press Releases. Promptly upon their becoming
available, the Borrower will deliver copies of: (1) all financial statements,
reports, notices and proxy statements sent or made available by the Borrower or
any of its Subsidiaries to their security holders; (2) all regular and periodic
reports and all registration statements and prospectuses, if any, filed by the
Borrower or any of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any governmental or private regulatory
authority; and (3) all press releases and other statements made available by the
Borrower or any of its Subsidiaries to the public concerning developments in the
business of any such Person.
(I) Subordinated Indebtedness Notices. The Borrower shall promptly
deliver copies of all notices given or received by the Borrower or any
Subsidiary with respect to any Subordinated Indebtedness.
(J) Events of Default; Etc. Promptly upon any officer of the Borrower
obtaining knowledge of any of the following events or conditions, the Borrower
shall deliver a certificate of the Borrower's chief executive officer or chief
financial officer specifying the nature and period of existence of such
condition or event and what action the Borrower has taken, is taking and
proposes to take with respect thereto: (1) any condition or event that
constitutes an Event of Default or Default; (2) any notice that any Person has
given to the Borrower or any of its Subsidiaries or any other action taken with
respect to a claimed default or event or condition of the type referred to in
Section 8.1(B); or (3) any Material Adverse Effect.
(K) Litigation. Promptly upon any officer of the Borrower obtaining
knowledge of (1) the institution of any action, suit, proceeding, governmental
investigation or arbitration against or affecting any Loan Party or any property
of any Loan Party not previously disclosed by the Borrower to the Agent seeking
damages of
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$100,000 or more or that is otherwise material or (2) any material development
in any action, suit, proceeding, governmental investigation or arbitration at
any time pending against or affecting any Loan Party or any property of any Loan
Party which is reasonably likely to have a Material Adverse Effect, the Borrower
will promptly give notice thereof to the Agent and each Lender and provide such
other information as may be reasonably available to them to enable the Agent,
the Lenders and their counsel to evaluate such matter.
(L) Employee Benefit Plans. With reasonable promptness, and in any
event within thirty days, the Borrower will give notice of and/or deliver to the
Agent copies of: (1) the establishment of any new Employee Benefit Plan, Pension
Plan or Multiemployer Plan the commencement of contributions to any Employee
Benefit Plan, Pension Plan or Multiemployer Plan to which any Loan Party or any
of its ERISA Affiliates was not previously contributing or any increase in the
benefits of any existing Employee Benefit Plan, Pension Plan or Multiemployer
Plan; (2) each funding waiver request filed with respect to any Employee Benefit
Plan and all communications received or sent by any Loan Party or any ERISA
Affiliate with respect to such request; and (3) the failure of any Loan Party or
ERISA Affiliate to make a required installment or payment under Section 302 of
ERISA or Section 412 of the IRC by the due date.
(M) ERISA Termination Events. Promptly and in any event within ten days
of becoming aware of the occurrence of or forthcoming occurrence of any (1)
ERISA Termination Event or (2) "prohibited transaction", as such term is defined
in Section 406 of ERISA or Section 4975 of the IRC, in connection with any
Pension Plan or any trust created thereunder, the Borrower will deliver to the
Agent a notice specifying the nature thereof, what action the applicable Loan
Party has taken, is taking or proposes to take with respect thereto and, when
known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto.
(N) ERISA Notices. With reasonable promptness but in any event within
ten days for purposes of clauses (1), (2) and (3), the Borrower will deliver to
the Agent copies of: (1) any favorable or unfavorable determination letter from
the Internal Revenue Service regarding the qualification of an Employee Benefit
Plan under Section 401(a) of the IRC; (2) all notices received by any Loan Party
or any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to
have a trustee appointed to administer any Pension Plan; (3) each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) filed by any
Loan Party or any ERISA Affiliate with the Internal Revenue Service with respect
to each Pension Plan; and (4) all notices received by any Loan Party
or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the
imposition or amount Of withdrawal liability pursuant to Section 4202 of ERISA.
The Borrower will notify the Agent in writing within two (2) Business Days of
any Loan Party obtaining knowledge or reason to know that any Loan Party or any
ERISA Affiliate has filed or intends to file a notice of intent to terminate any
Pension Plan under a distress termination within the meaning of Section 4041(c)
of ERISA.
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(O) Insurance. Within the sixty day period prior to the end of each
Fiscal Year of the Borrower, the Borrower will deliver a report in form and
substance reasonably satisfactory to the Agent outlining all material insurance
coverage maintained as of the date of such report by the Borrower and its
Subsidiaries and all material insurance coverage planned to be maintained by
such Persons in the subsequent Fiscal Year.
(P) Supplemented Schedules; Notice of Corporate Changes. Annually,
concurrently with the Borrower's delivery of the Projections required by Section
5.1(G), the Borrower shall supplement in writing and deliver to the Agent
revisions of the Schedules annexed to this Agreement to the extent necessary to
disclose new or changed facts or circumstances after the Closing Date; provided,
however, that subsequent disclosures shall not constitute a cure or waiver of
any Default or Event of Default resulting from the matters disclosed. The
Borrower shall provide, on an annual basis, written notice to the Agent of (1)
all jurisdictions in which a Loan Party becomes qualified after the Closing Date
to transact business, (2) any material change after the Closing Date in the
authorized and issued capital stock or other equity interests of any Loan Party
or any of their respective Subsidiaries or any other material amendment to their
charter, by-laws or other organization documents and (3) any Subsidiary created
or acquired by any Loan Party after the Closing Date, such notice, in each case,
to identify the applicable jurisdictions, capital structures or Subsidiaries, as
applicable.
(Q) Tuition Program/Accreditation Reports. The Borrower shall deliver,
and shall cause its Subsidiaries to deliver, copies of any filings or reports
delivered to any Nationally Recognized Accrediting Agency or any Governmental
Authority having jurisdiction over, or relating to, Government Funded Tuition
Programs or notices sent or received by the Borrower or such Subsidiary to or
from such Nationally Recognized Accrediting Agency or Governmental Authority.
(R) Other Information. With reasonable promptness, the Borrower will
deliver such other information and data with respect to any Loan Party or any
Subsidiary of any Loan Party as from time to time may be reasonably requested by
the Agent or any Lender.
5.2 ACCESS TO ACCOUNTANTS
Borrower authorizes the Agent and the Lenders to discuss the financial
condition of the Borrower and its Subsidiaries with the Borrower's independent
public accountants upon reasonable notice to the Borrower of its intention to do
so. The Borrower shall be given the reasonable opportunity to participate in any
such discussion. The Borrower shall deliver a letter to such accountants
authorizing them to comply with the provisions of Section 5.1 and this Section
5.2.
5.3 CORPORATE EXISTENCE; ETC.
Except as otherwise permitted by Section 7.6, the Borrower will, and
will cause each of its Subsidiaries to, at all times preserve and keep in full
force and effect its
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corporate existence and all rights and franchises material to its business.
5.4 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION
The Borrower will, and will cause each of its Subsidiaries to, pay (a)
all taxes, assessments and other governmental charges imposed upon it or any of
its properties or assets or with respect to any of its franchises, business,
income or property before any penalty accrues thereon and (b) all claims
(including claims for labor, services, materials and supplies) for sums that
have become due and payable and that by law have or may become a Lien upon any
of its properties or assets before any penalty or fine is incurred with respect
thereto; provided, however, that no such tax, charge or claim need be paid if
the Borrower or one of its Subsidiaries is contesting same in good faith by
appropriate proceedings promptly instituted and diligently conducted and if the
Borrower or such Subsidiary has established such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP. The Borrower
will not and will not permit any of its Subsidiaries to file or consent to the
filing of any consolidated income tax return with any Person (other than the
Borrower, or any of its Subsidiaries).
5.5 MAINTENANCE OF PROPERTIES; INSURANCE
(A) Maintenance of Properties. The Borrower will maintain or cause to
be maintained in good repair, working order and condition all material
properties used in the business of the Borrower and its Subsidiaries, reasonable
wear and tear excepted and will make or cause to be made all appropriate
repairs, renewals and replacements thereof.
(B) Insurance. In addition to, and not in derogation of, the
requirement of any Security Document, the Borrower will maintain or cause to be
maintained, with financially sound and reputable insurers, public liability,
property damage and business interruption insurance with respect to its business
and properties and the business and properties of its Subsidiaries against loss
or damage of the kinds customarily carried or maintained by corporations of
established reputation engaged in similar businesses and in amounts acceptable
to the Agent and will deliver evidence thereof to the Agent. The Borrower shall
cause the Agent, for the benefit of the Lenders, to be named as loss payee (in
the case of casualty insurance) and additional insured and collateral assignee
(in all other cases) on all insurance policies pursuant to appropriate
endorsements in form and substance reasonably satisfactory to the Agent. The
Borrower shall apply any proceeds received from policies of insurance maintained
pursuant to this Section 5.5 in accordance with the provisions of Section
2.6(C)(4) as if such casualty constituted an Asset Disposition.
5.6 INSPECTION; LENDER MEETING
The Borrower shall permit any authorized representatives designated by
the Agent or by any Lender to visit and inspect any of the properties of the
Borrower or any of its Subsidiaries, including its and their financial and
accounting records, and to make copies
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and take extracts therefrom, and to discuss its and their affairs, finances and
business with its and their officers and independent public accountants, at such
reasonable times during normal business hours and as often as may be reasonably
requested; provided, however, that (i) the Lenders shall coordinate such visits
through the Agent and (ii) so long as no Event of Default has occurred and is
continuing, the Agent may not make a formal inspection of the Borrower's or any
Subsidiary's financial or accounting records or take extracts therefrom more
than once per Fiscal Year; provided, however, that, subparagraph (ii) shall in
no way limit the ability of representatives of the Agent or any Lender from have
consultations or meetings with representatives of the Borrower or any Subsidiary
thereof at any time and from time to time. Without in any way limiting the
foregoing, the Borrower will participate and will cause its key management
personnel to participate in a meeting of the Agent and the Lenders at least once
during each fiscal year to be held at such time and at such place as may be
agreed to by the Borrower and the Agent.
5.7 ENVIRONMENTAL COMPLIANCE
(A) Environmental Laws. Each Loan Party shall at all times comply in
all material respects with all applicable Environmental Laws.
(B) Remedial Action. Each Loan Party and each of their respective
Subsidiaries shall promptly take any and all necessary remedial actions in
response to the presence, storage, use, disposal, transportation, release or
discharge of any Hazardous Materials on, under or about any real property owned,
leased or operated by any Loan Party or any of their Subsidiaries. In the event
any Loan Party or any of their Subsidiaries undertakes any remedial action with
respect to any Hazardous Material on, under or about any real property owned,
leased or operated by any Loan Party or any of their Subsidiaries, such Loan
Party or Subsidiary shall conduct and complete such remedial action in
compliance with all applicable Environmental Laws, and in accordance with the
policies, orders and directives of all federal, state and local governmental
authorities except when such Loan Party's or Subsidiary's liability for such
presence, storage, use, disposal, transportation, release or discharge of any
Hazardous Material is being contested in good faith by such Loan Party or
Subsidiary and appropriate reserves therefor have been established in accordance
with GAAP.
(C) Further Assurances. If the Agent or any Lender at any time has a
reasonable basis to believe that there may be a material violation of any
Environmental Law by, or any material liability arising thereunder of, any Loan
Party or related to any real property owned, leased or operated by any Loan
Party or any of their Subsidiaries or real property adjacent to such real
property, then the Borrower agrees, upon request from the Agent or such Lender,
to provide the Agent and such Lender with such reports, certificates,
engineering studies or other written material or data as the Agent or such
Lender may require so as to satisfy the Agent and such Lender that such Loan
Party is in compliance with all applicable Environmental Laws.
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5.8 ENVIRONMENTAL DISCLOSURE
(A) Releases. The Borrower shall, after learning thereof, promptly
advise the Agent in writing and in reasonable detail of: (1) any material
release, disposal or discharge by any Loan Party or any of their Subsidiaries of
any Hazardous Material required to be reported to any federal, state or local
governmental or regulatory agency under all applicable Environmental Laws except
such releases, disposals or discharges pursuant to and in compliance with valid
permits, authorizations or registrations under said Environmental Laws; (2) any
and all written communications sent or received by any Loan Party with respect
to any Environmental Claims or any release, disposal or discharge of Hazardous
Material required to be reported to any federal, state or local governmental or
regulatory agency; (3) any remedial action taken by any Loan Party or any of
their Subsidiaries or any other Person in response to any Hazardous Material on,
under or about any real property owned, leased or operated by any Loan Party,
the existence of which could result in an Environmental Claim that could have a
Material Adverse Effect; (4) the discovery by any Loan Party or any of their
Subsidiaries of any occurrence or condition on any real property adjoining or in
the vicinity of any real property owned, leased or operated by any Loan Party
that could cause such real property or any part thereof to be classified as
"border-zone property" or to be otherwise subject to any restrictions on the
ownership, occupancy, transferability or use thereof under any Environmental
Laws; and (5) any request for information from any governmental agency that
indicates such agency is investigating whether any Loan Party or any of their
Subsidiaries may be potentially responsible for a release, disposal or discharge
of Hazardous Materials.
(B) Proposed Activities. The Borrower shall promptly notify the Agent
of (1) any proposed acquisition of stock, assets, or property by any Loan Party
that could reasonably be expected to expose such Loan Party or any of their
Subsidiaries to, or result in, Environmental Claims that could have a Material
Adverse Effect and (2) any proposed action to be taken by any Loan Party or any
of their Subsidiaries to commence any operations that could reasonably be
expected to subject such Loan Party to additional laws, rules or regulations,
including laws, rules and regulations requiring additional or amended
environmental permits or licenses. Borrower shall, at its own expense, provide
copies of such documents or information as the Agent may reasonably request in
relation to any matters disclosed pursuant to this Section 5.8.
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5.9 COMPLIANCE WITH LAWS/GOVERNMENT TUITION PROGRAM/ACCREDITATION
(A) The Borrower will (a) comply with and will cause each of its
Subsidiaries to comply with the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority as now in effect and which
may be imposed in the future in all jurisdictions in which the Borrower or its
Subsidiaries are now doing business, other than those laws, rules, regulations
and orders the noncompliance with which would not reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect, and
(b) maintain and will cause each of its Subsidiaries to maintain, as the case
may be, all licenses and permits now held or hereafter acquired by the Borrower,
the loss, suspension, or revocation of which, or failure to renew, could
reasonably be expected to have a Material Adverse Effect.
(B) The Borrower shall comply with, and shall cause each of its
Subsidiaries to comply with, all rules and regulations promulgated by the DOE,
the State of Georgia, the State of California, and any similar state agency,
including, but not limited to, all such rules and regulations relating to
Governmental Funded Tuition Programs.
(C) The Borrower shall cause each educational institution operated by
it or a Subsidiary to maintain its accreditation with SACS or another Nationally
Recognized Accrediting Agency and comply with all rules and regulations of SACS
or such other Nationally Recognized Accrediting Agency.
5.10 COVENANTS IN ACQUISITION DOCUMENTS
The Borrower shall cause International to comply with its covenants
under the Acquisition Documents.
5.11 FURTHER ASSURANCES
(A) The Borrower shall, and shall cause each Loan Party to, from time
to time, execute such guaranties, financing statements, documents, security
agreements and reports as the Agent at any time may reasonably request to
evidence, perfect or otherwise implement the guaranties and security for
repayment of the Obligations provided for in the Loan Documents.
(B) At the Agent's request, the Borrower shall cause any Subsidiaries
of the Borrower promptly to guaranty the Obligations and to grant to the Agent,
for the benefit of the Lenders, a security interest in the real, personal and
mixed property of such Subsidiary to secure the Obligations. The documentation
for such guaranty or security shall be substantially similar to the Loan
Documents with such modifications as are reasonably requested by the Agent.
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<PAGE> 68
5.12 ENFORCEMENT OF REMEDIES UNDER ACQUISITION DOCUMENTS
If the Borrower becomes aware of or otherwise has knowledge of any
facts that could give rise to any claim for indemnification from any party under
any Acquisition Document, the Borrower will cause International to assert or
cause the assertion of such claim against such party before the date on which
such claim may no longer be made under such Acquisition Document, and in
asserting any such claim shall comply with all requirements for asserting such
claims under the Acquisition Documents; provided, however, that such claim need
not be asserted if the Board of Directors determines in good faith that the best
interests of the Borrower would be served by not asserting such claim. No more
than sixty days nor less than thirty days prior to the expiration of the period
in which claims for indemnification under the Acquisition Documents may be
asserted against any party, the Borrower shall deliver to the Agent and each
Lender a certificate executed on its behalf by its chief executive officer or
chief financial officer stating either that such officer has no knowledge of any
claim that may be asserted against any such party or setting forth any such
claims and the actions the Borrower has taken or proposes to take in asserting
them. Nothing contained in this Section 5.12 shall restrict or otherwise affects
any rights of the Agent or any Lender under any other Loan Documents.
5.13 FISCAL YEAR
The Borrower and each Subsidiary shall, on or before December 31, 1996,
duly adopt a fiscal year having January 1 as the first day of such fiscal year
and December 31 as the last day of such fiscal year.
5.14 AFTER-ACQUIRED REAL PROPERTY
If, after the date hereof, the Borrower or any Subsidiary thereof
acquires title to any fee simple, leasehold or other interest in any real
property, the Borrower or such Subsidiary shall execute such mortgages, security
deeds, deeds of trust, leasehold mortgages or collateral assignment of leases as
may be necessary or desirable to grant to the Agent on behalf of the Lenders a
first-priority Lien on such real property interest.
ARTICLE VI
FINANCIAL COVENANTS
The Borrower covenants and agrees that so long as any of the
Commitments remain in effect and until payment in full of all Obligations and
termination of all the Letters of Credit, unless the Requisite Lenders shall
otherwise give their prior written consent, the Borrower shall comply with, and
shall cause each of its Subsidiaries to comply with, all covenants in this
Article VI applicable to such Person.
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6.1 CAPITAL EXPENDITURE LIMIT
The Borrower shall not, and shall not permit its Subsidiaries to, at
any time during the following periods, make Capital Expenditures in an aggregate
amount in excess of the following amounts corresponding to the following
periods:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Maximum Capital
PERIOD Expenditures
- ----------------------------------------------------------------------------------------------
<S> <C>
Closing Date through and including 12/31/96 $500,000
- ----------------------------------------------------------------------------------------------
01/01/97 through and including 12/31/97 $1,000,000
- ----------------------------------------------------------------------------------------------
$1,000,000 multiplied by the
sum of (i) 1 plus (ii) the
percentage growth, if any
01/01/98 through and including 12/31/98 (stated as a decimal and
rounded up to the nearest
(0.001), in annual revenues of
the immediately preceding
calendar year
- ----------------------------------------------------------------------------------------------
The dollar amount of the
Maximum Capital
Expenditures for the
immediately preceding
01/01/99 through and including 12/31/99 and calendar year multiplied by
each calendar year thereafter the sum of (i) 1 plus (ii) the
percentage growth, if any
(stated as a decimal and
rounded up to the nearest
(0.001), in annual revenues of
the immediately preceding
calendar year
- ----------------------------------------------------------------------------------------------
</TABLE>
6.2 LIABILITIES TO NET WORTH
The Borrower shall not permit, at the Closing Date and at the end of
each calendar quarter of the Borrower during the term of this Agreement, the
ratio obtained by dividing (i) Consolidated Total Liabilities outstanding at
such time minus Subordinated Indebtedness outstanding at such time by (ii)
Consolidated Net Worth at such time plus Subordinated Indebtedness outstanding
at such time to exceed the following ratios corresponding to the following
periods:
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Maximum Consolidated
PERIOD Total Liabilities
to Consolidated Net Worth
- ----------------------------------------------------------------------------------------------
<S> <C>
At Closing Date and through and including 3.00 to 1.00
09/30/97
- ----------------------------------------------------------------------------------------------
10/01/97 through and including 09/30/98 2.50 to 1.00
- ----------------------------------------------------------------------------------------------
10/01/98 through and including 09/30/99 2.00 to 1.00
- ----------------------------------------------------------------------------------------------
10/01/99 through and including 09/30/00 1.50 to 1.00
- ----------------------------------------------------------------------------------------------
10/01/00 and each calendar quarter occurring 1.00 to 1.00
thereafter
- ----------------------------------------------------------------------------------------------
</TABLE>
6.3 TOTAL CAPITALIZATION
The Borrower shall not permit, at the end of each calendar quarter of
the Borrower during the term of this Agreement, its Total Capitalization to be
less than the following amounts corresponding to the following periods:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Minimum Capitalization
PERIOD
- ----------------------------------------------------------------------------------------------
<S> <C>
At Closing Date and through and including $12,000,000
09/30/97
- ----------------------------------------------------------------------------------------------
10/01/97 through and including 09/30/98 13,500,000
- ----------------------------------------------------------------------------------------------
10/01/98 through and including 09/30/99 16,500,000
- ----------------------------------------------------------------------------------------------
10/01/99 through and including 09/30/00 21,500,000
- ----------------------------------------------------------------------------------------------
10/01/00 through and including 09/30/01 27,500,000
- ----------------------------------------------------------------------------------------------
12/31/01 and each calendar quarter thereafter 35,000,000
- ----------------------------------------------------------------------------------------------
</TABLE>
6.4 DEBT SERVICE COVERAGE RATIO
The Borrower shall not permit, on the dates set forth below, its
Consolidated Debt Service Coverage Ratio to be less than the following ratios
corresponding to the following dates:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Minimum Debt Service
PERIOD Coverage Ratio
- ----------------------------------------------------------------------------------------------
<S> <C>
December 31, 1997 1.10 to 1.00
- ----------------------------------------------------------------------------------------------
December 31, 1998 1.30 to 1.00
- ----------------------------------------------------------------------------------------------
December 31, 1999 1.50 to 1.00
- ----------------------------------------------------------------------------------------------
December 31, 2000 and each December 31 1.50 to 1.00
thereafter
- ----------------------------------------------------------------------------------------------
</TABLE>
6.5 INTEREST COVERAGE RATIO
The Borrower shall not permit, at the end of each calendar quarter of
the Borrower during the term of this Agreement, commencing with the calendar
quarter
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end on September 30, 1997, its Interest Coverage Ratio to be less than the
following ratios corresponding to the following periods:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PERIOD Minimum Interest Coverage
Ratio
- ----------------------------------------------------------------------------------------------
<S> <C>
Calendar quarter ending 09/30/97 2.25 to 1.00
- ----------------------------------------------------------------------------------------------
10/01/97 through and including 09/30/98 2.40 to 1.00
- ----------------------------------------------------------------------------------------------
10/01/98 through and including 09/30/99 2.50 to 1.00
- ----------------------------------------------------------------------------------------------
10/01/99 and each calendar quarter occurring 2.50 to 1.00
thereafter
- ----------------------------------------------------------------------------------------------
</TABLE>
6.6 GOVERNMENT REQUIRED RATIOS
The Borrower shall cause AEC and its educational institutions to comply
with all requirements of the DOE with respect to institutional eligibility to
participate in Title IV programs under the Higher Education Act of 1965 (20
U.S.C. 1070 et seq.), as amended from time to time, including, but not limited
to, meeting the standards of administrative capability and financial
responsibility published by the DOE from time to time, or to take such other
action as may be necessary, to qualify AEC or its educational institutions for
the GSL Program and to maintain its good standing thereunder.
6.7 ENROLLMENT
The Borrower shall not permit, as of the end of the established student
withdrawal period, the aggregate student enrollment for all educational
institutions now or hereafter operated by the Borrower and its Subsidiaries
(other than The American College in Dubai), in any two consecutive academic
quarters a decline in enrollment of in excess of 7% in each such academic
quarter when compared with the corresponding academic quarter for the
immediately prior academic year; provided, however, that, for purposes of this
Section 6.7, the academic quarters to be considered shall include only the Fall,
Winter and Spring academic quarters. The Borrower shall deliver, within five
days after the end of the established student withdrawal period for each such
academic quarter, the aggregate student enrollment for such academic quarter
together with the other aggregate student enrollment numbers and the
computations required under this Section 6.7.
6.8 GOVERNMENT DEFAULT RATE
The Borrower shall not permit the cohort default rate with respect to
the academic institutions operated by the Borrower and its Subsidiaries, as
defined in Section 435(m) of the Higher Education Act of 1965 (20 U.S.C.
1085(m)), as amended from time to time, and as published by the DOE, on student
loans provided through the GSL Program to exceed 20% for any educational
institution operated by the Borrower and its Subsidiaries.
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<PAGE> 72
ARTICLE VII
BORROWER'S NEGATIVE COVENANTS
The Borrower covenants and agrees that so long as any of the
Commitments remain in effect and until payment in full of all Obligations and
termination of all the Letters of Credit, unless the Requisite Lenders shall
otherwise give their prior written consent, the Borrower shall comply with, and
shall cause each other Loan Party to comply with, all covenants in this Article
VII applicable to such Person.
7.1 INDEBTEDNESS
The Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly create, incur, assume, guaranty, or otherwise become or
remain directly or indirectly liable with respect to any Indebtedness except:
(A) The Obligations;
(B) Intercompany Indebtedness among the Borrower and its Subsidiaries;
provided, however, that the obligations of each obligor of such Indebtedness
shall: (i) be evidenced by promissory notes, which shall have been pledged to
the Agent, for the benefit of the Lenders, as security for the Obligations; and
(ii) have such other terms and provisions as the Agent may reasonably require;
(C) Indebtedness arising as a result of Contingent Obligations
permitted under Section 7.4;
(D) the Stratford Indebtedness;
(E) Indebtedness and Capital Leases in existence on the Closing Date
and not repaid pursuant to the Statement of Funds Flow; and
(F) an unsecured line of credit in favor of ACIL-UK extended by
National Westminster Bank, P.L.C. up to a principal amount not to exceed
$250,000 at any one time outstanding;
(G) purchase money Indebtedness and Capital Leases incurred in
connection with the acquisition of equipment; provided, however, that (i) the
aggregate principal amount of such purchase money Indebtedness and Capital
Leases that the Borrower and its Subsidiaries may incur (x) during the period
from the Closing Date through and including December 31, 1996, shall not exceed
$150,000 and (y) during each Fiscal Year thereafter during the period this
Agreement is in effect, shall not exceed $300,000 per such Fiscal Year and (ii)
such Indebtedness and Capital Leases must be incurred simultaneously with the
acquisition of such equipment and may not exceed in principal amount of the
purchase price of such equipment.
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<PAGE> 73
7.2 LIENS AND RELATED MATTERS
(A) No Liens. The Borrower will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset (including any
document or instrument with respect to goods or accounts receivable) of the
Borrower or any of its Subsidiaries, whether now owned or hereafter acquired, or
any income or profits there from, except Permitted Encumbrances.
(B) No Negative Pledges. Neither the Borrower nor any Subsidiary of the
Borrower shall enter into or assume any agreement (other than the Loan
Documents) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired, except for such
restrictions under the documents and instruments evidencing the Stratford
Indebtedness.
(C) No Restrictions on Subsidiary Distributions to the Borrower. Except
as provided herein, the Borrower will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by the Borrower or
any Subsidiary of the Borrower; (2) pay any Indebtedness owed to the Borrower or
any other Subsidiary; (3) make loans or advances to the Borrower or any other
Subsidiary; or (4) transfer any of its property or assets to the Borrower or any
other Subsidiary.
7.3 ACQUISITIONS; INVESTMENTS; JOINT VENTURES
The Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly: (a) acquire or purchase, or permit any Subsidiary to
acquire or purchase, any Business Unit; (b) acquire, make or purchase, or permit
any Subsidiary to acquire, make or purchase, any Investment, including any Joint
Venture; or (c) permit any Investment, including any Joint Venture, of the
Borrower or any Subsidiary to be outstanding, except the following:
(A) Cash Equivalents. The Borrower and its Subsidiaries may make and
own Investments in Cash Equivalents; provided, however, that such Cash
Equivalents are not subject to setoff rights in favor of the issuing bank
arising from any banking relationship of the Borrower or its Subsidiaries;
(B) Intercompany Loans. The Borrower and its Subsidiaries may make
intercompany loans and investments to the extent permitted under Section 7.1;
(C) Travel Advances. The Borrower and its Subsidiaries may make loans
and advances to employees for moving, entertainment, travel and other similar
expenses in the
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<PAGE> 74
ordinary course of business not to exceed Twenty-Five Thousand Dollars ($25,000)
in the aggregate at any time outstanding; and
(D) Investments. The Borrower and its Subsidiaries may make the
Investments (including Joint Ventures) set forth on Schedule 4.1(B) hereof. The
Borrower shall transfer the Certificate of Deposit issued by Fidelity National
Bank (or the proceeds thereof) to an account with NationsBank within 10 days of
the Closing Date.
7.4 CONTINGENT OBLIGATIONS
The Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or become or be liable with respect to any
Contingent Obligation except:
(A) Contingent Obligations resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
(B) Contingent Obligations in favor of the Agent and the Lenders;
(C) Contingent Obligations under Interest Rate Agreements, approved by
the Agent in its sole discretion, with respect to the Loans;
(D) Contingent Obligations existing on the Closing Date and described
in Schedule 7.4 annexed hereto;
(E) Contingent Obligations with respect to customary indemnification
and purchase price adjustment obligations incurred in connection with Asset
Dispositions or with respect to the Investments permitted under Section 7.3(D);
(F) Contingent Obligations incurred in the ordinary course of business
with respect to surety and appeal bonds, performance and return-of-money bonds
and other similar obligations;
(G) Contingent Obligations with respect to Indebtedness permitted by
Section 7.1;
(H) Contingent Obligations with respect to the Stratford Indebtedness
and the Acquisition Documents; and
(I) Contingent Obligations arising with respect to indemnities granted
in favor of officers and directors of the Borrower or its Subsidiaries pursuant
to their respective corporate charters or bylaws.
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<PAGE> 75
7.5 RESTRICTED PAYMENTS; NO AMENDMENT OF SUBORDINATED INDEBTEDNESS
(A) The Borrower will not, and will not permit any of its
Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Payment, except that:
(i) Subordinated Indebtedness. The Borrower may make the
regularly scheduled payments with respect to the Stratford Indebtedness
and any other Subordinated Indebtedness permitted to be outstanding as
required in accordance with the terms thereof, but only, in each case,
to the extent required by, and subject to the subordination provisions
contained in, the promissory note, indenture or other agreement
pursuant to which such Indebtedness was issued or which was executed in
connection with such Indebtedness or otherwise as approved in writing
by the Requisite Lenders; and
(ii) Restricted Payments by Subsidiaries. Subsidiaries of
the Borrower may make Restricted Payments to the Borrower.
(B) No Amendment. The Borrower shall not enter into any amendment,
supplement, modification or waiver of documents or instruments evidencing any
Subordinated Indebtedness that is prohibited by the Subordination Agreement.
Further, the Borrower shall not cause or allow any third-party guaranty of
payment or performance of all or any portion of any Subordinated Indebtedness
from any Person unless (i) such third-party also guaranties the Obligations to
the same extent and (ii) the guaranty from such third-party in favor of the
holder of such Subordinated Indebtedness expressly provides that it is
subordinate to the third-party guaranty in favor of the Agent and the Lenders.
The Borrower agrees to deliver to the Agent a copy of any proposed amendment,
modification or supplement of any document, agreement or instrument evidencing
or relating to any Subordinated Indebtedness at least fifteen days prior to its
execution and delivery by the Borrower (or any Subsidiary of the Borrower).
7.6 RESTRICTION ON FUNDAMENTAL CHANGES
Neither the Borrower nor any of its Subsidiaries will: (a) amend,
modify or waive any term or provision of its articles of incorporation, by-laws
or organizational documents unless required by law; (b) enter into any
transaction of merger or consolidation; (c) liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution); (d) convey, sell, lease,
sublease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business or assets, or the
capital stock of, or other equity interests in, any of its Subsidiaries, whether
now owned or hereafter acquired; or (e) acquire by purchase or otherwise all or
any substantial part of the business or assets of, or stock or other evidence of
beneficial ownership of, any Person, except: (i) the Loan Parties may enter into
transactions contemplated by the Acquisition Documents and may consummate the
Acquisition; (ii) the Borrower and its Subsidiaries may make Capital
Expenditures permitted under Section 6.1 and Investments permitted under Section
7.3; and (iii) any
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<PAGE> 76
Subsidiary of the Borrower may be merged with or into the Borrower (provided
that the Borrower is the surviving entity and no Default or Event of Default
exists or will occur by reason of such merger) or any other Subsidiary of the
Borrower. Further, the Borrower shall not issue or sell any Securities of the
Borrower to any Person other than: (a) the issuance of the Warrant and the
Stratford Warrant; (b) the issuance and sale of its Class A Common Stock
pursuant to an Initial Public Offering; and (c) issuances of common stock
(including up to 5% of the issued and outstanding shares thereof pursuant to a
management stock option plan or other employee stock ownership plan) which shall
not constitute or give rise to an Event of Default under Section 8.1(S) hereof
and which, in any event, do not provide for any stated or guaranteed return or
any mandatory redemption or retirement provision or put right on any date prior
to the date 91 days after the payment in full of all Obligations.
7.7 DISPOSAL OF ASSETS OR SUBSIDIARY STOCK
(A) Assets. Neither the Borrower nor any of its Subsidiaries will sell,
lease, transfer or otherwise dispose of any of its property, business or assets,
or grant any Person an option to acquire any such property, business or assets
except for (a) bona fide sales of inventory to customers for fair value in the
ordinary course of business and dispositions of obsolete equipment not used or
useful in the business and (b) Asset Dispositions if all of the following
conditions are met: (i) the market value of assets sold or otherwise disposed of
in any single transaction or series of related transactions does not exceed
$50,000 and the aggregate market value of assets sold or otherwise disposed of
in any Fiscal Year does not exceed $75,000; (ii) the consideration received is
at least equal to the fair market value of such assets; (iii) the sole
consideration received is cash; (iv) the Net Proceeds of such Asset Disposition
are applied to the extent required by Section 2.6(C)(1); (v) after giving effect
to the sale or other disposition of the assets included within the Asset
Disposition and the repayment of Indebtedness with the proceeds thereof, the
Borrower is in compliance on a pro forma basis with the covenants set forth in
Article VI recomputed for the most recently ended month for which information is
available and is in compliance with all other terms and conditions contained in
this Agreement; and (vi) no Default or Event of Default exists or shall result
from such sale or other disposition.
(B) Subsidiary Capital Stock. The Borrower will not, and will not
permit any of its Subsidiaries, directly or indirectly, to sell, assign, pledge
or otherwise encumber or dispose of any Securities of any Subsidiary of the
Borrower.
7.8 RESTRICTION ON LEASES
The Borrower will not, and will not permit any of its Subsidiaries to,
become liable in any way, whether directly or by assignment or as a guarantor or
other surety, for the obligations of the lessee under any Operating Lease or
Real Property Lease other than (a) the Operating Leases described in Schedule
4.6 hereto; (b) intercompany leases between the Borrower and its Subsidiaries;
(c) additional Operating Leases provided that the aggregate additional annual
rentals required to be paid by the Borrower and its
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Subsidiaries under all Operating Leases shall not exceed $200,000 per Fiscal
Year; and (d) additional Real Property Leases provided that aggregate annual
rentals required to be paid by the Borrower and its Subsidiaries under all Real
Property Leases shall not exceed the Real Property Rental Limit.
7.9 SALES AND LEASE-BACKS
The Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as guarantor or
other surety with respect to any lease of any property whether real or personal
or mixed or whether now owned or hereafter acquired which the Borrower or any of
its Subsidiaries has sold or transferred, or intends to sell or transfer, to any
other Person.
7.10 TRANSACTIONS WITH AFFILIATES
The Borrower will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Borrower or with any director, officer or
employee of any Loan Party, except (a) as set forth on Schedule 7.10 or (b)
transactions in the ordinary course of and pursuant to the reasonable
requirements of the business of the Borrower or any of its Subsidiaries and upon
fair and reasonable terms which are fully disclosed to the Agent and the Lenders
and are no less favorable to the Borrower or such Subsidiary than would be
obtained in a comparable arm's length transaction with a Person that is not an
Affiliate of the Borrower. Notwithstanding the foregoing, no payments may be
made with respect to any items set forth on Schedule 7.10 upon the occurrence
and during the continuation of a Default or Event of Default.
7.11 MANAGEMENT FEES AND COMPENSATION
(A) Management Fees. The Borrower will not, and will not permit any
other Loan Party or any of their respective Subsidiaries to, pay any management,
consulting or similar fees to any Affiliate of the Borrower or to any director,
officer or employee of any Loan Party except as set forth on Schedule 7.11(A).
(B) Compensation. The Borrower will not, and will not permit any of its
Subsidiaries to, make payments of salary or bonus or otherwise provide
compensation (including benefits) to its principal executive officers or
employees which are in excess of those customarily paid in the industry in which
the Borrower and its Subsidiaries is engaged, and in no event will the Borrower
or any of its Subsidiaries pay any bonus to any officer, director or employee
whose total compensation, including such bonus is in excess of $175,000 unless
such bonus has been approved by the Board of Directors of the Borrower. Further,
the Borrower shall not increase the aggregate compensation of R. Steven Bostic
by in excess of 10% per Fiscal Year unless such increase is approved by a
majority of the disinterested members of the Board of Directors.
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7.12 ENVIRONMENTAL LIABILITIES
The Borrower will not, and will not permit any Subsidiary to: (a)
violate any applicable Environmental Law in any material respect; or (b) dispose
of any Hazardous Materials into or onto or (except in accordance with applicable
law) from, any real property owned, leased or operated by any Loan Party; or (c)
permit any Lien imposed pursuant to any Environmental Law to be imposed or to
remain on any real property owned, leased or operated by any Loan Party.
7.13 CONDUCT OF BUSINESS
From and after the Closing Date, the Borrower will not, and will not
permit any of its Subsidiaries to, engage in any business other than the
Business.
7.14 FISCAL YEAR
Except as contemplated by Section 5.13, neither the Borrower nor any
Subsidiary of the Borrower shall change its Fiscal Year.
7.15 COMPLIANCE WITH ERISA
Neither the Borrower nor any Subsidiary of the Borrower shall:
(A) permit the occurrence of any ERISA Termination Event which would
result in a liability to any Loan Party or ERISA Affiliate in excess of
$100,000;
(B) permit the present value of all benefit liabilities under all
Pension Plans to exceed the current value of the assets of such Pension Plans
allocable to such benefit liabilities by more than $100,000;
(C) permit any accumulated funding deficiency in excess of $100,000 (as
defined in Section 302 of ERISA and Section 412 of the IRC) with respect to any
Pension Plan, whether or not waived;
(D) fail to make any contribution or payment to any Multiemployer Plan
which any Loan Party or ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining thereto
which results in or is likely to result in a liability in excess of $100,000;
(E) engage, or permit any Loan Party or ERISA Affiliate to engage, in
any prohibited transaction under Section 406 of ERISA or Section 4975 of the IRC
for which a civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant
to Section 4975 of the IRC in excess of $100,000 is imposed;
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(F) permit the establishment of any Employee Benefit Plan providing
post-retirement welfare benefits or establish or amend any Employee Benefit Plan
which establishment or amendment could result in liability to any Loan Party or
ERISA Affiliate or increase the obligation of any Loan Party or ERISA Affiliate
to a Multiemployer Plan which liability or increase, individually or together
with all similar liabilities and increases, is material to any Loan Party or
ERISA Affiliate; or
(G) fail, or permit any Loan Party or ERISA Affiliate to fail, to
establish, maintain and operate each Employee Benefit Plan in compliance in all
material respects with the provisions of ERISA, the IRC and all other applicable
laws and the regulations and interpretations thereof.
7.16 PRESS RELEASE: PUBLIC OFFERING MATERIALS
The Borrower will not, and will not permit any Loan Party to, disclose
the name of the Agent or any Lender in any press release or in any prospectus,
proxy statement or other materials filed with any governmental entity relating
to a public offering of the Securities of any Loan Party, except as may be
required by Applicable Law.
7.17 SUBSIDIARIES
The Borrower will not, and will not permit any of its Subsidiaries to,
establish, create or acquire any new Subsidiary.
7.18 BANK ACCOUNTS
The Borrower will not, and will not permit any of its Subsidiaries to,
establish any new bank accounts other than with NationsBank or any Affiliate
thereof. The Borrower shall, and shall cause its Subsidiaries, to close, as soon
as practicable and in no event later than 120 days after the Closing Date, all
deposits or other accounts maintained with Fidelity National Bank other than
account number 3012674 relating to processing UK value added tax. The Borrower
acknowledges that such a requirement is a legitimate and reasonable measure to
preserve and protect the Agent's first-priority security interest in all
accounts and general intangibles of the Borrower and its Subsidiaries and all
proceeds thereof.
ARTICLE VIII
DEFAULT, RIGHTS AND REMEDIES
8.1 EVENTS OF DEFAULT
"Event of Default" shall mean the occurrence or existence of any one or
more of the following:
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(A) Default in Payment. Failure to pay any installment of principal of
any Loan when due, or to reimburse the Agent or any Lender for any payment made
by the Agent or such Lender under or in respect of any Letter of Credit when due
or failure to pay, within five Business Days after the due date, any interest on
any Loan or any other amount due under this Agreement, or any of the other Loan
Documents; or
(B) Default in Other Agreements. (1) Failure of the Borrower or any of
its Subsidiaries to pay when due or within any applicable grace period any
principal or interest on Indebtedness (other than the Loans) or any Contingent
Obligations; (2) breach or default of the Borrower or any of its Subsidiaries
with respect to any Indebtedness (other than the Loans) or any Contingent
Obligations, if the effect of such failure to pay, default or breach is to
cause, or to permit the holder or holders of such Indebtedness to cause,
Indebtedness and Contingent Obligations having an individual principal amount in
excess of $100,000 or having an aggregate principal amount in excess of $200,000
to become or be declared due prior to their stated maturity, whether or not such
failure to pay, default or breach is waived by such holder or holders; or (3)
breach or default by the Borrower of any of its Subsidiaries with respect to any
Real Property Lease which results in, or with notice or the passage of time, or
both, would result in, a termination of such Real Property Lease; or
(C) Breach of Certain Provisions. Failure of the Borrower to perform or
comply with any term or condition contained in Section 5.1 or 5.5(B) or
contained in Article VI or Article VII; or
(D) Breach of Warranty. Any representation, warranty, certification or
other statement made by any Loan Party in any Loan Document or in any statement
or certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect on the date
made; or
(E) Other Defaults Under Loan Documents. The Borrower or any other Loan
Party defaults in the performance of or compliance with any term contained in
this Agreement or the other Loan Documents and such default is not remedied or
waived within thirty days after receipt by the Borrower of notice from the Agent
or any Lender of such default (other than occurrences described in other
provisions of this Section 8.1 for which a different grace or cure period is
specified or which constitute immediate Events of Default); or
(F) Involuntary Bankruptcy; Appointment of Receiver; Etc. (1) A court
enters a decree or order for relief with respect to the Borrower or any of its
Subsidiaries in an involuntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, which
decree or order is not stayed or other similar relief is not granted under any
applicable federal or state law within sixty days; or (2) the continuance of any
of the following events for sixty days unless dismissed, bonded or discharged:
(a) an involuntary case is commenced against the Borrower or any of its
Subsidiaries, under any applicable bankruptcy, insolvency or other similar law
now or
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hereafter in effect; or (b) a decree or order of a court for the appointment of
a receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over the Borrower or any of its Subsidiaries, or over all or a
substantial part of its property, is entered; or (c) an interim receiver,
trustee or other custodian is appointed without the consent of the Borrower or
any of its Subsidiaries, for all or a substantial part of the property of the
Borrower or any such Subsidiary; or
(G) Voluntary Bankruptcy; Appointment of Receiver; Etc. (1) An order
for relief is entered with respect to the Borrower or any of its Subsidiaries,
the Borrower or any of its Subsidiaries commences a voluntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case or to the conversion of an involuntary case to a voluntary
case under any such law or consents to the appointment of or taking possession
by a receiver, trustee or other custodian for all or a substantial part of its
property; or (2) the Borrower or any of its Subsidiaries makes any assignment
for the benefit of creditors; or (3) the Board of Directors of the Borrower or
any of its Subsidiaries adopts any resolution or otherwise authorizes action to
approve any of the actions referred to in this Section 8.1(G); or
(H) Governmental Liens. Any lien, levy or assessment is filed or
recorded with respect to or otherwise imposed upon all or any part of the
Collateral or the assets of the Borrower or any of its Subsidiaries by the
United States or any department or instrumentality thereof or by any state,
county, municipality or other governmental agency (other than Permitted
Encumbrances) and such lien, levy or assessment is not stayed, vacated or
discharged within thirty days; or
(I) Judgments and Attachments. Any judgment, writ or warrant of
attachment, or similar process (other than those described in Section 8.1(H))
involving (1) an amount in any individual case in excess of $250,000 or (2) an
amount in the aggregate at any time in excess of $500,000 (in either case not
adequately covered by insurance as to which the insurance company has
acknowledged coverage) is entered or filed against the Borrower or any of its
Subsidiaries or any of their respective assets and remains undischarged,
unvacated, unbonded or unstayed for a period of thirty days or in any event
later than five days prior to the date of any proposed sale thereunder; or
(J) Dissolution. Any order, judgment or decree is entered against the
Borrower or any of its Subsidiaries decreeing the dissolution or split up of the
Borrower or that Subsidiary and such order remains undischarged or unstayed for
a period in excess of thirty days; or
(K) Solvency. The Borrower or any Subsidiary ceases to be Solvent (as
represented by the Borrower in Section 4.17) or admits in writing its present or
prospective inability to pay its debts as they become due; or
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(L) Injunction. The Borrower or any of its Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than thirty days; or
(M) ERISA - Pension Plans. (1) Any Loan Party or any ERISA Affiliate
fails to make full payment when due of all amounts which, under the provisions
of any Pension Plan or Section 412 of the IRC, any Loan Party or any ERISA
Affiliate is required to pay as contributions thereto and such failure results
in or is likely to result in a Material Adverse Effect; or (2) an accumulated
funding deficiency in excess of $100,000 occurs or exists, whether or not
waived, with respect to any Pension Plan; or (3) an ERISA Termination Event
occurs which results in or is likely to result in a Material Adverse Effect; or
(N) ERISA - Multiemployer Plans. Any Loan Party or any ERISA Affiliate
as employers under one or more Multiemployer Plans makes a complete or partial
withdrawal from such Multiemployer Plans and the plan sponsor of such
Multiemployer Plans notifies such withdrawing employer that such employer has
incurred a withdrawal liability requiring payments in an amount exceeding
$100,000; or
(O) Invalidity of Loan Documents. Any of the Loan Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party denies that it has any further liability under any Loan
Documents to which it is party, or gives notice to such effect; or
(P) Damage; Strike; Casualty. Any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any strike, lockout,
labor dispute, embargo, condemnation, act of God or public enemy, or other
casualty which causes, for more than thirty consecutive days beyond the coverage
period of any applicable business interruption insurance, the cessation or
substantial curtailment of revenue producing activities at any facility of the
Borrower or any of its Subsidiaries if any such event or circumstance could
reasonably be expected to have a Material Adverse Effect; or
(Q) Licenses and Permits. The loss, suspension or revocation of, or
failure to renew, any approval, consent, license or permit of any Governmental
Approval or accrediting body now held or hereafter acquired by the Borrower or
any of its Subsidiaries, if such loss, suspension, revocation or failure to
renew could have a Material Adverse Effect; or
(R) Failure of Security. The Agent does not have or ceases to have a
valid and perfected first priority security interest in the Collateral (subject
to Permitted Encumbrances), in each case, for any reason other than the failure
of the Agent or the Lender to take any action within its control; or
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(S) Change in Control. (1) R. Steven Bostic and/or any Related Party or
Related Parties thereto shall fail or cease to own and control directly at least
75% of the issued and outstanding Voting Stock of the Borrower; provided,
however, that in the event of an Initial Public Offering of Class A Common Stock
of the Borrower, such required percentage of ownership shall be reduced from 75%
to 30%; and/or (2) the Borrower shall cease to own and control all of the issued
and outstanding Securities of International; and/or (3) International shall
cease to own and control directly all of the issued and outstanding Securities
of AEC, ACIL and Systems; and/or (4) AEC shall cease to own and control at least
85% of the Voting Stock of AEMEC.
(T) Change in Management. The failure at any time for any reason of R.
Steven Bostic to serve on a full-time basis as the chief executive officer of
the Borrower and its Subsidiaries; it being understood and acknowledged by the
parties hereto that an integral factor in the decision of the Lender to extend
credit to the Borrower is the perceived management skill and expertise of said
Person.
(U) Indemnification Claim. The assertion by International of a claim
for indemnification under the Purchase Agreement in excess of $100,000 and the
failure of the Sellers (as defined in the Purchase Agreement) for whatever
reason to pay or reimburse International for such claim.
8.2 SUSPENSION OF COMMITMENTS
Upon the occurrence of any Default or Event of Default, the Agent or
the Lenders, without notice or demand, may immediately cease making additional
Loans and issuing the Letters of Credit and the Commitments shall be suspended;
provided, however, that, in the case of a Default, if the subject condition or
event is waived, cured or removed by the Requisite Lenders within any applicable
grace or cure period, the Commitments shall be reinstated.
8.3 ACCELERATION; TERMINATION OF FACILITIES
(A) Automatic. Upon the occurrence of an Event of Default specified in
Sections 8.1(F) or 8.1(G), (a)(i) the principal of, and the accrued interest on,
the Loans and the Notes at the time outstanding, (ii) an amount equal to the
Lender Guaranty Liability outstanding as of the date of the occurrence of the
Event of Default and (iii) all of the other Obligations of the Borrower,
including, but not limited to, the other amounts owed to the Lenders and the
Agent under this Agreement, the Notes or any of the other Loan Documents shall
become automatically due and payable by the Borrower without presentment,
demand, protest, or other notice of any kind, all of which are expressly waived
by the Borrower and (b) the credit facility established hereby and the
obligation of the Lenders to make Loans hereunder, and the obligation of the
Agent to issue the Letters of Credit hereunder shall immediately and
automatically terminate.
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(B) Optional. If any other Event of Default shall have occurred and be
continuing, the Requisite Lenders may direct the Agent, and the Agent if so
directed shall: (a) declare (i) the principal of, and accrued interest on, the
Loans and the Notes at the time outstanding, (ii) an amount equal to the Lender
Guaranty Liability outstanding as of the date of the occurrence of the Event of
Default and (iii) all of the other Obligations, including, but not limited to,
the other amounts owed to the Lenders and the Agent under this Agreement, the
Notes or any of the other Loan Documents, to be forthwith due and payable,
whereupon the same shall immediately become due and payable without presentment,
demand, protest or other notice of any kind, all of which are expressly waived
by the Borrower, and (b) terminate the credit facility established hereby and
the obligation of the Lenders to make Loans hereunder and the obligation of the
Agent to issue Letters of Credit hereunder.
8.4 LOAN DOCUMENTS
Upon the occurrence and continuation of an Event of Default, the
Requisite Lenders may direct the Agent to, and, subject to the terms hereof, the
Agent if so directed shall, exercise any and all of its rights under any and all
of the other Loan Documents.
8.5 APPLICABLE LAW
Upon the occurrence and continuation of an Event of Default, the Agent
may, at the direction of the Requisite Lenders, exercise all other rights and
remedies it may have under any Applicable Law.
8.6 APPOINTMENT OF RECEIVER
Upon the occurrence and continuation of an Event of Default, to the
extent permitted by Applicable Law, the Lenders shall be entitled to the
appointment of a receiver for the assets and properties of the Borrower and its
Subsidiaries, without regard to the adequacy of any security for the Obligations
or the solvency of any party bound for its payment, to take possession of all or
any portion of the assets and/or the business operations of the Borrower and its
Subsidiaries and to exercise such power as the court shall confer upon such
receiver.
8.7 PERFORMANCE BY THE AGENT
If the Borrower or any Subsidiary shall fail to perform any covenant,
duty or agreement contained in any of the Loan Documents, the Agent may perform
or attempt to perform such covenant, duty or agreement on behalf of the Borrower
after the expiration of any cure or grace periods set forth herein. In such
event, the Borrower shall, at the request of the Agent, promptly pay any amount
reasonably expended by the Agent in such performance or attempted performance to
the Agent, together with interest thereon at the rate of interest in effect upon
the occurrence of an Event of Default as specified in Section 2.2(A) from the
date of such expenditure until paid. Notwithstanding the foregoing, it is
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expressly agreed that the Agent shall not have any liability or responsibility
for the performance of any obligation of the Borrower under this Agreement or
any other Loan Document.
8.8 RIGHTS CUMULATIVE
The rights and remedies of the Agent and the Lenders under this
Agreement, the Notes and each of the other Loan Documents shall be cumulative
and not exclusive of any rights or remedies which it would otherwise have under
Applicable Law. In exercising its rights and remedies the Agent and the Lenders
may be selective and no failure or delay by the Agent or any of the Lenders in
exercising any right shall operate as a waiver of it, nor shall any single or
partial exercise of any power or right preclude its other or further exercise or
the exercise of any other power or right.
If at any time after acceleration of the maturity of the Loans, the
Borrower shall pay all arrears of interest and all payments on account of
principal of the Loans which shall have become due otherwise than by
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified in this Agreement) and all Events of
Default and Defaults (other than nonpayment of principal of and accrued interest
on the Loans and other Obligations due and payable solely by virtue of
acceleration) shall be remedied or waived, then by written notice to the
Borrower, the Requisite Lenders may elect, in the sole discretion of such the
Requisite Lenders, to rescind and annul the acceleration and its consequences;
but such action shall not affect any subsequent Default or Event of Default or
impair any right or remedy consequent thereon. The provisions of the preceding
sentence are intended merely to bind the Lenders to a decision which may be made
at the election of the Requisite Lenders; they are not intended to benefit the
Borrower and do not give the Borrower the right to require the Lenders to
rescind or annul any acceleration hereunder, even if the conditions set forth
herein are satisfied.
ARTICLE IX
ASSIGNMENT AND PARTICIPATION
9.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND NOTES
(A) NationsBank May Assign. Subject to the provisions of the following
paragraph, NationsBank may assign its rights and delegate its obligations under
this Agreement and further may assign, or sell participations in, all or any
part of its Loans, its Commitments or any other interest herein or in its Notes
to any Eligible Person.
(B) Each Lender May Assign. Each Lender may assign its rights and
delegate its obligations under this Agreement to any Eligible Person; provided,
however, that (a) such Lender shall first obtain the written consent of
NationsBank and the Borrower, such consent not to be unreasonably withheld, (b)
the amount of Commitments and Loans of the
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assigning Lender being assigned shall in no event be less than the lesser of (i)
$5,000,000 or (ii) the entire amount of Commitments and Loans of such assigning
Lender and (c) as a condition to the effectiveness of such assignment, the
Borrower shall have complied with its obligations under the last sentence of
Section 2.1(E). In the case of an assignment authorized under this Section 9.1,
the assignee shall have, to the extent of such assignment, the same rights,
benefits and obligations as it would if it were a Lender hereunder. The
assigning Lender shall be relieved of its obligations hereunder with respect to
its Commitment or assigned portion thereof. The Borrower hereby acknowledges and
agrees that any assignment will give rise to a direct obligation of the Borrower
to the assignee and that the assignee shall be considered to be a "the Lender".
(C) Participations. Each Lender may sell participations in all or any
part of any Loans made by it to another Person; provided, however, that any such
participation shall be in a minimum amount of $5,000,000; and, provided,
further, that all amounts payable by the Borrower hereunder shall be determined
as if the Lender had not sold such participation and the holder of any such
participation shall not be entitled to require such Lender to take or omit to
take any action hereunder except action directly effecting (a) any reduction in
the principal amount, interest rate or fees payable with respect to any Loan in
which such holder participates; (b) any extension of the Revolving Termination
Date or the maturity date of the Term Loan or the date fixed for any payment of
interest or fees payable with respect to any Loan in which such holder
participates; and (c) any release of substantially all of the Collateral (other
than in accordance with the terms of this Agreement or the Security Documents).
(D) No Relief From Obligations. Except as otherwise provided in this
Section 9.1, no Lender shall, as between the Borrower and that the Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender. Each
the Lender may furnish any information concerning the Borrower and its
Subsidiaries in the possession of that the Lender from time to time to assignees
and participants (including prospective assignees and participants), subject to,
and such Person agrees to be bound by, the provisions of Section 10.8.
(E) Notice to the Borrower. The Agent shall provide the Borrower with
written notice of the name and address of any new Lender after the date hereof.
9.2 NATIONSBANK AS THE AGENT
In performing its functions and duties as the Agent under this
Agreement, NationsBank shall act solely as agent of the Lenders and does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for the Borrower or any Loan Party. With
respect to its Commitments, the Loans made by it, and the Notes issued to it,
NationsBank shall have and may exercise the same rights and powers hereunder and
is subject to the same obligations and liabilities as and to the
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extent set forth herein for any other Lender. The terms "the Lenders" or "The
Requisite Lenders" or any similar terms shall, unless the context clearly
otherwise indicates, include NationsBank in its individual capacity as a Lender
or one of the Requisite Lenders. NationsBank may lend money to, and generally
engage in any kind of banking, trust or other business with any Loan party as if
it were not acting as the Agent pursuant hereto.
9.3 SET OFF AND SHARING OF PAYMENTS
In addition to any rights now or hereafter granted under Applicable Law
and not by way of limitation of any such rights, upon the occurrence and during
the continuance of any Event of Default, each Lender and each holder of any Note
is hereby authorized by the Borrower at any time or from time to time, with
reasonably prompt subsequent notice to the Borrower or to any other Person (any
prior or contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (A) balances held by such Lender or such
holder at any of its offices for the account of the Borrower or any of its
Subsidiaries (regardless of whether such balances are then due to the Borrower
or its Subsidiaries including all deposits, whether general or special, and
matured or unmatured certificates of deposit), and (B) other property at any
time held or owing by such Lender or such holder to or for the credit or for the
account of the Borrower or any of its Subsidiaries, against and on account of
any of the Obligations which are not paid when due; except that no Lender or any
such holder shall exercise any such right without the prior written consent of
the Agent. Any Lender or holder of any Note having a right to set off shall, to
the extent the amount of any such set off exceeds its Pro Rata Share of the
Obligations, purchase for cash (and the other Lenders or holders shall sell)
participations in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share such excess with
each other Lender or holder in accordance with their respective Pro Rata Shares.
The Borrower agrees, to the fullest extent permitted by law, that (a) any Lender
or holder may exercise its right to set off with respect to amounts in excess of
its Pro Rata Share of the Obligations and may sell participations in such excess
to other Lenders and holders, and (b) any Lender or holder so purchasing a
participation in the Loans made or other Obligations held by other Lenders or
holders may exercise all rights of set-off, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender or
holder were a direct holder of Loans and other Obligations in the amount of such
participation.
9.4 DISBURSEMENT OF FUNDS
The Agent may, on behalf of the Lenders, disburse funds to the Borrower
for Loans requested. Each Lender shall reimburse the Agent on demand for all
funds disbursed on its behalf by the Agent, or if the Agent so requests, each
Lender will remit to the Agent its Pro Rata Share of any Loan before the Agent
disburses same to the Borrower. If any Lender fails to pay the amount of its Pro
Rata Share forthwith upon the Agent's demand, the Agent shall promptly notify
the Borrower, and the Borrower shall immediately repay such amount to the Agent.
Any repayment required pursuant to this
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Section 9.4 shall be without premium or penalty. Nothing in this Section 9.4 or
elsewhere in this Agreement or the other Loan Documents shall be deemed to
require the Agent to advance funds on behalf of any Lender or to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that the Agent or the Borrower may have against any Lender as a
result of any default by such Lender hereunder.
ARTICLE X
MISCELLANEOUS
10.1 NOTICES
Unless otherwise provided herein, communications provided for hereunder
shall be in writing and shall be mailed, telecopied or delivered as follows:
If to the Borrower:
E Holdings, Inc.
One Buckhead Plaza, Suite 1420
3060 Peachtree Road, Northwest
Atlanta, Georgia 30305
Attention: Mr. R. Steven Bostic
Telecopy Number: (404) 264-8949
Telephone Number: (404) 264-8940
with a copy to:
Smith, Gambrell & Russell
Atlanta Financial Center, Suite 1800
3343 Peachtree Road, Northeast
Atlanta, Georgia 30326-1010
Attention: Arthur Jay Schwartz, Esq.
Telecopy Number: (404) 264-2652
Telephone Number: (404) 264-2620
If to NationsBank:
NationsBank, N.A. (South)
600 Peachtree Street, Suite 1100
Atlanta, Georgia 30308
Attention: Ms. Julie Iarossi Davis - Private Client Group
Telecopy Number: (404) 607-6336
Telephone Number: (404) 607-4182
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with a copy to:
Alston & Bird
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: Richard W. Grice, Esq.
Telecopy number: (404) 881-7777
Telephone number: (404) 881-7576
or, as to each party at such other address as shall be designated by such party
in a written notice to the other parties delivered in compliance with this
Section. All such notices and other communications shall be effective (i) if
mailed, when received; (ii) if telecopied, when transmitted; or (iii) if hand
delivered, when delivered. Notwithstanding the immediately preceding sentence,
all notices or communications to the Agent under Article II shall be effective
only when actually received. The Agent shall not incur any liability to the
Borrower for acting upon any telephonic notice referred to in this Agreement
which the Agent believes in good faith to have been given by a Person authorized
to deliver such notice or for otherwise acting in good faith under hereunder.
10.2 EXPENSES
The Borrower will pay all present and future reasonable expenses of the
Agent in connection with the negotiation, preparation, execution, delivery and
administration of this Agreement, the Notes and each of the other Loan
Documents, whenever the same shall be executed and delivered, including
appraisers' fees, search fees, recording fees and the fees and disbursements of
each special and local counsel retained by the Agent.
Further, the Borrower shall pay all future costs and expenses of the Agent and
each Lender in connection with:
(A) the negotiation, preparation, execution and delivery of any waiver,
amendment or consent by the Agent and the Lenders relating to this Agreement,
the Notes or any of the other Loan Documents; provided, however, that so long as
no Event of Default has occurred and is continuing, the Borrower shall be
obligated to pay only the fees and disbursements of the Agent in connection with
the execution and delivery of an amendment to the Loan Documents (other than an
amendment, the purpose of which is to waive or avoid an Event of Default);
(B) any restructuring, refinancing or "workout" of the transactions
contemplated by this Agreement, the Notes and the other Loan Documents, or any
material amendment to the terms of this Agreement or any other Loan Document,
including the reasonable fees and disbursements of counsel to the Agent and each
Lender actually incurred;
(C) consulting with one or more Persons engaged by the Agent, including
appraisers, accountants and lawyers, concerning or related to the servicing of
this
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Agreement or the nature, scope or value of any right or remedy of the Agent
hereunder, under the Notes or under any of the other Loan Documents, including
any review of factual matters in connection therewith, which expenses shall
include the fees and disbursements of such Persons; provided, however, so long
as no Event of Default has occurred and is continuing, that the Borrower shall
be obligated to pay only the fees and disbursements of counsel to the Agent in
connection with the foregoing;
(D) the collection or enforcement of the obligations of the Borrower or
any Loan Party under this Agreement, the Notes or any other Loan Document
including the reasonable fees and disbursements of counsel to the Agent and each
Lender actually incurred if such collection or enforcement is done by, through
or with the assistance of an attorney;
(E) prosecuting or defending any claim in any way arising out of,
related to, or connected with this Agreement, the Notes or any of the other Loan
Documents, which expenses shall include the fees and disbursements of counsel to
the Agent or any Lender actually incurred and of experts and other consultants
retained by the Agent or any Lender;
(F) the exercise by the Agent or any Lender of any right or remedy
granted to it under this Agreement, the Notes or any of the other Loan Documents
including the reasonable fees and disbursements of counsel to the Agent or any
Lender actually incurred if such exercise is done by, through or with the
assistance of any attorney; and
(G) gaining possession of, maintaining, handling, preserving, storing,
shipping, appraising, selling, preparing for sale and advertising to sell any
Collateral, whether or not a sale is consummated.
10.3 STAMP, INTANGIBLE AND RECORDING TAXES
The Borrower will pay any and all stamp, intangible, registration,
recordation and similar taxes, fees or charges and shall indemnify the Agent and
each Lender against any and all liabilities with respect to or resulting from
any delay in the payment or omission to pay any such taxes, fees or charges,
which may be payable or determined to be payable in connection with the
execution, delivery, recording, performance or enforcement of this Agreement,
the Notes and any of the other Loan Documents or the perfection of any rights or
Liens thereunder.
10.4 LITIGATION; JURISDICTION; OTHER MATTERS; WAIVERS
(A) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY
BETWEEN THE BORROWER AND THE LENDER WOULD BE BASED ON DIFFICULT AND COMPLEX
ISSUES OF LAW AND FACT AND WOULD RESULT IN DELAY AND EXPENSE TO THE PARTIES.
ACCORDINGLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
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OF THE AGENT, THE LENDERS AND THE BORROWER HEREBY WAIVES ITS RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL
IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST ANY PARTY HERETO ARISING OUT
OF THIS AGREEMENT, THE NOTES, OR ANY OTHER LOAN DOCUMENT OR IN CONNECTION WITH
ANY COLLATERAL OR ANY LIEN OR BY REASON OF ANY OTHER SUIT, CAUSE OF ACTION OR
DISPUTE WHATSOEVER BETWEEN THE BORROWER, THE AGENT AND EACH LENDER OF ANY KIND
OR NATURE.
(B) EACH OF THE BORROWER, THE AGENT AND THE LENDERS HEREBY AGREES THAT
THE FEDERAL DISTRICT COURT OF THE NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION
OF THE AGENT, ANY STATE COURT LOCATED IN FULTON COUNTY, GEORGIA SHALL HAVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE BORROWER
AND THE LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE LOANS
AND LETTERS OF CREDIT, THE NOTES OR ANY OTHER LOAN DOCUMENT OR TO ANY MATTER
ARISING HEREFROM OR THEREFROM OR THE COLLATERAL. EACH OF THE BORROWER, THE AGENT
AND THE LENDERS EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS.
(C) EACH PARTY FURTHER WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT
OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT FORUM AND EACH
AGREES NOT TO PLEAD OR CLAIM THE SAME.
(D) THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED
TO PRECLUDE THE BRINGING OF ANY ACTION BY THE LENDER OR THE ENFORCEMENT BY THE
LENDER OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE
JURISDICTION.
(E) THE BORROWER AGREES THAT ALL OF ITS PAYMENT OBLIGATIONS HEREUNDER
SHALL BE ABSOLUTE, UNCONDITIONAL AND, FOR THE PURPOSES OF MAKING PAYMENTS
HEREUNDER, THE BORROWER HEREBY WAIVES ANY RIGHT TO ASSERT ANY SETOFF,
COUNTERCLAIM OR CROSS-CLAIM.
(F) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND
WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE
THE PAYMENT OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE
OTHER LOAN DOCUMENTS AND THE TERMINATION OF THIS AGREEMENT.
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10.5 SUCCESSORS AND ASSIGNS
(A) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of the Agent and all
Lenders.
(B) A Lender may make, carry or transfer Loans at, to or for the
account of, any of its branch offices or the office of an affiliate of such
Lender, except to the extent such transfer would result in increased costs to
the Borrower.
(C) A Lender may assign and pledge all or any portion of the Loans and
the Notes to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank, and
such Loans and Notes shall be fully transferable as provided therein. No such
assignment shall release such Lender from its obligations hereunder.
10.6 AMENDMENTS
Any consent or approval required or permitted by this Agreement or in
any Loan Document to be given by the Lenders may be given, and any term of this
Agreement or of any other Loan Document may be amended, and the performance or
observance by the Borrower or any Loan Party or Subsidiary of any terms of this
Agreement or such other Loan Document or the continuance of any Default or Event
of Default may be waived (either generally or in a particular instance and
either retroactively or prospectively) with, but only with, the written consent
of the Requisite Lenders (and, in the case of an amendment to any Loan Document,
the written consent of the Borrower). Notwithstanding the foregoing, no
amendment, waiver or consent shall, unless in writing, and signed by all of the
Lenders, do any of the following: (i) increase the Commitments of the Lenders or
subject the Lenders to any additional obligations; (ii) reduce the principal of,
or interest rates that have accrued or that will be charged on the outstanding
principal amount of, any Loans or other Obligations; (iii) reduce the amount of
any fees payable hereunder; (iv) postpone any date fixed to any payment of any
principal of, interest on, or fees with respect to, any Loans or any other
Obligations; (v) change the minimum requirement necessary for the Lenders or
Requisite Lenders to take action hereunder; or (vi) amend this Section 10.6 or
amend the definitions of the terms used in this Agreement or the other Loan
Documents insofar as such definitions affect the substance of this Section 10.6.
Further, no amendment, waiver or consent unless in writing and signed by the
Agent, in addition to the Lenders required hereinabove to take such action,
shall affect the rights or duties of the Agent under this Agreement or any of
the other Loan Documents. Further, no Collateral shall be released or disposed
of by the Agent unless all of the Lenders so direct the Agent or unless released
or disposed of as permitted by, and in accordance with, Section 7.7. No waiver
shall extend to or affect any obligation not expressly waived or impair any
right consequent thereon and any amendment, waiver or
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consent shall be effective only in the specific instance and for the specific
purpose set forth therein. No course of dealing or delay or omission on the part
of any Lender or the Agent in exercising any right shall operate as a waiver
thereof or otherwise be prejudicial thereto. Except as otherwise explicitly
provided for herein or in any other Loan Document, no notice to or demand upon
the Borrower shall entitle the Borrower to other or further notice or demand in
similar or other circumstances.
10.7 NONLIABILITY OF THE LENDERS/THE AGENT
The relationship between the Borrower and the Lenders shall be solely
that of borrower and lender. Neither the Agent nor any Lender shall have any
fiduciary responsibilities to the Borrower. Neither the Agent nor any Lender
undertakes any responsibility to the Borrower to review or inform the Borrower
of any matter in connection with any phase of the Borrower's business or
operations.
10.8 CONFIDENTIALITY
Except as otherwise provided by Applicable Law, each Lender shall
utilize all non-public information obtained pursuant to the requirements of this
Agreement which has been identified as confidential or proprietary by the
Borrower in accordance with its customary procedure for handling confidential
information of this nature and in accordance with safe and sound banking
practices but in any event may make disclosure: (a) to any of its affiliates
(provided they shall agree to keep such information confidential in accordance
with the terms of this Section); (b) as reasonably required by any bona fide
Participant or other transferee in connection with the contemplated transfer of
the Commitment or participations therein as permitted hereunder (provided they
shall agree to keep such information confidential in accordance with the terms
of this Section); (c) as required by any Governmental Authority or
representative thereof or pursuant to legal process; (d) to the Lender's
independent auditors and other professional advisors (provided they shall agree
to keep such information confidential in accordance with the terms of this
Section); and (e) after the happening and during the continuance of an Event of
Default, to any other Person, in connection with the exercise by the Lender of
rights hereunder or under any of the other Loan Documents.
10.9 INDEMNIFICATION
(A) The Borrower shall and hereby agrees to indemnify, defend and hold
harmless the Agent and each Lender and their respective directors, officers,
shareholders, agents, employees and counsel (each referred to herein as an
"Indemnified Party") from and against any and all losses, claims, damages,
liabilities, deficiencies, judgments or expenses of every kind and nature
(including, without limitation, amounts paid in settlement, court costs and the
reasonable fees and disbursements of counsel actually incurred in connection
with any litigation, investigation, claim or proceeding or any advice rendered
in connection therewith) (the foregoing items referred to herein as "Claims and
Expenses") incurred by an Indemnified Party arising out of or by reason of any
suit, cause
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of action, claim, arbitration, investigation or settlement, consent decree or
other proceeding (the foregoing referred to herein as an "Indemnity Proceeding")
which arise out of, or are in any way related directly or indirectly to: (i)
this Agreement or any other Loan Document or the transactions contemplated
thereby; (ii) the making of any Loans or issuance of Letters of Credit
hereunder; (iii) any actual or proposed use by the Borrower of the proceeds of
the Loans or Letters of Credit; (iv) the Agent and the Lenders entering into
this Agreement; (v) the fact that the Lenders have established the credit
facility evidenced hereby in favor of the Borrower; (vi) the fact that the
Lenders are creditors of the Borrower and have or are alleged to have
information regarding the financial condition, strategic plans or business
operations of the Borrower and the Subsidiaries; (vii) the fact that the Lenders
are material creditors of the Borrower and are alleged to influence directly or
indirectly the business decisions or affairs of the Borrower and the
Subsidiaries or their financial condition; (viii) the exercise of any right or
remedy the Agent or any Lender may have under this Agreement or the other Loan
Documents including, but not limited to, the foreclosure upon, or seizure of,
any Collateral or the exercise of any other rights of a secured party; (ix) any
violation or non-compliance by the Borrower or any Subsidiary of any Applicable
Law (including any Environmental Law) including, but not limited to, any
Indemnity Proceeding commenced by (a) the Internal Revenue Service or state
taxing authority or (b) any Governmental Authority or other Person under any
Environmental Law, including any Indemnity Proceeding commenced by a
Governmental Authority or other Person seeking remedial or other action to cause
the Borrower or its Subsidiaries (or its respective properties) (or any Lender
or the Agent as successor to the Borrower) to be in compliance with such
Environmental Laws; provided, however, that the Borrower shall not be obligated
to indemnify any Indemnified Party for any acts or omissions of such Indemnified
Party in connection with matters described in this Section 10.9 that constitute
gross negligence or willful misconduct.
(B) This indemnification shall apply to all Indemnity Proceedings
arising out of, or related to, the foregoing whether or not an Indemnified Party
is a named party in such Indemnity Proceeding. In this connection, this
indemnification shall cover all costs and expenses of any Indemnified Party in
connection with any deposition of any Indemnified Party or compliance with any
subpoena (including any subpoena requesting the production of documents). This
indemnification shall, among other things, apply to any Indemnity Proceeding
commenced by other creditors of the Borrower or any Subsidiary, any shareholder
of the Borrower or any Subsidiary (whether such shareholder(s) are prosecuting
such Indemnity Proceeding in their individual capacity or derivatively on behalf
of the Borrower), any account debtor of the Borrower or any Subsidiary or by any
Governmental Authority.
(C) This indemnification shall apply to any Indemnity Proceeding
arising during the pendency of any bankruptcy proceeding filed by or against the
Borrower and/or any Subsidiary.
(D) All out-of-pocket fees and expenses of, and all amounts paid to
third-persons by, an Indemnified Party shall be advanced by the Borrower at the
request of
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such Indemnified Party notwithstanding any claim or assertion by the Borrower
that such Indemnified Party is not entitled to indemnification hereunder upon
receipt of an undertaking by such Indemnified Party that such Indemnified Party
will reimburse the Borrower if it is actually and finally determined by a court
of competent jurisdiction that such Indemnified Party is not so entitled to
indemnification hereunder.
(E) An Indemnified Party may conduct its own investigation and defense
of, and may formulate its own strategy with respect to, any Indemnified
Proceeding covered by this Section and, as provided above, all costs and
expenses incurred by the Indemnified Party shall be reimbursed by the Borrower.
No action taken by legal counsel chosen by an Indemnified Party in investigating
or defending against any such Indemnified Proceeding shall vitiate or in any way
impair the obligations and duties of the Borrower hereunder to indemnify and
hold harmless each such Indemnified Party; provided, however, that (i) if the
Borrower is required to indemnify an Indemnified Party pursuant hereto and (ii)
the Borrower has provided evidence reasonably satisfactory to such Indemnified
Party that the Borrower has the financial wherewithal to reimburse such
Indemnified Party for any amount paid by such Indemnified Party with respect to
such Indemnified Proceeding and (iii) no Event of Default has occurred and is
continuing, such Indemnified Party shall not settle or compromise any such
Indemnified Proceeding without the prior written consent of the Borrower (which
consent shall not be unreasonably withheld or delayed).
(F) If and to the extent that the obligations of the Borrower hereunder
are unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under Applicable Law.
(G) The Borrower's obligations hereunder shall survive any termination
of this Agreement and the other Loan Documents and the payment in full of the
Obligations, and are in addition to, and not in substitution of, any other of
their obligations set forth in this Agreement or any other Loan Document to
which it is a party.
10.10 SURVIVAL
Notwithstanding any termination of this Agreement, or of the other Loan
Documents, the indemnities to which the Lender is entitled under the provisions
of Sections 10.9 and any other provision of this Agreement and the other Loan
Documents, and the waivers of jury trial and submission to jurisdictions
contained in Section 10.4, shall continue in full force and effect and shall
protect the Lender against events arising after such termination as well as
before.
10.11 TITLES AND CAPTIONS
Titles and captions of Articles, Sections, subsections and clauses in
this Agreement are for convenience only, and neither limit nor amplify the
provisions of this Agreement.
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10.12 SEVERABILITY OF PROVISIONS
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions or affecting the
validity or enforceability of such provision in any other jurisdiction.
10.13 GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF GEORGIA WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS
PRINCIPLES.
10.14 COUNTERPARTS
This Agreement and any amendments, waivers, consents or supplements may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which counterparts together shall constitute but
one and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
10.15 OBLIGATIONS WITH RESPECT TO LOAN PARTIES
The obligations of the Borrower to direct or prohibit the taking of
certain actions by the other Loan Parties as specified herein shall be absolute
and not subject to any defense the Borrower may have that the Borrower does not
control such Loan Parties.
10.16 RETENTION OF THE BORROWER'S DOCUMENTS
The Agent and each Lender may, in accordance with such Person's
customary practices, destroy or otherwise dispose of all documents, schedules,
invoices or other papers, delivered by any Loan Party to the Lender unless the
Borrower requests in writing that same be returned. Upon the Borrower's request
and at the Borrower's expense, such Person shall return such papers when the
Lender's actual or anticipated need for same has terminated.
10.17 MARSHALING; PAYMENTS SET ASIDE
Neither the Agent nor any Lender shall be under any obligation to
marshal any assets in favor of any Loan Party or any other party or against or
in payment of any or all of the Obligations. To the extent that any Loan Party
makes a payment or payments to a Lender, or a Lender enforces its security
interest or exercises its right of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are
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subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
10.18 INDEPENDENCE OF COVENANTS
All covenants hereunder shall have an independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitations of, another covenant shall not avoid the occurrence of a Default or
an Event of Default if such action is taken or condition exists.
10.19 INDEPENDENT NATURE OF THE LENDERS' RIGHTS
Nothing contained in any Loan Document and no action taken by the Agent
or any Lender or the Borrower or any Loan Party pursuant hereto or thereto shall
be deemed to constitute the Agent or any Lender and/or any Loan Party to be a
partnership, an association, a joint venture or any other kind of entity.
10.20 NO FIDUCIARY RELATIONSHIP
No provision in this Agreement or in any of the other Loan Documents
and no course of dealing between the parties shall be deemed to create any
fiduciary duty owing by the Agent or any Lender to the Borrower or any other
Loan Party.
10.21 LIMITATION OF LIABILITY
Neither the Agent nor any Lender, nor any affiliate, officer, director,
employee, attorney, or agent of the Agent or any Lender shall have any liability
with respect to, and the Borrower hereby waives, releases, and agrees not to sue
any of them upon, any claim for any special, indirect, incidental, or
consequential damages suffered or incurred by the Borrower in connection with,
arising out of, or in any way related to, this Agreement or any of the other
Loan Documents, or any of the transactions contemplated by this Agreement or any
of the other Loan Documents. The Borrower hereby waives, releases, and agrees
not to sue the Lender or any of the Lender's affiliates, officers, directors,
employees, attorneys, or agents for punitive damages in respect of any claim in
connection with, arising out of, or in any way related to, this Agreement or any
of the other Loan Documents, or any of the transactions contemplated by this
Agreement or financed hereby.
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10.22 NO DUTY
All attorneys, accountants, appraisers, and other professional Persons
and consultants retained by the Agent or any Lender shall have the right to act
exclusively in the interest of such Person and shall have no duty of disclosure,
duty of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to the Borrower or any of the Borrower's shareholders or any other
Person.
10.23 ENTIRE AGREEMENT
This Agreement, the Notes, and the other Loan Documents referred to
herein embody the final, entire agreement among the parties hereto and supersede
any and all prior commitments, agreements, representations, and understandings,
whether written or oral, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous, or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto.
10.24 CONSTRUCTION
The Borrower and the Agent and each Lender acknowledge that each of
them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement and the other Loan Documents
with its legal counsel and the Borrower waives any right to assert that this
Agreement and the Loan Documents should be construed against the Agent and the
Lenders because they drafted such documents.
10.25 EDGAR FILINGS
The Agent and the Lenders agree to provide to the Borrower, or to cause
to be provided to the Borrower, a copy of the final forms of this Agreement and
the other Loan Documents on a diskette or other machine readable format
reasonably requested by the Borrower for purposes of enabling the Borrower (or
any direct or indirect Subsidiary of the Borrower that is required to file
periodic reports under the Securities Exchange Act of 1934 or any other
applicable federal or state securities laws) to comply with any requirement
under applicable federal or state securities laws that this Agreement or the
other Loan Documents be filed as exhibits or otherwise in a machine readable
format, including, without limitation, filings required to be made via the EDGAR
electronic filing system.
[SIGNATURES ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed by their authorized officers all as of the day and year
first above written.
BORROWER:
E HOLDINGS, INC.
By: /s/ S. Bostic
---------------------------------
Name: Steve Bostic
--------------------------
Title: Chairman
--------------------------
AGENT AND LENDER:
Revolving Loan Commitment: NATIONSBANK, N.A. (SOUTH),
$2,500,000 as the Agent and the Lender
Pro Rata Share: 100%
Term Loan Commitment: By: Julie Iarossi Danis
$21,000,000 -----------------------------------
Pro Rata Share: 100% Name: Julie Iarossi Danis
----------------------------
L.A. Term Loan: Title: Vice President
$500,000 ----------------------------
Pro Rata Share: 100%
Pro Rata Share of Letters of Credit: 100%
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EXHIBIT 1.1(A)
FORM OF COMPLIANCE CERTIFICATE
[date]
NationsBank, N.A. (South)
600 Peachtree Street, Suite 1100
Atlanta, Georgia 30308
Attention: Ms. Julie Iarossi Davis -
Private Credit Group
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of
_____________, 1996 (as it may be amended, modified, restated or supplemented
from time to time, the "Credit Agreement"; capitalized terms used herein, and
not otherwise defined herein, shall have their respective defined meanings as
set forth in the Credit Agreement) by and between E Holdings, Inc. (the
"Borrower") and NationsBank, N.A. (South), as a Lender (in such capacity, the
"Lender") and as Agent (in such capacity, the "Agent").
Pursuant to Section 5.1(C) of the Credit Agreement, the undersigned
hereby certifies to the Agent as follows:
(1) The undersigned is the [Chief Executive Officer/Chief Financial
Officer] of the Borrower.
(2) The undersigned has examined the books and records of the Borrower
and has conducted such other examinations and investigations as are reasonably
necessary to provide this Compliance Certificate.
(3) No Default or Event of Default has occurred and is continuing.
The undersigned hereby further certifies to the Agent that the
following financial information of the Borrower is true and correct as of the
date hereof:
I. CAPITAL EXPENDITURES -- FOR YEAR-END COMPLIANCE
CERTIFICATE ONLY
<TABLE>
<CAPTION>
<S> <C>
A. Capital Expenditures made since [Closing Date - for $
'96] [January 1, 199_ - for each year thereafter] ---------------------
</TABLE>
1.1(A)-1
<PAGE> 101
<TABLE>
<S> <C> <C>
B. Maximum Capital Expenditures Limit (ss.6.1) $
--------------
C. Default Yes/ No
---- ----
II. TOTAL LIABILITIES TO NET WORTH (SS.6.2)
A. Consolidated Total Liabilities $
--------------
B. Principal Amount of Subordinated Debt Outstanding [$7,000,000.00]
C. (A) minus (B) $
--------------
D. Consolidated Net Worth $
--------------
E. Principal Amount of Subordinated Debt Outstanding [$7,000,000.00]
(same as (B))
F. (D) minus (E) $
--------------
G. Ratio of (C) to (F) :
----- -----
H. Maximum Ratio (ss.6.3) :
----- -----
I. Default? Yes/ No
---- ----
III. TOTAL CAPITALIZATION (SS.6.3)
A. Consolidated Net Worth $
-------------
B. Principal Amount of Subordinated Debt Outstanding [$7,000,000.00]
C. (A) plus (B) $
-------------
D. Minimum Total Capitalization (ss.6.3) $
-------------
E. Default? Yes/ No
---- ----
IV. DEBT SERVICE COVERAGE RATIO (SS.6.4) -- FOR YEAR-END
COMPLIANCE CERTIFICATE ONLY
A. Consolidated Net Income for Four-Quarter Period $
-------------
B. Consolidated Interest Expense for Four-Quarter Period $
-------------
</TABLE>
1.1(A)-2
<PAGE> 102
<TABLE>
<S> <C> <C>
C. Amortization for Four-Quarter Period (to extent $
deducted from Consolidated Net Income) --------------
D. Depreciation for Four-Quarter Period (to extent $
deducted from Consolidated Net Income) --------------
E. (A) plus (B) plus (C) plus (D) ("EBIDA") $
--------------
F. Consolidated Current Maturities for next four quarters $
--------------
G. Consolidated Interest Expenses for Four-Quarter Period $
(same as (B)) --------------
H. Restricted Payments (dividends, redemptions, debt $
prepayments, etc.) paid or declared during Four-Quarter --------------
Period
I. (F) plus (G) plus (H) $
--------------
J. Ratio of (E) to (I) :
----- -----
K. Minimum Ratio (ss.6.4) :
----- -----
L. Default? Yes/ No
---- ----
V. INTEREST COVERAGE RATIO -- FOR YEAR-END
COMPLIANCE CERTIFICATE ONLY
A. Item IV(E) above $
-------------
B. Item IV(B) above $
-------------
C. Ratio of (A) to (B) :
----- -----
D. Minimum Ratio (ss.6.5) :
----- -----
E. Default? Yes/ No
---- ----
VI. ENROLLMENT (SS.6.7) -- FALL, WINTER AND SPRING
QUARTERS ONLY
A. Total Enrollment (excluding Dubai) as of end of most
recent quarter student withdrawal period --------------
</TABLE>
1.1(A)-3
<PAGE> 103
<TABLE>
<S> <C> <C>
B. Total Enrollment For Same Quarter One Year Ago
--------------
C. Percentage Decline (if any) %
-----
D. Percentage Enrollment Decline (if any) for immediately %
preceding Academic Quarter -----
E. Do each of (C) and (D) exceed 7%? Yes - Default
---
No
---
VII. GOVERNMENT DEFAULT RATE (SS.6.8) -- FOR YEAR-END
COMPLIANCE CERTIFICATE ONLY
A. Current Cohort Default Rate %
-----
B. Maximum Default Rate 20%
C. Default? Yes/ No
---- ----
VIII. INDEBTEDNESS (SS.7.1(G))
A. Purchase Money/Capital Leases Incurred During $
Current Fiscal Year -------------
B. Maximum Permitted [$300,000.00]
C. Default? Yes/ No
---- ----
IX. DISPOSITIONS OF ASSETS (SS.7.7)
A. Aggregate Net Proceeds of Asset Dispositions During $
Fiscal Year -------------
B. Maximum Permitted (ss.7.7) $
-------------
C. Net Proceeds Applied to Term Loan $
-------------
D. Default? Yes/ No
---- ----
X. OPERATING LEASES
A. Aggregate Rent During Fiscal Year of all Non-Real $
Property Operating Leases -------------
</TABLE>
1.1(A)-4
<PAGE> 104
<TABLE>
<S> <C> <C>
B. Maximum Permitted $200,000.00
C. Default? Yes No
---- ----
</TABLE>
Reference should be made to the actual Credit Agreement for covenant
interpretation and compliance.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
the date first above written.
By:
-----------------------------
Title:
----------------------
1.1(A)-5
<PAGE> 105
EXHIBIT 1.1(B)
FORM OF NOTICE OF BORROWING
[date]
NationsBank, N.A. (South)
600 Peachtree Street, Suite 1100
Atlanta, Georgia 30308
Attention: Ms. Julie Iarossi Davis -
Private Credit Group
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of October
8, 1996 (as it may be amended, modified, restated or supplemented from time to
time, the "Credit Agreement"; capitalized terms used herein, and not otherwise
defined herein, shall have their respective defined meanings as set forth in the
Credit Agreement) by and between E Holdings, Inc. (the "Borrower") and
NationsBank, N.A. (South), as a Lender (in such capacity, the "Lender") and as
Agent (in such capacity, the "Agent").
Pursuant to Section 2.1(B) and (D) of the Credit Agreement, the
Borrower hereby requests that the Lender make a [Revolving Loan] [a portion of
the LA Loan] in an amount equal to $_____________ to the Borrower.
The Borrower requests that the [Revolving Loan] [such portion] be made
available to the Borrower on __________, _____ [enter date].
The Agent is instructed to make the proceeds of such [Revolving Loan]
[such portion] available to the Borrower at
_____________________________________.
The Borrower hereby further certifies that (i) as of the date hereof,
(ii) as of the date of the requested advance, and (iii) after giving effect to
the Revolving Loan [the borrowing of such portion of the LA Loan] requested
hereby:
(a) No Event of Default or Default has occurred and is
continuing;
(b) No Material Adverse Change with respect to the
Borrower and its Subsidiaries, taken as a whole, has occurred since the date of
the Credit Agreement;
(c) The representations and warranties set forth in
Article IV of the Credit Agreement remain true and correct on and as of the date
hereof except to the extent that either: (i) such representations and warranties
expressly relate solely to an
<PAGE> 106
earlier date (in which case such representations and warranties shall have been
true and accurate on and as of such earlier date), (ii) an event or condition
has occurred that would render such representations or warranties untrue but
that is expressly permitted by the terms of the Credit Agreement, or (iii) an
event or condition has occurred that would render such representations or
warranties untrue but that has been previously disclosed in writing to the
Lenders and does not constitute, or would not reasonably foreseeably constitute,
a Material Adverse Change;
(d) There is no pending or threatened suit, cause of
action or proceeding against the Borrower or any Subsidiary thereof that,
individually or in the aggregate, could reasonably have a Material Adverse
Effect; or
(e) The use of the proceeds of such extension of credit
shall not violate any Applicable Law applicable to or binding upon the Borrower
or any provision of the Credit Agreement.
If notice of this Borrowing has been given previously by telephone,
then this notice should be considered a written confirmation of such telephone
notice as required by Sections 2.1(D) and 10.1 of the Credit Agreement.
E HOLDINGS, INC.
By:
-------------------------------
Title:
------------------------
1.1(B)-2
<PAGE> 107
EXHIBIT 1.1(C)
FORM OF NOTICE OF LETTER OF CREDIT ISSUANCE
[date]
NationsBank, N.A. (South)
600 Peachtree Street, Suite 1100
Atlanta, Georgia 30308
Attention: Ms. Julie Iarossi Davis -
Private Credit Group
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of October
8, 1996 (as it may be amended, modified, restated or supplemented from time to
time, the "Credit Agreement"; capitalized terms used herein, and not otherwise
defined herein, shall have their respective defined meanings as set forth in the
Credit Agreement) by and between E Holdings, Inc. (the "Borrower") and
NationsBank, N.A. (South), as a Lender (in such capacity, the "Lender") and as
Agent (in such capacity, the "Agent").
Pursuant to Section 2.1(C) of the Credit Agreement, the Borrower hereby
requests that the Lender issue a Letter of Credit in an amount equal to
$_____________ for the benefit of ___________________ (the "Beneficiary") for
the purpose of ________________________________.
The Borrower requests that the Letter of Credit be made available to
the Beneficiary on __________, _____ [enter date].
The Borrower hereby further certifies that (i) as of the date hereof,
(ii) as of the date of the requested Letter of Credit, and (iii) after giving
effect to the Letter of Credit requested hereby:
(a) No Event of Default or Default has occurred and is
continuing;
(b) No Material Adverse Change with respect to the
Borrower and its Subsidiaries, taken as a whole, has occurred since the date of
the Credit Agreement;
(c) The representations and warranties set forth in
Article IV of the Credit Agreement remain true and correct on and as of the date
hereof except to the extent that either: (i) such representations and warranties
expressly relate solely to an earlier date (in which case such representations
and warranties shall have been true and accurate on and as of such earlier
date), (ii) an event or condition has occurred that would
<PAGE> 108
render such representations or warranties untrue but that is expressly permitted
by the terms of the Credit Agreement, or (iii) an event or condition has
occurred that would render such representations or warranties untrue but that
has been previously disclosed in writing to the Lenders and does not constitute,
or would not reasonably foreseeably constitute, a Material Adverse Change;
(d) There is no pending or threatened suit, cause of action or
proceeding against the Borrower or any Subsidiary thereof that could reasonably
have a Material Adverse Effect; or
(e) The use of the proceeds of such extension of credit shall
not violate any Applicable Law applicable to or binding upon the Borrower or any
provision of the Credit Agreement.
If notice of this Borrowing has been given previously by telephone,
then this notice should be considered a written confirmation of such telephone
notice as required by Section 10.1 of the Credit Agreement.
E HOLDINGS, INC.
By:
--------------------------------------
Title:
------------------------------
1.1(C)-2
<PAGE> 109
EXHIBIT 1.1(D)
FORM OF NOTICE OF CONTINUATION
[date]
NationsBank, N.A. (South)
600 Peachtree Street, Suite 1100
Atlanta, Georgia 30308
Attention: Ms. Julie Iarossi Davis -
Private Credit Group
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of October
8, 1996 (as it may be amended, modified, restated or supplemented from time to
time, the "Credit Agreement"; capitalized terms used herein, and not otherwise
defined herein, shall have their respective defined meanings as set forth in the
Credit Agreement) by and between E Holdings, Inc. (the "Borrower") and
NationsBank, N.A. (South), as a Lender (in such capacity, the "Lender") and as
Agent (in such capacity, the "Agent").
Pursuant to Section 2.3 of the Credit Agreement, the Borrower hereby
gives notice, irrevocably, that the Borrower hereby requests a Continuation of
the [Term Loan] [LA Loan] under the Credit Agreement, and in that connection
sets forth below the information relating to such Continuation (the "Proposed
Continuation") as required by Section 2.3 of the Credit Agreement:
(i) The proposed date of the Proposed Continuation is
____________, _____ [enter date].
(ii) The Type of Loan to be continued is a [LIBOR Loan][Treasury
Rate Loan].
(iii) The duration of the selected Interest Period for the Loans
which are the subject of such Continuation is: __________________________.
The Borrower hereby further certifies that (i) as of the date
hereof, (ii) as of the requested date of the Proposed Continuation, and (iii)
after giving effect to the Continuation requested hereby no Default or Event of
Default has occurred and is continuing.
<PAGE> 110
If notice of this Proposed Continuation has been given previously by telephone,
then this notice should be considered a written confirmation of such telephone
notice as required by Section 2.3 of the Credit Agreement.
E HOLDINGS, INC.
By:
-------------------------------------
Title:
-----------------------------------
1.1(D)-2
<PAGE> 111
EXHIBIT 1.1(E)
FORM OF NOTICE OF CONVERSION
[date]
NationsBank, N.A. (South)
600 Peachtree Street, Suite 1100
Atlanta, Georgia 30308
Attention: Ms. Julie Iarossi Davis -
Private Credit Group
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of October
8, 1996 (as it may be amended, modified, restated or supplemented from time to
time, the "Credit Agreement"; capitalized terms used herein, and not otherwise
defined herein, shall have their respective defined meanings as set forth in the
Credit Agreement) by and between E Holdings, Inc. (the "Borrower") and
NationsBank, N.A. (South), as a Lender (in such capacity, the "Lender") and as
Agent (in such capacity, the "Agent").
Pursuant to Section 2.4 of the Credit Agreement, the Borrower hereby
gives you notice, irrevocably, that the Borrower hereby requests a Conversion of
the Term Loan of
one Type into another Type under the Credit Agreement, and in that connection
sets forth below the information relating to such Conversion (the "Proposed
Conversion") as required by Section 2.4 of the Credit Agreement:
(i) The requested date of the Proposed Conversion is
______________, _____ [enter date] (the "Conversion Date").
(ii) The Type of Loan to be Converted pursuant hereto are presently
_______________________ [LIBOR Loan][Treasury Rate Loan][Base Rate Loan] in the
principal amount of $____________ outstanding as of the Conversion Date (the
"Current Loans").
(iii) The Conversion Amount is to be converted into a
___________________ [LIBOR Loan][Treasury Rate Loan][Base Rate Loan] (the
"Converted Loan") on the Conversion Date.
(v) **[In the event the Borrower selects a LIBOR Loan]** [The
Borrower hereby requests that the Interest Period for such Converted Loan be for
a duration of ___________________.
<PAGE> 112
The Borrower hereby further certifies that (i) as of the date hereof,
(ii) as of the Conversion Date, and (iii) after giving effect to the Conversion
requested hereby no Default or Event of Default has occurred and is continuing.
If notice of this Proposed Conversion has been given previously by
telephone, then this notice should be considered a written confirmation of such
telephone notice as required by Section 2.4 of the Credit Agreement.
E HOLDINGS, INC.
By:
--------------------------------
Title:
---------------------------
1.1(E)-2
<PAGE> 113
EXHIBIT 1.1(F)
FORM OF REVOLVING NOTE
$2,500,000 October 8, 1996
FOR VALUE RECEIVED, the undersigned, E HOLDINGS, INC., a corporation
organized under the laws of the State of Georgia (the "Borrower"), promises to
pay to the order of NATIONSBANK, N.A. (SOUTH) (the "Lender") in c/o NationsBank,
N.A. (South), as Agent (the "Agent"), NationsBank, N.A. (South), 600 Peachtree
Street, Suite 1100, Atlanta, Georgia 30308, in lawful money of the United States
of America and in immediately available funds, the principal amount of TWO
MILLION FIVE HUNDRED THOUSAND Dollars ($2,500,000), or such lesser principal
amount as may then constitute the unpaid aggregate principal amount of the
Revolving Loans made by the Lender to the Borrower pursuant to that certain
Credit Agreement dated as of October 8, 1996 (as it may be amended, modified,
restated or supplemented from time to time, the "Credit Agreement"; capitalized
terms used herein, and not otherwise defined herein, shall have their respective
defined meanings as set forth in the Credit Agreement), by and between the
Borrower and NationsBank, N.A. (South), as a Lender and as Agent, on the
Revolving Termination Date.
The Borrower further agrees to pay interest at said office, in like
money, on the unpaid principal amount owing hereunder from time to time on the
dates and at the rates and at the times specified in Sections 2.1(B) and 2.2 of
the Credit Agreement.
If any payment on this Note becomes due and payable on a day other than
a Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is the Revolving Note referred to in the Credit Agreement,
and is subject to, and entitled to, all provisions and benefits thereof
(including all indemnities contained therein) and is subject to optional and
mandatory prepayment in whole or in part as provided therein. Capitalized terms
used herein and not defined herein shall have the respective meanings given to
such terms in the Credit Agreement. The Credit Agreement, among other things,
provides for the making of Revolving Loans by the Lender to the Borrower from
time to time in an aggregate amount not to exceed at any time outstanding the
U.S. Dollar amount first above mentioned.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement which have not been waived by the Agent at the
direction of the Requisite Lenders, the Agent shall, upon the written request of
the Requisite Lenders, and by delivery of written notice to the Borrower from
the Agent, take any and all of the following actions, without prejudice to the
rights of the Agent, the Lender or any holder
<PAGE> 114
of this Note to enforce its claims against The Borrower: (a) declare all
Obligations (including all amounts outstanding hereunder) to be immediately due
and payable (except with respect to any Event of Default set forth in Section
8.1(F) or (G) of the Credit Agreement, in which case all Obligations due
hereunder shall automatically become immediately due and payable without the
necessity of any notice or other demand) without presentment, demand, protest or
any other action or obligation of the Lender; (b) immediately terminate the
Revolving Loan Commitment and the obligation of the Lenders to make Revolving
Loans under the Revolving Loan Commitment (and, in the case of an Event of
Default set forth in Section 8.1(F) or (G) of the Credit Agreement, such
termination shall occur automatically).
The holder hereof shall be entitled to the benefits of the Credit
Agreement and to the other Loan Documents (to the extent and with the effect as
therein provided).
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS PROMISSORY NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
GEORGIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
THE PROVISIONS OF SECTION 10.4 OF THE CREDIT AGREEMENT ARE HEREBY
EXPRESSLY INCORPORATED BY REFERENCE HEREIN.
Attest: E HOLDINGS, INC.
By: By:
---------------------------------- --------------------------------
Title: Title:
-------------------------- -------------------------
(CORPORATE SEAL)
1.1(F)-2
<PAGE> 115
EXHIBIT 1.1(G)
FORM OF TERM NOTE
$21,000,000 October 8, 1996
FOR VALUE RECEIVED, the undersigned, E HOLDINGS, INC., a corporation
organized under the laws of the State of Georgia (the "Borrower"), promises to
pay to the order of NATIONSBANK, N.A. (SOUTH) (the "Lender") in c/o NationsBank,
N.A. (South), as Agent (the "Agent"), NationsBank, N.A. (South), 600 Peachtree
Street, Suite 1100, Atlanta, Georgia 30308, in lawful money of the United States
of America and in immediately available funds, the principal amount of
TWENTY-ONE MILLION DOLLARS ($21,500,000), pursuant to that certain Credit
Agreement dated as of October 8, 1996 (as it may be amended, modified, restated
or supplemented from time to time, the "Credit Agreement"; capitalized terms
used herein, and not otherwise defined herein, shall have their respective
defined meanings as set forth in the Credit Agreement), by and between the
Borrower and NationsBank, N.A. (South), as a Lender and as Agent, in the amounts
and at the times specified for the Term Loan in the Credit Agreement.
The Borrower further agrees to pay interest at said office, in like
money, on the unpaid principal amount owing hereunder from time to time on the
dates and at the rates and at the times specified in Sections 2.1(A) and 2.2 of
the Credit Agreement.
If any payment on this Note becomes due and payable on a day other than
a Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
This Note is the Term Note referred to in the Credit Agreement, and is
subject to, and entitled to, all provisions and benefits thereof (including all
indemnities contained therein) and is subject to optional and mandatory
prepayment in whole or in part as provided therein. Capitalized terms used
herein and not defined herein shall have the respective meanings given to such
terms in the Credit Agreement. The Credit Agreement, among other things,
provides for the making of the Term Loan by the Lender to the Borrower in the
principal amount in U.S. Dollars as first above mentioned.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement which have not been waived by the Agent at the
direction of the Requisite Lenders, the Agent shall, upon the written request of
the Requisite Lenders, and by delivery of written notice to the Borrower from
the Agent, take any and all of the following actions, without prejudice to the
rights of the Agent, the Lender or any holder of this Note to enforce its claims
against the Borrower: (a) declare all Obligations (including all amounts
outstanding hereunder) to be immediately due and payable (except with respect to
any Event of Default set forth in Section 8.1(F) or (G) of the Credit
<PAGE> 116
Agreement, in which case all Obligations due hereunder shall automatically
become immediately due and payable without the necessity of any notice or other
demand) without presentment, demand, protest or any other action or obligation
of the Lender.
The holder hereof shall be entitled to the benefits of the Credit
Agreement and to the other Loan Documents (to the extent and with the effect as
therein provided).
The Borrower hereby waives presentment, demand, protest and notice of
any kind. No failure to exercise, and no delay in exercising any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS PROMISSORY NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
GEORGIA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
THE PROVISIONS OF SECTION 10.4 OF THE CREDIT AGREEMENT ARE HEREBY
EXPRESSLY INCORPORATED BY REFERENCE HEREIN.
Attest: E HOLDINGS, INC.
By: By:
------------------------------------- --------------------------------
Title: Title:
----------------------------- ------------------------
(CORPORATE SEAL)
1.1(G)-2
<PAGE> 117
FORM OF OPINION OF BORROWER'S COUNSEL
October 8, 1996
NationsBank, N.A. (South), as Agent
600 Peachtree Street, Suite 1100
Atlanta, Georgia 30308
Alston & Bird
Atlanta, Georgia
Ladies and Gentlemen:
We have acted as counsel to E Holdings, Inc., a Georgia corporation
(the "Borrower"), in connection with the negotiation, execution and delivery of
that certain Credit Agreement dated as of October 8, 1996 (as it may be amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
by and between E Holdings, Inc. (the "Borrower") and NationsBank, N.A. (South),
as a Lender and as Agent (in such capacity, the "Agent").
In the capacity described above, we have considered such matters of law
and of fact, including the examination of originals or copies, certified or
otherwise identified to our satisfaction, of such records and documents of the
Loan Parties, certificates of officers and representatives of the Loan Parties,
certificates of public officials and such other documents as we have deemed
appropriate as a basis for the opinions hereinafter set forth.
Based upon the foregoing, and subject to all of the assumptions,
qualifications and exceptions set forth herein, it is our opinion that:
1. (i) Each of the Borrower, International and Systems is duly
organized as a corporation; and (ii) each of the Loan Parties: (a) is validly
existing and in good standing under the laws of its jurisdiction of
incorporation; and (b) has the corporate power to execute, deliver and perform
the Loan Documents to which it is a party, to own and use its assets, and to
conduct its business as presently conducted and as proposed to be conducted
immediately following the consummation of the transactions contemplated by the
Credit Agreement; and (iii) is qualified to transact business as a foreign
corporation in the states set forth on the attached Exhibit A.
2. The authorized capital stock of each of the Borrower and its
Subsidiaries is as set forth on the attached Exhibit B. The issued and
outstanding shares of the Loan Parties are duly authorized and validly issued,
fully paid, and non-assessable and, to the best of our knowledge, free and clear
of all Liens other than those in favor of Agent, for the benefit of the Lenders.
The capital stock of each Loan Party is owned by the
<PAGE> 118
NationsBank, N.A., as Agent
Alston & Bird
October 8, 1996
Page 2
stockholders and in the amounts set forth on the attached Exhibit B. No shares
of the capital stock of the Loan Parties, other than as described above, are
issued and outstanding. Except as described on the attached Exhibit B, there are
not, to the best of our knowledge, any preemptive or other outstanding rights,
options, warrants, conversion rights or similar agreements or understandings for
the purchase or acquisition from any Loan Party of any shares of capital stock
or other securities of any such entity. [International] has reserved a
sufficient number of shares of its common stock so that it may, upon the
exercise of the Warrant, issue shares of common stock in an amount equal to such
exercise.
3. Each Loan Party has duly authorized the execution and delivery of
the Loan Documents to which it is a party and all performance by it thereunder.
Each of the Loan Parties has duly executed and delivered such Loan Documents.
4. The execution and delivery by each of the Loan Parties of the Loan
Documents to which each is a party and the Purchase Agreement by International
do not, and if each of the Loan Parties were now to perform its obligations
under such Loan Documents and the Purchase Agreement, such performance would
not, result in any:
(a) violation of any Loan Party's organizational documents;
(b) violation of any existing federal or applicable state
constitution, statute, regulation, rule, order, or law to
which any Loan Party or its assets are subject;
(c) breach or violation of or default under, any agreements,
instruments, indentures or other documents evidencing any
indebtedness for money borrowed or any other material
agreement to which, to the best of our knowledge, any Loan
Party is bound or under which such Loan Party or its assets is
subject;
(d) creation or imposition of a contractual lien or security
interest in, on or against the assets of any Loan Party under
any material written agreements to which, to the best of our
knowledge, such Loan Party is a party or by which, to the best
of our knowledge, such Loan Party or its assets are bound
(other than liens and security interests in favor of the Agent
for the benefit of the Lenders); or
(e) violation of any judicial or administrative decree, writ,
judgment or order to which, to the best of our knowledge, any
Loan Party or its assets are subject.
<PAGE> 119
NationsBank, N.A., as Agent
Alston & Bird
October 8, 1996
Page 3
5. The execution, delivery and performance by each of the Loan Parties
of each Loan Document to which it is a party and by International of the
Purchase Agreement, and the consummation of the transactions thereunder, do not
and will not require any registration with, consent or approval of, or notice
to, or other action to, with or by, any federal or state Governmental Authority
or educational accrediting or other body for filings required in connection with
the perfection of security interests granted pursuant to the Loan Documents.
6. The Loan Documents constitute the legal, valid and binding
obligations of the Loan Parties, enforceable against each of the Loan Parties
party thereto in accordance with their respective terms, except that the
foregoing opinion is subject to: (a) applicable bankruptcy, insolvency,
reorganization, moratorium, arrangement or similar laws relating to or affecting
the enforcement of creditors' rights generally and (b) the fact that equitable
remedies or relief (including, but not limited to, the remedy of specific
performance) are subject to the discretion of the court before which any such
remedies or relief may be sought.
7. To the best of our knowledge, except as may be set forth on Schedule
4.7 of the Credit Agreement, there are no judgments outstanding against any Loan
Party or affecting any of their assets, nor is there any litigation or other
proceeding against the Borrower or its assets pending or overtly threatened.
8. None of the Loan Parties is not subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act or the
Investment Company Act of 1940 or to any federal or state statute or regulation
limiting its ability to incur indebtedness for borrowed money.
9. Each Security Agreement executed by a Loan Party creates a valid
security interest in the Collateral (as defined in each such Security Agreement)
in favor of the Agent on behalf of the Lenders, the creation of a security
interest in which is governed by, and is subject to, the Uniform Commercial Code
as in effect on the date hereof in the State of Georgia (the "Georgia UCC").
(Such Collateral is referred to herein as the "UCC Collateral.") The financing
statements attached hereto as Exhibit C (the "Financing Statements") are in
appropriate form for filing in the office of the clerk of the superior court of
any county in the State of Georgia (collectively, the "Filing Offices"). Upon
the filing of the Financing Statements with the respective Filing Offices, such
security interest in all UCC Collateral, a security interest in which may be
perfected by the filing of financing statements, shall be perfected.
<PAGE> 120
NationsBank, N.A., as Agent
Alston & Bird
October 8, 1996
Page 4
10. The name of each Loan Party as debtor as set forth on each
financing statement attached as Exhibit C attached hereto is the exact corporate
name of each such Loan Party.
11. No taxes, including, but not limited to, intangible or documentary
stamp taxes, shall be payable to the State of Georgia or any jurisdiction
therein on account of the execution or delivery of the Loan Documents, or the
execution or recording of any document, instrument, agreement or certificate
evidencing any security interest granted in favor of the Agent other than
nominal filing fees.
12. Assuming that the Borrower applies the proceeds of the Loans and as
provided in the Credit Agreement, the transactions contemplated by the Loan
Documents do not violate the provisions of Regulations G or X of the Federal
Reserve Board.
13. The consideration to be paid to the Agent and the Lenders for the
financial accommodations to be provided to the Borrower pursuant to the Credit
Agreement, and their disclosure to the Borrower in the manner set forth in the
Credit Agreement, do not violate any law of the State of Georgia relating to
interest and usury.
14. Under the Georgia UCC, the execution and delivery of each of the
various Pledge Agreements by certain of the Loan Parties creates a valid lien on
and security interest in the "Collateral" as security for the "Obligations" (as
such terms are defined in each of the Pledge Agreements), which as to the
"Pledged Shares" (as that term is defined in the Pledge Agreement; herein the
"Pledged Shares"), was duly perfected by the delivery of certificates evidencing
the Pledgor's (as defined in each of the Pledge Agreements) ownership of the
Pledged Shares. Assuming that the Agent has acquired its security interest in
the Pledged Shares without notice of any adverse claim within the meaning of
Article 8 of the Georgia UCC, the Agent shall have a first-priority security
interest.
15. The pledge under each of the Pledge Agreements of the Pledged
Shares (as defined in each such Pledge Agreement) to the Agent by the Pledgor
thereunder pursuant to each such Pledge Agreement does not violate the
Securities Act of 1933, as amended (the "Act"), or any applicable Georgia State
Blue Sky Law, ("Blue Sky Law") or the rules and regulations promulgated
thereunder. However, we note that any disposition by the Agent of any Pledged
Shares may be subject to such laws and that the Agent may be required to comply
with the registration, filing and other provisions of such laws.
16. It is not necessary to register the Warrant under the Act or any
Blue Sky Law.
<PAGE> 121
NationsBank, N.A., as Agent
Alston & Bird
October 8, 1996
Page 5
17. The transactions contemplated by the Purchase Agreement (the
"Acquisition") have been consummated in accordance with the terms thereof.
18. All consents and approvals of, or notices to, or other action to,
with or by, any federal or state Governmental Authority or educational
accrediting or other body required in connection with the consummation of the
Acquisition have been made or obtained.
[19. Other opinions relating to Acquisition to the extent not covered
in Buyer and Seller opinions.]
We are members of the Bar of the State of Georgia, and we express no
opinion as to the laws of any jurisdictions other than the laws of the State of
Georgia.
This opinion is for the benefit solely of the addressees hereof and may
not be used or relied upon by any other person or entity or in connection with
any other transaction without our prior written consent.
Very truly yours,
Smith, Gambrell & Russell
--------------------------
A Partner
<PAGE> 122
DISBURSEMENT LETTER
October 8, 1996
NationsBank, N.A. (South)
600 Peachtree Street, 23rd Floor
Atlanta, Georgia 30308
Attention: Ms. Julie Iarossi Davis -
Private Credit Group
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of October
8, 1996 (as it may be amended, modified, restated or supplemented from time to
time, the "Credit Agreement"; capitalized terms used herein, and not otherwise
defined herein, shall have their respective defined meanings as set forth in the
Credit Agreement) by and between E Holdings, Inc. (the "Borrower") and
NationsBank, N.A. (South), as a Lender (in such capacity, the "Lender") and as
Agent (in such capacity, the "Agent").
This letter is given for the purpose, among other things, of requesting
the initial Revolving Loans thereunder (the "Initial Borrowing") and to provide
disbursement instructions for the Initial Borrowing.
The Borrower hereby directs the Agent to disburse the proceeds of the
Initial Borrowing to the following accounts:
To: NationsBank, N.A. (South), ABA __________________, Notify:
________________, A/C#_________________, $____________, to retire
certain indebtedness owing thereto.
To: Alston & Bird, Alston & Bird Special Account #1 Account No.
034-53-339, ABA No. 061-000052, NationsBank, N.A. (South), 600
Peachtree Street, Atlanta, Georgia 30308, Notify: Joan Gilbert
at (404) 881-7501, Reference: 15359/103102, $_____________ for
costs and expenses incurred in connection with the Credit
Agreement and the other Loan Documents.
To: ________________________________________________________________
To: _________________________________________________________________
To: The Borrower, $________________ for general corporate purposes.
<PAGE> 123
The Borrower elects that the Initial Borrowing shall be in an amount equal to
$_____________________.
Terms used herein and not defined herein have their respective defined
meanings as set forth in the Credit Agreement.
E HOLDINGS, INC.
By:
--------------------------------
Title:
--------------------------
<PAGE> 1
EXHIBIT 10.6
SUBORDINATE LOAN AND WARRANT PURCHASE AGREEMENT
BETWEEN
STRATFORD CAPITAL PARTNERS, L.P.
AND
E HOLDINGS, INC.
October 8, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE I TERMS DEFINED.............................................................................. 1
SECTION 1.1. Definitions............................................................. 1
SECTION 1.2. Accounting Terms and Determinations..................................... 20
SECTION 1.3. Gender and Number....................................................... 20
SECTION 1.4. References to Agreement................................................. 20
SECTION 1.5. Terms Defined in the UCC................................................ 20
ARTICLE II LOAN COMMITMENT........................................................................... 20
SECTION 2.1. Commitment.............................................................. 20
SECTION 2.2. Note.................................................................... 20
SECTION 2.3. Interest Rate and Interest Payments..................................... 20
SECTION 2.4. Maturity Date........................................................... 21
SECTION 2.5. Optional Prepayments.................................................... 21
SECTION 2.6. Mandatory Prepayment.................................................... 21
SECTION 2.7. Use of Proceeds of Loan................................................. 22
SECTION 2.8. Commitment Fee.......................................................... 22
SECTION 2.9. Time and Place of Payment............................................... 22
SECTION 2.10. Application of Payments After Default................................... 22
SECTION 2.11. Computation of Interest................................................. 22
SECTION 2.12. Taxes................................................................... 23
SECTION 2.13. Ratable Payments........................................................ 23
ARTICLE III CONDITIONS PRECEDENT..................................................................... 23
SECTION 3.1. Documents, Certificates and Opinions.................................... 23
SECTION 3.2. No Default.............................................................. 25
SECTION 3.3. Representations and Warranties.......................................... 25
SECTION 3.4. Covenants, Agreements and Conditions.................................... 25
SECTION 3.5. No Material Adverse Change.............................................. 25
SECTION 3.6. Legal Matters........................................................... 25
SECTION 3.7. Consents................................................................ 25
ARTICLE IV REPRESENTATIONS AND WARRANTIES............................................................ 25
SECTION 4.1. Corporate Existence and Power........................................... 26
SECTION 4.2. Corporate and Governmental Authorization................................ 26
SECTION 4.3. Binding Effect.......................................................... 26
SECTION 4.4. Capitalization.......................................................... 26
SECTION 4.5. Compliance with Other Instruments....................................... 27
SECTION 4.6. Valid Issuance of the Securities........................................ 27
SECTION 4.7. Financial Information................................................... 27
SECTION 4.8. Material Agreements..................................................... 29
SECTION 4.9. Ancillary Agreements.................................................... 29
SECTION 4.10. Investments............................................................. 29
SECTION 4.11. Outstanding Debt........................................................ 29
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SECTION 4.12. Transactions with Affiliates............................................ 29
SECTION 4.13. Employment Matters...................................................... 30
SECTION 4.14. Operating Leases; Real Property Leases.................................. 30
SECTION 4.15. Litigation.............................................................. 30
SECTION 4.16. Employee Benefit Plans and Arrangements; ERISA.......................... 30
SECTION 4.17. Taxes and Filing of Tax Returns......................................... 31
SECTION 4.18. Ownership of Properties; Liens.......................................... 31
SECTION 4.19. Licenses, Permits, Etc.................................................. 31
SECTION 4.20. Labor Relations......................................................... 32
SECTION 4.21. Corporate Name.......................................................... 32
SECTION 4.22. Proprietary Rights...................................................... 32
SECTION 4.23. Compliance with Law..................................................... 33
SECTION 4.24. Environmental Matters................................................... 33
SECTION 4.25. Burdensome Obligations.................................................. 34
SECTION 4.26. Fiscal Year............................................................. 34
SECTION 4.27. No Default.............................................................. 34
SECTION 4.28. Distributions........................................................... 34
SECTION 4.29. Insurance............................................................... 34
SECTION 4.30. Government Regulation................................................... 34
SECTION 4.31. Casualties.............................................................. 34
SECTION 4.32. Investment Company Act.................................................. 35
SECTION 4.33. Securities Laws......................................................... 35
SECTION 4.34. Small Business Concern.................................................. 35
SECTION 4.35. Full Disclosure......................................................... 35
ARTICLE V REPRESENTATIONS AND WARRANTIES OF STRATFORD................................................ 35
SECTION 5.1. Due Authorization; No Conflicts......................................... 35
SECTION 5.2. Securities Representations.............................................. 35
ARTICLE VI AFFIRMATIVE COVENANTS.................................................................... 36
SECTION 6.1. Information............................................................. 36
SECTION 6.2. Right of Inspection..................................................... 37
SECTION 6.3. Maintenance of Insurance................................................ 37
SECTION 6.4. Payment of Taxes and Claims............................................. 38
SECTION 6.5. Compliance with Laws and Documents...................................... 38
SECTION 6.6. Operation of Properties and Equipment................................... 38
SECTION 6.7. Preservation of Corporate Existence, Etc................................ 38
SECTION 6.8. Additional Documents.................................................... 38
SECTION 6.9. Performance of Obligations.............................................. 38
SECTION 6.10. ERISA................................................................... 39
SECTION 6.11. Election as Director; Directors Meetings................................ 39
SECTION 6.12. Maintenance of Books and Records........................................ 39
SECTION 6.13. Environmental Compliance................................................ 39
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE VII NEGATIVE COVENANTS....................................................................... 40
SECTION 7.1. Distributions by the Company............................................ 40
SECTION 7.2. Incurrence of Debt...................................................... 40
SECTION 7.3. Change in Corporate Structure; Sale of Assets........................... 40
SECTION 7.4. Acquisition of Another Business......................................... 40
SECTION 7.5. Investments............................................................. 40
SECTION 7.6. Transactions with Affiliates............................................ 41
SECTION 7.7. Liquidation and Dissolution............................................. 41
SECTION 7.8. Capital Expenditures.................................................... 41
SECTION 7.9. Liens................................................................... 41
SECTION 7.10. Modification of Capitalization Documents and Ancillary Agreements....... 41
SECTION 7.11. Use of Proceeds......................................................... 41
SECTION 7.12. Lease Obligations....................................................... 41
SECTION 7.13. Executive Compensation.................................................. 42
SECTION 7.14. Payment of Subordinate Obligations...................................... 42
SECTION 7.15. Contingent Obligations.................................................. 42
ARTICLE VIII FINANCIAL COVENANTS..................................................................... 43
SECTION 8.1. Total Capitalization.................................................... 43
SECTION 8.2. Interest Coverage Ratio................................................. 43
SECTION 8.3. Consolidated Debt Service Coverage Ratio................................ 43
SECTION 8.4. Consolidated Total Liabilities to Consolidated Net Worth................ 43
SECTION 8.5. Government Required Ratios.............................................. 44
SECTION 8.6. Enrollment.............................................................. 44
SECTION 8.7. Government Default Rate................................................. 44
ARTICLE IX WARRANTS.................................................................................. 44
SECTION 9.1. Issuance and Sale....................................................... 44
SECTION 9.2. Exercise of Warrants.................................................... 44
SECTION 9.3. Adjustment of Warrant Exercise Price and Number of Warrant
Shares Purchasable...................................................... 45
SECTION 9.4. Notices to Warrant Holders.............................................. 48
SECTION 9.5. Put Rights.............................................................. 49
SECTION 9.6. Reservation and Issuance of Warrant Shares.............................. 50
SECTION 9.7. Restrictions on Transfer................................................ 50
SECTION 9.8. Registration, Transfer and Exchange of Certificates..................... 50
SECTION 9.9. Mutilated or Missing Warrant Certificates............................... 51
ARTICLE X REGISTRATION RIGHTS........................................................................ 51
SECTION 10.1. Demand Registration..................................................... 51
SECTION 10.2. Piggyback Registration.................................................. 54
SECTION 10.3. Registration Procedures................................................. 55
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SECTION 10.4. Underwritten Offerings.................................................. 58
SECTION 10.5. Preparation; Reasonable Investigation................................... 58
SECTION 10.6. Indemnification......................................................... 59
SECTION 10.7. Reporting Requirements Under Securities Exchange Act of 1934............ 61
SECTION 10.8. Shareholder Information................................................. 62
SECTION 10.9. Forms................................................................... 62
ARTICLE XI DEFAULTS.................................................................................. 62
SECTION 11.1. Events of Default....................................................... 62
ARTICLE XII SUBORDINATION............................................................................ 64
ARTICLE XIII MISCELLANEOUS........................................................................... 65
SECTION 13.1. Notices................................................................. 65
SECTION 13.2. No Waivers.............................................................. 65
SECTION 13.3. Expenses; Indemnification............................................... 65
SECTION 13.4. Modification of Agreement; Sale of Interest............................. 66
SECTION 13.5. Survival................................................................ 66
SECTION 13.6. Limitation on Interest.................................................. 66
SECTION 13.7. Fair Market Value of Note and Warrants.................................. 67
SECTION 13.8. Invalid Provisions...................................................... 67
SECTION 13.9. Successors and Assigns.................................................. 67
SECTION 13.10. Governing Law........................................................... 68
SECTION 13.11. Counterparts; Effectiveness............................................. 68
SECTION 13.12. No Third Party Beneficiaries............................................ 69
SECTION 13.13. FINAL AGREEMENT......................................................... 69
SECTION 13.14. WAIVER OF JURY TRIAL.................................................... 69
SECTION 13.15. CONSENT TO JURISDICTION/VENUE........................................... 69
</TABLE>
-iv-
<PAGE> 6
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A.......................................................................Form of Subordinate Promissory Note
Exhibit B.............................................................................Form of Subsidiary Guarantees
Exhibit C...............................................................................Form of Warrant Certificate
Exhibit D...............................................................Form of Assignment and Assumption Agreement
SCHEDULES
Schedule 1.1..................................................................................Permitted Investments
Schedule 1.2............................................................................................Projections
Schedule 4.1.................................................................................Foreign Qualifications
Schedule 4.4.........................................................................................Capitalization
Schedule 4.5......................................................................Compliance With Other Instruments
Schedule 4.7...................................................................................Financial Statements
Schedule 4.8....................................................................................Material Agreements
Schedule 4.11......................................................................................Outstanding Debt
Schedule 4.12..........................................................................Transactions With Affiliates
Schedule 4.13....................................................................................Employment Matters
Schedule 4.14......................................................................................Operating Leases
Schedule 4.15............................................................................................Litigation
Schedule 4.16.................................................................................................ERISA
Schedule 4.18.................................................................................................Liens
Schedule 4.19..................................................................................Licenses and Permits
Schedule 4.20.......................................................................................Labor Relations
Schedule 4.22....................................................................................Proprietary Rights
Schedule 4.24.................................................................................Environmental Matters
Schedule 4.28..........................................................................................Distribution
Schedule 4.29.............................................................................................Insurance
Schedule 7.6...........................................................................Transactions with Affiliates
Schedule 7.13.......................................................................................Management Fees
Schedule 7.15................................................................................Contingent Obligations
</TABLE>
-v-
<PAGE> 7
SUBORDINATE LOAN AND WARRANT PURCHASE AGREEMENT
THIS SUBORDINATE LOAN AND WARRANT PURCHASE AGREEMENT is entered into
this 8th day of October, 1996, by and between Stratford Capital Partners, L.P.,
a Texas limited partnership ("Stratford"), and E Holdings, Inc., a Georgia
corporation (the "Company").
WITNESSETH:
WHEREAS, the Company has requested that Stratford make a subordinate
loan to the Company in the amount of $7,000,000 for the purposes set forth
herein; and
WHEREAS, Stratford has agreed to make such loan on the terms and
conditions herein contained; and
WHEREAS, the Company desires to issue and sell to Stratford certain
stock purchase warrants; and
WHEREAS, Stratford has agreed to purchase the stock purchase warrants
on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
TERMS DEFINED
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Agreement" means this Subordinate Loan and Warrant Purchase Agreement.
"Affiliate" means, as to any Person, any Subsidiary of such Person, or
any other Person which, directly or indirectly, controls, is controlled by, or
is under common control with, such Person and, with respect to the Company, (a)
any executive officer or director of the Company or any of its Subsidiaries and
any Person who holds five percent (5%) or more of the voting stock of the
Company or any of its Subsidiaries, and (b) any Person controlled by Steve
Bostic or any Related Party with respect to Steve Bostic. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or partnership interests, or
by contract or otherwise. Stratford shall not be an Affiliate of the Company for
purposes of this Agreement.
"ACIL" means American College in London, Ltd., a District of Columbia
corporation.
"ACIL-UK" means The American College in London, Ltd., a United Kingdom
corporation.
"AEMEC" means American European Middle East Co., a Georgia limited
liability company.
<PAGE> 8
"American European" means American-European Corporation, a Georgia
corporation.
"American European Acquisition" means the purchase by Edutrek from
Thomas J. Barnette and Phillip J. Markert and the sale by Thomas J. Barnette and
Phillip J. Markert of shares of stock of American European and ACIL and limited
liability company equity interests of AEMEC pursuant to the American European
Stock Purchase Agreement.
"American European Acquisition Documents" means the American European
Stock Purchase Agreement, and all other documents, instruments or agreements now
or hereafter executed by or among the Company, any of its Subsidiaries, Thomas
J. Barnette, Phillip J. Markert or any of their Affiliates pertaining to the
American European Acquisition.
"American European Stock Purchase Agreement" means that certain Stock
Purchase Agreement dated as of July 25, 1996, as amended on August 30, 1996 and
on October 8, 1996, among Edutrek, Thomas J. Barnette and Philip J. Markert.
"Ancillary Agreements" means the American European Acquisition
Documents, the Senior Loan Documents and the Sponsor Investment Documents.
"Annualized" means, with respect to the results of operations of any
Person for a period of less than twelve months, such results of operations for
such Person for such period multiplied times a fraction, the numerator of which
is 12, and the denominator of which is the number of the months in such period.
"Applicable Environmental Law and Laws" means and includes the
collective aggregate of the following: Any law, statute, ordinance, rule,
regulation, order or determination of any Governmental Authority, or any
restrictive covenant or deed restriction (recorded or otherwise) affecting any
asset (whether owned or leased) or operation of the Company pertaining to
health, safety or the environment, including, without limitation, all applicable
zoning ordinances and building codes, flood disaster laws and health, safety and
environmental laws, and further including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 as amended; the
Resource Conservation and Recovery Act of 1976 as amended; the Superfund
Amendments and Reauthorization Act of 1986 as amended; the Occupational Safety
and Health Act; the Toxic Substances Control Act of 1976 as amended; and any
federal, state or municipal laws, ordinances, regulations or common law which
may now or hereafter require removal of asbestos, underground storage tanks and
their contamination, or other hazardous wastes or substances from any asset
(whether owned or leased) or operation of the Company.
"Appraisal Procedure" means the following procedure for determining the
Market Value of the Common Stock: (a) upon receipt by the Company of a Put
Notice, the Company and the Exercising Warrant Holder shall attempt to agree on
a mutually acceptable Qualified Appraiser to value the Common Stock, and if such
parties agree on a Qualified Appraiser within ten (10) days following the
receipt of the Put Notice, such Qualified Appraiser shall, on or before twenty
(20) days following the date it is appointed, determine the Market Value of the
Common Stock, and such determination shall be binding upon the Company and the
Exercising Warrant Holder; (b) in the event the Company and the Exercising
Warrant Holder are unable to agree upon a mutually acceptable Qualified
Appraiser within ten (10) days following receipt of the Put Notice, on the
expiration of such ten (10) day period, the Company and the Exercising
-2-
<PAGE> 9
Warrant Holder shall each appoint a Qualified Appraiser to value the Common
Stock. Within twenty (20) days following the date they are appointed, the
Qualified Appraisers appointed by the Company and the Exercising Warrant Holder
shall determine the Market Value of the Common Stock. In the event the values
determined by the Company's Qualified Appraiser and the Exercising Warrant
Holder's Qualified Appraiser are within five percent (5%) of each other, the
Market Value for purposes of this agreement shall be the average of the values
determined by such appraisers and such determination shall be binding upon the
Company and the Exercising Warrant Holder. In the event such values differ by
five percent (5%) or more, such appraisers shall in turn promptly appoint a
third Qualified Appraiser who shall, within twenty (20) days following the date
it is appointed, determine the Market Value of the Common Stock. The value which
is the average of the lowest and the highest of the values determined by the
three Qualified Appraisers shall be the Market Value of the Common Stock for
purposes of this Agreement and shall be binding upon the Company and the
Exercising Warrant Holder. In the event either the Company or the Exercising
Warrant Holder fails to timely appoint a Qualified Appraiser, such failing party
will be deemed to have waived its rights to appoint a Qualified Appraiser, and
the Qualified Appraiser appointed by the other party shall determine the Market
Value for purposes of this Agreement which determination shall be binding upon
the Exercising Warrant Holder and the Company. The costs of any mutually
agreeable Qualified Appraiser referred to in (a) above and of the third
Qualified Appraiser referred to in (b) above shall be paid equally by the
Company and the Exercising Warrant Holder. The Exercising Warrant Holder shall
pay all costs of the Qualified Appraiser appointed by the Exercising Warrant
Holder pursuant to (b) above and the Company shall pay all costs of the
Qualified Appraiser so appointed by it.
"Authorized Officer" means, as to any Person, its Chairman, its Chief
Executive Officer, its President, its Chief Operating Officer, its Financial
Officer, any Vice President or any Chancellor.
"Book Value" means, with respect to a share of Common Stock on any date
herein specified, the value determined by dividing (a) the excess of the
Company's Consolidated Assets over its Consolidated Liabilities, as of the last
day of the month most recently ended prior to such date, by (b) the total number
of outstanding shares of Common Stock of the Company on a Fully Diluted Basis on
such date.
"Business Day" means any day except a Saturday, Sunday or other day on
which national banks in Dallas, Texas are authorized by law to close.
"Capital Expenditures" means, without duplication, for any period, the
aggregate of all expenditures on a consolidated basis including deposits
(whether paid in cash or property or accrued as liabilities and including the
aggregate amount of all principal payments due for the entire term of all
Capital Leases which are required to be capitalized on the balance sheet) made
by the Company and its Subsidiaries that, in conformity with GAAP, are required
to be included in the property, plant, or equipment, or similar fixed asset
account.
"Capital Lease" means, for any Person as of any date, any lease of
property, real or personal, which would be capitalized on a balance sheet of the
lessee prepared as of such date in accordance with GAAP.
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital
stock of any Person that is a corporation and each class of
-3-
<PAGE> 10
partnership interests (including without limitation, general, limited and
preference units) in any Person that is a partnership.
"Closing Date" means October 8, 1996.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to any or all of its functions under the Securities Act or the
Exchange Act.
"Common Stock" means the Company's Class A common stock, without par
value and Class B common stock, without par value.
"Company" means E Holdings, Inc., a Georgia corporation.
"Consolidated Assets" means for any Person as of any date, the assets
of such Person and its Consolidated Subsidiaries that would be reflected as
assets on a consolidated balance sheet for such Person and its Consolidated
Subsidiaries prepared as of such date in accordance with GAAP.
"Consolidated Cash Flow" means for any Person for any period, the
consolidated net income of such Person and its Consolidated Subsidiaries for
such period which would be reflected on a consolidated income statement of such
Person and its Consolidated Subsidiaries for such period prepared in accordance
with GAAP, plus, the sum of, but without duplication and only to the extent
deducted in determining consolidated net income for such period, (a) all income
and franchise taxes of such Person and its Consolidated Subsidiaries for such
period, (b) all interest expense for such Person and its Consolidated
Subsidiaries for such period, (c) all amortization expense for such Person and
its Consolidated Subsidiaries for such period, (d) all depreciation expense for
such Person and its Consolidated Subsidiaries for such period, (e) all
management fees and other fees paid by such Person and its Consolidated
Subsidiaries for such period, (f) any other non-cash items reducing net income
for such Person and its Consolidated Subsidiaries for such period, (g) all
premiums payable in connection with the key man life insurance policy of R.
Steven Bostic required by the Senior Lender, and (h) any items of extraordinary
loss for such Person and its Consolidated Subsidiaries for such period.
"Consolidated Current Maturities" means, with respect to the Company
and its Consolidated Subsidiaries, the aggregate amount of all regularly
scheduled payments of principal of Debt of the Company and its Consolidated
Subsidiaries to be made during the four consecutive fiscal quarters immediately
following the determination of the Consolidated Debt Service Coverage Ratio.
"Consolidated Debt Service Coverage Ratio" means, as of any date of the
computation thereof, the ratio obtained by dividing (a) Consolidated EBIDA for
the Four-Quarter Period ending on the date of computation thereof by (b) the sum
of: (i) Consolidated Current Maturities outstanding at such date plus (ii)
Consolidated Interest Expense for such Four-Quarter Period plus (iii)
Distributions paid or declared by the Company and its Consolidated Subsidiaries
(other than to the Company or other Subsidiaries) during such Four-Quarter
Period or any payments restricted by Section 7.14 hereto.
"Consolidated EBIDA" means, with respect to the Company and its
Consolidated Subsidiaries for any period of computation thereof, the sum of,
without duplication, (a) Consolidated Net Income plus (b)
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Consolidated Interest Expense for such period plus (c) amortization for such
period plus (d) depreciation for such period, but in each case only to the
extent deducted when calculating Consolidated Net Income.
"Consolidated Interest Expense" means with respect to any period of
computation thereof, the gross interest expense of the Company and its
Consolidated Subsidiaries, including, without limitation: (a) the amortization
of debt discounts; (b) the payment or amortization of all fees (including,
without limitation, fees payable in respect of any letters of credit and
acceptances, swap or hedging arrangements) payable in connection with the
incurrence of Debt to the extent included in interest expense; (c) the portion
of any liabilities incurred in connection with Capitalized Leases allocable to
interest expense; (d) the consolidation interest expense of the Company and its
Consolidated Subsidiaries that was capitalized during such period; and (e) any
interest expense on Debt of another Person which constitutes a Guaranty of the
Company or one of its Consolidated Subsidiaries or secured by a Lien on assets
of the Company or one of its Consolidated Subsidiaries (whether or not such
Guaranty or Lien is called upon).
"Consolidated Liabilities" means for any Person as of any date, the
liabilities of such Person and its Consolidated Subsidiaries that would be
reflected as liabilities on a consolidated balance sheet for such Person and its
Consolidated Subsidiaries prepared as of such date in accordance with GAAP.
"Consolidated Net Income" means, for any period of computation thereof,
the consolidated net income of the Company and its Consolidated Subsidiaries;
provided, however, that the following shall be excluded when determining
Consolidated Net Income: (a) net gains on the acquisition, retirement, sale or
other disposition of Capital Stock and other securities of the Company or its
Consolidated Subsidiaries; (b) net gains on the collection of proceeds of life
insurance policies; (c) any write-up of any asset; and (d) any other net gain or
credit of an extraordinary nature (other than net gains on the sale, conversion
or other disposition of capital assets).
"Consolidated Net Worth" means at any time as of which the amount
thereof is to be determined, the sum of the following in respect of the Company
and its Consolidated Subsidiaries (determined on a consolidated basis but
excluding intercompany items among the Company and its Consolidated Subsidiaries
and any upward adjustment after the Closing Date due to revaluation of assets):
(a) the amount of issued and outstanding share capital plus (b) the amount of
additional paid-in capital and retained income (or, in the case of a deficit,
minus the amount of such deficit).
"Consolidated Subsidiary" or "Consolidated Subsidiaries" means for any
Person, any Subsidiary or other entity the accounts of which would be
consolidated with those of such Person in its consolidated financial statements
as of such date in accordance with GAAP.
"Consolidated Total Liabilities" means, at any time, without
duplication, the sum of: (a) all Debt of the Company and its Consolidated
Subsidiaries (whether such Debt has a maturity of longer, equal to or shorter
than one year and including all reimbursement obligations under letters of
credit and bankers acceptances and all current maturities of any Debt and
including any Debt which constitutes a Guaranty by such Person) plus (b) the
aggregate amount the Company or any of its Consolidated Subsidiaries is required
to pay in cash with respect to any Capital Stock (or options or warrants to
purchase Capital Stock) of the Company or any of its Consolidated Subsidiaries
that the Company or any of its Consolidated Subsidiaries is required to redeem
from the holder thereof within the next twelve-month period following a
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determination of Consolidated Total Liabilities hereunder.
"Contingent Obligation," as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person: (a) with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (b) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (c) under
Interest Rate Agreements; or (d) under any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
that Person against fluctuations in currency values. Contingent Obligations
shall include: (i) the direct or indirect guaranty, endorsement (other than for
collection or deposit in the ordinary course of business), comaking, discounting
with recourse or sale with recourse by such Person of the obligation of another,
(ii) the obligation to make take or pay or similar payments if required
regardless of nonperformance by any other party or parties to an agreement, and
(iii) any liability of such Person for the obligations of another through any
agreement to purchase, repurchase or otherwise acquire such obligation or any
property constituting security therefor, to provide funds for the payment or
discharge of such obligation or to maintain the solvency, financial condition or
any balance sheet item or level of income of another. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if not a fixed and determined amount, the
maximum amount so guaranteed.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise.
"Debt" means, for any Person, without duplication: (a) all indebtedness
for borrowed money and all reimbursement obligations with respect to letters of
credit and bankers acceptances; (b) that portion of obligations with respect to
Capital Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowing
money; (d) any obligation owed for all or any part of the deferred purchase
price of property or services if the purchase price is due more than six months
from the date the obligation is incurred or is evidenced by a note or similar
written instrument; and (e) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" means fourteen percent (14%) per annum.
"Distribution" by any Person, means (a) with respect to any stock
issued by such Person or any partnership or joint venture interest of such
Person, the retirement, redemption, purchase, or other acquisition for value of
any such stock, partnership or joint venture interest, (b) the declaration or
payment
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<PAGE> 13
of any dividend or other distribution on or with respect to any stock,
partnership or joint venture interest of any Person, and (c) any other payment
by such Person with respect to such stock, partnership or joint venture
interest, of such Person.
"DOE" means the United States Department of Education.
"Edutrek" means Edutrek International, Ltd., a Georgia corporation.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of the
Company, or any of its Subsidiaries or any ERISA Affiliate or (b) has at any
time within the preceding six years been maintained for the employees of the
Company, any of its Subsidiaries or any current or former ERISA Affiliate.
"Employee Options" means options to acquire, up to, but in no event in
excess of 59,242 shares of Common Stock pursuant to the Company's stock option
plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Termination Date" means: (a) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder; (b) the withdrawal
of the Company, any of its Subsidiaries or any ERISA Affiliate from a Pension
Plan during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) or 4068(f) of ERISA; (c) the termination of a Pension Plan,
the filing of a notice of intent to terminate a Pension Plan or the treatment of
a Pension Plan amendment as a termination under Section 4041 of ERISA; (d) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension Plan by the PBGC; (e) any other event or condition which
would constitute grounds under Section 4042(a) of ERISA for the termination, of
or the appointment of a trustee to administer, any Pension Plan; (f) the partial
or complete withdrawal of the Company, any of its Subsidiaries or any ERISA
Affiliate from a Multiemployer Plan; (g) the imposition of a Lien pursuant to
Section 412 of the IRC or Section 302 of ERISA; (h) any event or condition which
results in the reorganization of insolvency of a Multiemployer Plan under
Section 4241 or 4245 of ERISA; or (i) any event or condition which results in
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by the PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"Event of Default" has the meaning set forth in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute.
"Exhibit" refers to an exhibit attached to this Agreement and
incorporated herein by reference, unless specifically provided otherwise.
"Financial Officer" means, as to any Person, its Chief Financial
Officer, or if no Person serves in such capacity, the highest ranking executive
officer of such Person with responsibility for accounting, financial reporting,
financial compliance and similar functions.
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"Fixed Rate" means thirteen percent (13%) per annum.
"Formula Value" means, with respect to a share of Common Stock on any
date herein specified, the value determined by dividing (a) (i) six (6)
multiplied by the Consolidated Cash Flow of the Company for the period of twelve
consecutive months ending with (and including) the month most recently ended as
of such date, plus (ii) the cash of the Company and its Consolidated
Subsidiaries on the last day of the month most recently ended as of such date,
plus (iii) the market value of all marketable securities held by the Company and
its Consolidated Subsidiaries on the last day of the month most recently ended
as of such date (determined based on the market value of such securities on the
last day of such month), plus (iv) the consideration which would be received by
the Company upon an exercise of all options, warrants and other rights to
acquire Common Stock which are outstanding on such date (regardless of whether
such rights are then exercisable) and the conversion of all securities of the
Company outstanding on such date which are convertible into Common Stock
(regardless of whether such securities are then convertible, less (v) Funded
Debt of the Company and its Consolidated Subsidiaries outstanding on the last
day of the month most recently ended as of such date (to the extent such Funded
Debt is permitted pursuant to Section 7.2 hereof), by (b) the total number of
outstanding shares of Common Stock of the Company on a Fully Diluted Basis on
such date.
"Four-Quarter Period" means a period of four full consecutive calendar
quarters of the Company, taken together as one accounting period, and unless set
forth herein to the contrary, shall mean such four full consecutive quarters
most recently ending as of the day of any computation of any given financial
ratio or covenant contained herein.
"Fully Diluted Basis" means, with reference to outstanding Common
Stock, the shares of Common Stock that would be outstanding assuming that all
outstanding options, warrants and other rights to acquire common stock had been
exercised (regardless of whether such rights are then exercisable) and all
securities of the Company convertible into Common Stock had then been converted
(regardless of whether such securities are then convertible) had been issued.
Any reference in this Agreement or any of the other Transaction Documents to
"holder(s) of outstanding Common Stock on a Fully Diluted Basis" or words of
similar import shall be deemed to include holder(s) of outstanding options,
warrants or similar rights to acquire Common Stock or securities convertible
into Common Stock.
"Funded Debt" of any Person as of any date, means (a) all Debt of such
Person for borrowed money, and (b) all Debt of such Person representing the
deferred purchase price of property or services and which is evidenced by a
note, bond, debenture or similar instrument.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their successors which are
applicable in the circumstances as of the date in question; and the requirement
that such principles be applied on a consistent basis means that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period.
"Governmental Authority" means any government, any state or other
political subdivision thereof,
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<PAGE> 15
or any Person exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"GSL Program" means all or any of the following: (a) the Federal Family
Education Loan Program (20 U.S.C. 1071 et seq.) or any successor program of
federally guaranteed student loans; (b) the Federal Direct Student Loan Program
(20 U.S.C. 1078a et seq.) or any successor program of direct federal student
loans; and (c) any similar state direct or guaranteed loan program.
"Guaranty" means a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any Debt.
"Holder" with respect to any security of a Person, shall mean the
record or beneficial owner of such security.
"Increase Amount" shall mean $1,500,000; provided, however, that such
Increase Amount may only apply to any revolving credit facility extended by the
Senior Lender (or replacement lender).
"Interest Coverage Ratio" means, as of any date of the computation
thereof, the ratio obtained by dividing (i) Consolidated EBIDA for the
Four-Quarter Period ending on the date of the computation thereof by (ii)
Consolidated Interest Expense for such Four-Quarter Period.
"Interest Expense" means for any Person for any period, the interest
charges paid or accrued during such period (including imputed interest on
Capital Lease obligations) on the Debt of such Person for such period.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect the Company or any of its
Subsidiaries against fluctuations in interest rates.
"Investment" in any Person means any investment, whether by means of
securities purchase (whether by direct purchase from such Person or from an
existing holder of securities of such Person), loan, advance, extension of
credit, capital contribution or otherwise, in or to such Person, the Guaranty of
any Debt or other obligation of such Person (excluding Guarantees to the United
States Department of Education required pursuant to Title IV of the Student Loan
Program), or the subordination of any claim against such Person to other Debt or
other obligation of such Person; provided, that, "Investments" shall not include
advances made to employees of such Person for reasonable travel, entertainment
and similar expenses incurred in the ordinary course of business.
"IRC" means the Internal Revenue Code of 1986, as amended.
"Lien" means any lien, mortgage, pledge, security interest, or other
encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
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"Loan" means the loan in the amount of $7,000,000.00 to be made by
Stratford to the Company pursuant to Article II of this Agreement.
"Majority Holder" means the Majority Noteholder unless the Loan shall
have been repaid in full, in which case the Majority Warrant Holder shall be the
Majority Holder.
"Majority Noteholder" means a Noteholder or Noteholders who hold a Note
or Notes representing at least fifty percent (50%) of the outstanding principal
balance of the Loan.
"Majority Warrant Holder" means a Warrant Holder or Warrant Holders who
hold more than fifty percent (50%) of the outstanding Warrant Shares (for
purposes of this definition, all Warrants will be deemed to have been
exercised); provided, that in the event all Warrant Holder are not required to
participate in the exercise of the right in question and less then all Warrant
Holders elect to participate in the exercise of the right in question, "Majority
Warrant Holder" shall mean a Warrant Holder or Warrant Holders participating in
the exercise of such right who hold more than fifty percent (50%) of all Warrant
Shares held by all Warrant Holders participating in the exercise of such right.
"Market Value" means, with respect to a share of Common Stock on any
date herein specified, the fair market value of such share of Common Stock
determined as of the last day of the month most recently ended prior to such
date without giving effect to any discount for (a) a minority interest, (b) a
lack of liquidity of such Common Stock, (c) the fact that such Common Stock is
subject to this Agreement or the Shareholders Agreement, or (d) the fact that
such Common Stock is Class A Common Stock or Class B Common Stock. For purposes
of determining the Put Value, the Market Value shall be determined pursuant to
the Appraisal Procedure, and for purposes of Section 9.3 hereof, the Market
Value shall be determined pursuant to an appraisal procedure substantially
consistent with the Appraisal Procedure.
"Material Adverse Effect" means with respect to a Person, a material
adverse effect on the business, financial condition, operations, assets or
prospects of such Person, and shall also mean, with respect to the Company, a
material adverse effect on the Company's ability to pay and perform the
Obligations or a material adverse effect on the Market Value of the Common
Stock.
"Material Agreement" means any material written or oral agreement,
contract, commitment, or understanding to which a Person is a party, by which
such Person is directly or indirectly bound, or to which any assets of such
Person may be subject, which is not cancelable by such Person upon notice of
thirty (30) days or less without liability for further payment other than
nominal penalty. Without limiting the foregoing, Material Agreements shall
include each of the Ancillary Agreements.
"Maximum Lawful Rate" means the maximum rate (or, if the context so
permits or requires, an amount calculated at such rate) of interest which, at
the time in question would not cause the interest charged on the Loan at such
time to exceed the maximum amount which Stratford would be allowed to contract
for, charge, take, reserve, or receive under applicable law (including
applicable rules and regulations of the Small Business Administration) after
taking into account, to the extent required by applicable law, any and all
relevant payments or charges under the Transaction Documents.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to
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which the Company, any of its Subsidiaries or any ERISA Affiliate is making, or
is accruing an obligation to make, contributions or has made or been obligated
to make, contributions within the preceding six years.
"NB Senior Loan Agreement" means that certain Credit Agreement dated as
of the date hereof by and between the Company and the Senior Lender, together
with all extensions, substitutions, renewals, amendments, supplements and
modifications thereof to the extent such extensions, renewals, amendments,
supplements or modifications are permitted pursuant to Section 7.10 hereof and
shall include all of the other loan, guaranty and security documents executed
and delivered by the Company and its Subsidiaries to Senior Lender.
"Non-Qualified Public Offering" means the first underwritten public
offering pursuant to an effective registration statement under the Securities
Act covering the offering and sale of Common Stock for the account of the
Company on a firm commitment basis in which the aggregate net proceeds received
by the Company at the public offering price is greater than $20,000,000 but less
than $27,500,000.
"Note" means one or more subordinate promissory notes in the aggregate
principal amount of $7,000,000.00 in the form of Exhibit "A" attached hereto and
incorporated herein by reference for all purposes, to be executed by the
Company, payable to the order of the Noteholders evidencing the Loan.
"Noteholder" means any Person that is a holder of a Note.
"Obligations" means all present and future indebtedness, obligations
and liabilities, and all renewals and extensions thereof, or any part thereof,
of the Company, its Subsidiaries and other Persons to Stratford arising pursuant
to the Transaction Documents or otherwise, and all interest accrued thereon and
costs, expenses, and attorneys' fees incurred in the enforcement or collection
thereof, regardless of whether such indebtedness, obligations and liabilities
are direct, indirect, fixed, contingent, liquidated, unliquidated, joint,
several or joint and several.
"Operating Lease" means any lease, sublease, license or similar
arrangement (other than a Capital Lease or Real Property Lease) pursuant to
which a Person leases, subleases or otherwise is granted the right to occupy,
take possession of, or use property.
"Other Securities" means Registrable Securities which are not
Restricted Securities.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Part 3 of Title I of
ERISA, Title IV or ERISA or Section 412 of the IRC and which (a) is maintained
for employees of the Company, any of its Subsidiaries or any of their ERISA
Affiliates or (b) has at any time within the preceding six years been maintained
for the employees of the Company, any of its Subsidiaries or any of their
current or former ERISA Affiliates.
"Permitted Acquisitions" means the acquisition by the Company or any of
its Subsidiaries of one hundred percent (100%) of the outstanding equity
interests of a Person or substantially all of the assets of a
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<PAGE> 18
Person or an operating division of a Person (the "Target") provided that (a)
the Target's primary business is in the education industry or in the business of
corporate training and education, (b) the aggregate purchase price of all
Permitted Acquisitions, including any portion of the respective purchase prices
payable in stock, notes or other non-cash consideration and further including
payments under non-compete agreements, consulting agreements, employment
agreements and similar agreements entered into in connection with such
acquisitions does not exceed $10,000,000, and (c) no increase is required in the
Senior Obligations.
"Permitted Asset Dispositions" means (a) bona fide sales of inventory
to customers for fair value in the ordinary course of business and dispositions
of obsolete equipment not used or useful in the business, and (b) the sale,
lease, transfer or other disposal by the Company or any of its Subsidiaries of
other property, assets, or businesses (other than the sale of the Capital Stock
of any Subsidiary of the Company to any Person other than the Company or another
wholly owned Subsidiary of the Company) if all of the following conditions are
met: (i) the market value of assets sold or otherwise disposed of in any single
transaction or series of related transactions does not exceed $50,000 and the
aggregate market value of assets sold or otherwise disposed of in any fiscal
year does not exceed $75,000; (ii) the consideration received is at least equal
to the fair market value of such assets; (iii) the sole consideration received
is cash; (iv) the proceeds of such disposition are either used to permanently
repay the Senior Obligations or, in connection with the sale of equipment or
other fixed assets, the Company or such Subsidiary receiving the proceeds uses
such proceeds to purchase replacement or substitute equipment or fixed assets
within 180 days following such sale; (v) after giving effect to the sale or
other disposition of the assets included within such asset disposition and the
repayment of Debt with the proceeds thereof, the Company is in compliance on a
pro forma basis with the covenants set forth in Article VIII hereof recomputed
for the most recently ended month for which information is available and is in
compliance with all other terms and conditions contained in this Agreement; and
(vi) no Default or Event of Default shall result from such sale or other
disposition.
"Permitted Debt" means
(a) The Obligations;
(b) Intercompany Debt among the Company and its Subsidiaries;
(c) Debt arising as a result of Contingent Obligations
permitted under Section 7.15 hereof;
(d) the Senior Obligations;
(e) Debt and Capital Leases in existence on the Closing Date
set forth on Schedule 4.11 and not repaid pursuant to the Ancillary Documents;
(f) an unsecured line of credit in favor of ACIL-UK extended
by National Westminster Bank, P.L.C. up to a principal amount not to exceed
$250,000 at any one time outstanding; and
(g) purchase money Debt and Capital Leases incurred in
connection with the
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<PAGE> 19
acquisition of equipment; provided, however, that (i) the aggregate principal
amount of such purchase money Debt and Capital Leases that the Company and its
Subsidiaries may incur (x) during the period from the Closing Date through and
including December 31, 1996 shall not exceed $150,000 and (y) during each fiscal
year thereafter during the period this Agreement is in effect, shall not exceed
$300,000 per such fiscal year and (ii) such Debt and Capital Leases must be
incurred simultaneously with the acquisition of such equipment and may not
exceed in principal amount the purchase price of such equipment.
"Permitted Encumbrances" means with respect to any asset:
(a) Liens securing the Obligations;
(b) Zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of real property, or other minor
irregularities in title to properties, whether real or personal, which do not
materially impair the use of such property for the purposes for which the same
is held by the Company;
(c) Mechanics', materialmen's, warehousemen's, journeymen's
and carrier's liens and other similar liens arising by operation of law or
statute in the ordinary course of business which are not delinquent and which in
any event cover a billing period not exceeding thirty (30) days;
(d) Liens for Taxes or assessments not yet due or not yet
delinquent, or, if delinquent, that are being contested in good faith in the
normal course of business by appropriate action, as permitted by Section 6.4;
(e) Liens securing the Senior Obligations;
(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety, stay, customs
and appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(g) Deposits made in the ordinary course of business to secure
liability to insurance carriers;
(h) Liens securing purchase money obligations with respect to
equipment purchases; provided that: (i) the purchase of the asset subject to any
such Lien is permitted under Section 7.8 hereof; (ii) the Indebtedness secured
by any such Lien is permitted under Section 7.2 hereof; and (iii) any such Lien
was incurred simultaneously with the acquisition of such equipment and encumbers
only the equipment so purchased;
(i) Any attachment or judgment Lien not constituting an Event
of Default under Section 11.1(i) hereof;
(j) Leases or subleases granted to others not interfering in
any material respect with
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<PAGE> 20
the business of any the Company or any of its Subsidiaries;
(k) Any interest or title of a lessor or sublessor under any
lease permitted by Section 7.12 hereof;
(l) Liens arising from filing UCC financing statements
regarding leases permitted by this Agreement; and
(m) Liens existing on the date hereof and renewals and
extensions thereof, which Liens are set forth on Schedule 4.18 hereto.
"Permitted Investments" means (a) readily marketable direct obligations
of the United States of America, (b) fully insured time deposits and
certificates of deposit with maturities of one year or less of any commercial
bank operating in the United States having capital and surplus in excess of
$50,000,000.00, (c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest ratings categories of
Standard and Poor's Corporation or Moody's Investors Service, (d) Investments
which constitute Permitted Acquisitions, (e) intercompany loans and investments
which constitute Permitted Debt, (f) loans and travel advances to employees of
the Company or its Subsidiaries for moving, entertainment, travel and other
similar expenses in the ordinary course of business not to exceed $25,000 in the
aggregate at one time outstanding, and (g) those Investments listed on Schedule
1.1 attached hereto.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof and shall also
mean the Company.
"Proceeding" means any voluntary or involuntary bankruptcy, insolvency,
receivership, assignment for the benefit of creditors, reorganization or
arrangement with creditors of the Company or any of its Subsidiaries and any
dissolution, liquidation, winding-up or other marshaling of the assets and
liabilities of the Company or any of its Subsidiaries, whether or not pursuant
to any bankruptcy, insolvency or other similar law now or hereafter in effect
and/or any sale of assets through foreclosure proceedings or pursuant to a
consensual plan of reorganization or restructuring; provided, however, that the
consolidation of the Company with, or the merger of the Company into, another
Person, in compliance with the terms of this Agreement shall not be deemed a
Proceeding.
"Projections" means the projections of the Company's future financial
condition and results of operation provided by the Company to Stratford which
are described in Schedule 1.2 attached hereto and incorporated herein by
reference for all purposes.
"Put" shall mean the right of a Warrant Holder to require the Company
to repurchase the Warrants and Warrant Shares pursuant to Section 9.5 hereof and
"Put Notice," "Put Closing Date" and "Exercising Warrant Holder" shall have the
meanings set forth in Section 9.5.
"Put Price" means the greater of (a) the Market Value, (b) the Formula
Value or (c) the Book Value.
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<PAGE> 21
"Qualified Appraiser" shall mean an investment banking firm of
recognized national or regional standing.
"Qualified Public Offering" means the first underwritten public
offering pursuant to an effective registration statement under the Securities
Act covering the offering and sale of Common Stock for the account of the
Company on a firm commitment basis in which the aggregate net proceeds received
by the Company at the public offering price is at least $27,500,000.
"Qualifying Refinancing" means any refinancing, replacement,
substitution or refunding, in whole or in part, of any then outstanding Senior
Obligations under or with respect to the Senior Loan Agreement whether or not
NationsBank, N.A. (South) is a party thereto; provided, however, that, any such
full or partial refinancing, replacement, substitution or refunding of such
Senior Obligations (for purposes of this definition a "Refinancing") that is
consummated at any time other than during the continuance of a Significant
Senior Debt Default under the Senior Loan Agreement must have the following
characteristics to constitute a "Qualifying Refinancing" hereunder:
(a) the principal amount (and, for purposes of any revolving
portion, the commitment amount) of such Refinancing shall not exceed the sum of:
(i) the then outstanding principal amount (and, for purposes of any revolving
portion, the commitment amount) of the Senior Obligations under the NB Senior
Loan Agreement plus (ii) any accrued but unpaid interest or fees on the
outstanding Senior Obligations under the NB Senior Loan Agreement plus (iii) the
Increase Amount (with respect to any revolving loan portion of such Refinancing
and provided that the Senior Obligations have not previously been increased by
such Increase Amount);
(b) the Weighted Average Life to Maturity of any term
Refinancing is not less than the Weighted Average Life to Maturity of the
existing Senior Obligations that are comprised of term loans;
(c) the maturity date of the revolving portion of any
Refinancing shall be no earlier than the Revolving Termination Date (as defined
in the NB Senior Loan Agreement);
(d) the interest rate margin(s) with respect to any
Refinancing are not higher than the margins applicable to the existing Senior
Obligations;
(e) the financial or negative covenants in any Refinancing (or
covenant which prohibits or restricts the Company or any of its Subsidiaries
from taking certain actions) contained in any Refinancing shall be no more
onerous or restrictive to the Company (or any of its Subsidiaries) than those
contained in the NB Senior Loan Agreement;
(f) the affirmative covenants contained in any Refinancing
shall not be more restrictive or burdensome, when taken as a whole, than those
contained in the Senior Loan Agreement; and
(g) the events of default contained in any Refinancing shall
not be more onerous, when taken as a whole, then those contained in the NB
Senior Loan Agreement.
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<PAGE> 22
"Real Property Leases" means any lease by the Company or any of its
Subsidiaries as tenant of real property.
"Real Property Rental Limit" means $3,100,000; provided, that, (a) the
Real Property Rental Limit shall increase by $500,000 in each fiscal year of the
Company commencing with the fiscal year commencing January 1, 1997 and ending on
December 31, 1997, (b) the Real Property Rental Limit for the Company's fiscal
year commencing on the Closing Date and ending December 31, 1996 and for the
fiscal year ended December 31, 1997 shall be further increased by an amount
equal to the incremental increase in annual Rentals payable under the Company's
Real Property Leases for its new Los Angeles, California campus over that
payable under its Real Property Leases for its prior Los Angeles, California
campus, and (c) the Real Property Rental Limit otherwise in effect under this
definition for the Company's fiscal year commencing on the Closing Date and
ending on December 31, 1996 shall be prorated based on the ratio of the actual
number of days in such fiscal year to 365.
"Registrable Securities" means (a) all Common Stock now or at any time
hereafter owned by Stratford, (b) the Warrant Shares, and (c) any Common Stock
issued with respect to the Warrant Shares by way of a stock dividend or stock
split or in connection with a merger, recapitalization, combination of shares,
consolidation or other reorganization.
"Related Party" with respect to R. Steven Bostic ("SB") means (a) any
spouse or immediate family member of SB or (b) any trust, corporation,
partnership or other entity, the beneficiaries, shareholders, partners, owners
or Persons beneficially holding a 66-2/3% or more controlling interest of which
consist of SB and/or such other Persons referred to in the immediately preceding
clause(a).
"Rentals" means amounts payable by a lessee under an Operating Lease.
"Restricted Securities" means (a) the Warrant Shares, and (b) any
securities issued with respect to the Warrant Shares by way of a stock dividend,
a stock split or in connection with a merger, recapitalization, combination of
shares, consolidation or other reorganization.
"Schedule" means a "schedule" attached to this Agreement and
incorporated herein by reference, unless specifically indicated otherwise.
"Section" refers to a "section" or "subsection" of this Agreement
unless specifically indicated otherwise.
"Securities" means any stock, shares, voting trust certificates, bonds,
debentures, options, warrants, notes, or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing, or any warrants, options or other rights to purchase or acquire any
of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute.
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<PAGE> 23
"Senior Debt Default" shall mean the occurrence of any default or event
of default under the NB Senior Loan Agreement or any other Senior Loan Document
or other event or condition permitting the holder of any Senior Debt to require
the Debtor or any Subsidiary thereof to prepay such Senior Obligations prior to
its stated maturity.
"Senior Lender" means NationsBank, N.A. (South) and its successors and
assigns.
"Senior Lender Warrants" means those warrants to purchase Common Stock
issued to the Senior Lender pursuant to the Warrant Agreement, dated as of the
date hereof, between the Company and the Senior Lender.
"Senior Loan Documents" means the (i) NB Senior Loan Agreement, and
(ii) any other agreement, document, instrument or indenture evidencing or
creating any Senior Obligations from time to time outstanding (including any
document or instrument evidencing any Qualifying Refinancing) and including all
loan, guaranty and security documents executed and delivered by the Debtor and
its Subsidiaries or other Persons in connection therewith.
"Senior Obligations" means (a) all Debt and other obligations under or
with respect to the NB Senior Loan Agreement (including interest accruing after
the commencement of a Proceeding at the rate (including any rate applicable upon
any default or event of default) specified in the NB Senior Loan Agreement
whether or not the claim for such interest is allowed as a claim after the
filing in any such Proceeding), and all (including all subsequent) renewals,
extensions, amendments or modifications thereof to the extent such renewals,
amendments, or modifications thereof are permitted pursuant to Section 7.10
hereof, and (b) all Debt and other obligations (including interest accruing
after the commencement of a Proceeding at the rate (including any rate
applicable upon any default or event of default) specified in the applicable
documents and instruments whether or not the claim for such interest is allowed
as a claim after the filing in any such Proceeding) with respect to any
Qualifying Refinancing of the Debt or other obligations described in
subparagraph (a) above; provided, however, that (i) the aggregate principal
amount of Debt (including reimbursement obligations with respect to letters of
credit) that may constitute Senior Obligations may not exceed the sum of (x)(A)
$28,000,000 minus (B) the principal payments and prepayments made after the date
hereof to the date of determination on any portion of Senior Obligations which
constitutes term loans plus (y) the Increase Amount and (ii) the obligations of
the Company with respect to the Senior Lender Warrants, including any "put"
obligations with respect thereto, shall not constitute a part of Senior
Obligations.
"Senior Subordination Agreement" means that certain Subordination
Agreement dated as of the date hereof, by and among the Company, Stratford and
Senior Lender pursuant to which the Obligations are subordinated to the prior
payment of the Senior Obligations on the terms set forth therein.
"Shareholders Agreement" means that certain Shareholders Agreement of
even date herewith by and among the Company, Stratford and each of the other
shareholders of the Company.
"Significant Senior Debt Default" means the occurrence of a Senior Debt
Default which:
(a) constitutes a payment default; and/or
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<PAGE> 24
(b) arises from the breach of Section 6.1 of the NB Senior Loan
Agreement or a covenant contained in Article VII of the NB Senior Loan Agreement
(other than Section 7.12 thereof) or a breach of any similar negative covenant
in any Senior Loan Document; and/or
(c) (i) is described in Sections 8.1(F), (G), (I), (J), (K),
(L), (M), (N), (O), (R), (S), (T), or (U) of the NB Senior Loan
Agreement or any similar event described in any other Senior Loan
Document or (ii) arises from the breach of paragraphs (a), (b) or (c)
of Section 3.3 of the NB Senior Loan Agreement; and/or
(d) arises from the breach of any covenant contained in Article VI of
the NB Senior Loan Agreement (other than Section 6.1 hereof) (or any other
financial covenant contained in any other Senior Loan Document); provided,
however, that such Senior Debt Default must continue unwaived for a period of 60
days after the Company has notified the Senior Lender of the occurrence of such
Senior Debt Default before such Senior Debt Default constitutes a Significant
Default hereunder; and, provided further that, in the case of a breach of
Section 6.2 or 6.3 of the NB Senior Loan Agreement, such Senior Debt Default
shall not constitute a Significant Senior Debt Default for purposes of this
Agreement notwithstanding the fact that the Senior Lender has not waived such
Senior Debt Default during such 60-day period if: (i) the Senior Lender has
neither accelerated the Senior Obligations then held by it or delivered a Block
Notice under and as defined in the Subordination Agreement to the Company and
the Lender, and (ii) such Senior Debt Default has been cured in a manner
reasonably satisfactory to the Senior Lender within such 60-day period; and/or
(e) causes the Senior Lender (or other holder of Senior Debt) to either
(i) accelerate the Senior Obligations then held by it or otherwise cause such
Senior Obligations to be become due prior to its original maturity, or (ii)
deliver a Block Notice to the Company and/or the Lender, or (iii) take both
actions described in subparagraphs (i) and (ii).
"Sponsor Investment Documents" means the Subscription Agreements by and
between the Company and each of its shareholders.
"Stratford" means Stratford Capital Partners, L.P., a Texas limited
partnership which is licensed as a Small Business Investment Company under the
Small Business Investment Act of 1954 (as amended).
"Stratford Affiliates" means any Person (a) owned or Controlled by
Stratford, (b) which Controls Stratford, (c) which is under common Control with
Stratford or (d) who is a beneficial owner of an equity interest in Stratford,
or in any Person which Controls Stratford or which is under common Control with
Stratford.
"Subsidiary" means, for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions (including that of a general partner) are at the time directly or
indirectly owned, collectively, by such Person and any Subsidiaries of such
Person. The term Subsidiary shall include Subsidiaries of Subsidiaries (and so
on).
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<PAGE> 25
"Subsidiary Guarantees" means Guarantees substantially in the form of
Exhibit "B" attached hereto to be executed by each Subsidiary of the Company
pursuant to which such Subsidiary unconditionally guarantees the Company's
payment and performance of the Obligations.
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or other charges of any
nature whatsoever, from time to time or at any time imposed by law or any
federal, state or local governmental agency. "Tax" means any one of the
foregoing.
"Total Capitalization" means, with respect to the Company and its
Consolidated Subsidiaries at any time, the sum of (i) Consolidated Net Worth at
such time plus (ii) the outstanding principal amount of the Note.
"Transaction Documents" means this Agreement, the Note, the Warrant
Certificate, the Shareholders Agreement, the Subsidiary Guarantees, the Senior
Subordination Agreement and all other agreements, certificates, documents or
instruments now or at any time hereafter delivered in connection with this
Agreement, as the foregoing may be renewed, extended, modified, amended or
restated from time to time.
"Voting Stock" means capital stock or equity interests of any Person or
any class having, by the terms thereof, voting power to elect the directors (or
Persons performing similar functions) of such Person in the absence of a default
or failure to pay dividends with respect to any class or classes of capital
stock. Any percentage of Voting Stock held by any Person shall be determined by
dividing the total number of votes that such Person may cast based upon the
Voting Stock held by such Person by the total number of votes that may be cast
based upon the total issued and outstanding Voting Stock.
"Warrant" shall mean a Warrant issued pursuant to Section 9.1 of this
Agreement entitling the record holder thereof to purchase from the Company one
share of the Company's Class A Common Stock (subject to adjustment as provided
in Section 9.3) at the Warrant Exercise Price.
"Warrant Certificate" means a Warrant Certificate to be issued by the
Company evidencing the Warrants issued to Stratford thereunder which shall be in
the form of Exhibit "C" attached hereto and incorporated herein by reference for
all purposes.
"Warrant Exercise Price" shall mean $.01 per share (subject to
adjustment as provided in Section 9.3).
"Warrant Expiration Date" means the 5:00 p.m., Dallas, Texas time, five
years following the repayment in full of the Note.
"Warrant Holder" means any Person (i) in whose name any Warrant is
registered on the Warrant Register, or (ii) in whose name any Warrant Shares are
registered on the books and records of the Company.
"Warrant Register" shall mean a register maintained by the Company
setting forth the name and
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<PAGE> 26
address of each Warrant Holder, the number of Warrants held by such Warrant
Holder and the certificate number of each Warrant Certificate held by such
Warrant Holder.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
"Weighted Average Life to Maturity" means, when applied to any Debt at
any date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Debt.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP as
in effect from time to time, applied on a basis consistent with the most recent
audited financial statements of the Company delivered to Stratford.
SECTION 1.3. Gender and Number. Words of any gender used in this
Agreement shall be held and construed to include any other gender and words in
the singular number shall be held to include the plural, and vice versa, unless
the context requires otherwise.
SECTION 1.4. References to Agreement. Use of the words "herein",
"hereof", "hereinabove", and the like are and shall be construed as references
to this Agreement.
SECTION 1.5. Terms Defined in the UCC. The following terms shall have
the meaning given such terms in the Uniform Commercial Code as in effect in the
State of Texas: Accounts, Inventory, General Intangibles, Chattel Paper,
Instruments, Documents and Equipment.
ARTICLE II
LOAN COMMITMENT
SECTION 2.1. Commitment. Subject to the satisfaction of each condition
contained in Article III hereof, and the other terms and conditions of this
Agreement, Stratford agrees to advance the proceeds of the Loan to the Company
by wire transfer to an account designated by the Company in a single advance on
the Closing Date.
SECTION 2.2. Note. The Loan shall be evidenced by the Note.
SECTION 2.3. Interest Rate and Interest Payments. Interest shall accrue
on the outstanding principal balance of the Loan prior to the occurrence of an
Event of Default at a rate per annum equal to the lesser of (a) the Fixed Rate,
or (b) the Maximum Lawful Rate. Interest shall be payable on the Loan as it
accrues commencing on December 31, 1996, and continuing on the last day of each
March, June,
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September and December thereafter until maturity. After the occurrence of an
Event of Default, interest shall accrue on the outstanding principal balance of
the Loan and, to the extent permitted by applicable law, on accrued but unpaid
interest, at the lesser of (y) the Default Rate or (z) the Maximum Lawful Rate.
SECTION 2.4. Maturity Date. The entire outstanding principal balance of
the Loan and all accrued but unpaid interest thereon shall be due and payable in
full in a single installment on October 8, 2003.
SECTION 2.5. Optional Prepayments. The principal balance of the Loan
may be prepaid in whole or in part at any time; provided, that, any partial
prepayment of the Loan shall be in an amount not less than $500,000.00 and shall
be in an amount which is an integral multiple of $500,000.00; and provided
further, that, if the Loan is prepaid in whole or in part on or prior to October
8, 2001, the Company shall also pay to Stratford at the time of such prepayment
a prepayment penalty equal to a percentage of the amount prepaid in accordance
with the following schedule:
<TABLE>
<CAPTION>
Penalty as Percentage
Time of Prepayment of Amount Prepaid
------------------ -----------------
<S> <C>
On or prior to October 8, 1997 5%
After October 8, 1997
but on or prior to October 7, 1998 4%
After October 8, 1998
but on or prior to October 7, 1999 3%
After October 8, 1999
but on or prior to October 7, 2000 2%
After October 8, 2000
but on or prior to October 7, 2001 1%
After October 8, 2001 0%
</TABLE>
Notwithstanding the foregoing, the Company shall be permitted to repay (a) in
full the Loan without prepayment penalty from the proceeds of a Qualified Public
Offering within 120 days of the closing of a Qualified Public Offering or (b)
one-half of the outstanding principal balance of the Loan and all accrued but
unpaid interest thereon without prepayment penalty from the proceeds of a
Non-Qualified Public Offering and, at the sole discretion of the Company, repay
the remainder of the outstanding principal balance of the Loan, with a
prepayment penalty equal to one-half of the amount determined above both of
which must be made within 120 days of the closing of a Non-Qualified Public
Offering.
SECTION 2.6. Mandatory Prepayment. The entire outstanding principal
balance of the Loan and all accrued but unpaid interest thereon (except as set
forth in clause (d) below) shall be immediately due
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and payable in full upon the occurrence of any of the following events: (a) the
sale, lease, transfer or other disposition, in one transaction or a series of
transactions, of a material portion of the assets of the Company and its
Subsidiaries, taken as a whole (but expressly excluding Permitted Asset
Dispositions); (b) the issuance by any Subsidiary of any of its capital stock or
any options, warrants or other rights to acquire its capital stock or any
securities convertible into its capital stock, other than issuances to the
Company or its wholly owned Subsidiaries; (c) a Qualified Public Offering; (d) a
Non-Qualified Public Offering, provided, however, only one-half of the
outstanding principal balance of the Loan and all accrued but unpaid interest
thereon shall be required to be repaid upon occurrence of a Non-Qualified Public
Offering; or (e) a merger, consolidation or reorganization involving the Company
in which the Company is not the surviving corporation or which results in fifty
percent (50%) or more of the outstanding Common Stock of the Company on a Fully
Diluted Basis being owned by Persons who are not shareholders of the Company
prior to such merger, consolidation or reorganization. Any mandatory prepayments
made pursuant to this Section 2.6 (except for any prepayment as a result of a
Qualified Public Offering or prepayment of one-half of the outstanding principal
balance of the Loan as a result of a Non-Qualified Public Offering) or Section
11.1 hereof shall be subject to a prepayment penalty in an amount determined
pursuant to Section 2.5 hereof.
SECTION 2.7. Use of Proceeds of Loan. The proceeds of the Loan shall be
used solely to pay (a) a portion of the cash consideration to paid by the
Company for the American European Acquisition, and (ii) transaction costs
associated with the American European Acquisition and the closing of the
transaction contemplated by the Ancillary Agreements.
SECTION 2.8. Commitment Fee. On the Closing Date, the Company shall pay
to Stratford a commitment fee in the amount of $210,000.
SECTION 2.9. Time and Place of Payment. The Company shall make each
payment of principal of, and interest on, the Loan and all fees payable
hereunder not later than 2:00 p.m. (Dallas, Texas time) on the date when due, in
Federal or other funds immediately available in Dallas, Texas, to Stratford at
its offices in Dallas, Texas. Whenever any payment of principal of, or interest
on, the Loan or any fees shall be due on a day which is not a Business Day, the
date for payment thereof shall be extended to the next succeeding Business Day.
If the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
SECTION 2.10. Application of Payments After Default. After the
occurrence of an Event of Default, all amounts collected or received by
Stratford in respect of the Loan shall be applied first to the payment of all
proper costs incurred in connection with the collection thereof (including
reasonable fees, expenses and disbursements of counsel for Stratford), second to
the reimbursement of any advances made by Stratford to effect performance of any
unperformed covenants of the Company under any of the Transaction Documents,
third, to the payment of all accrued but unpaid interest on the Loan, fourth, to
unpaid principal on the Loan (together with any prepayment penalty which would
be required by Section 2.5 hereof if such principal reduction were a voluntary
prepayment under Section 2.5), and fifth, to the Company or any other Person
entitled to such proceeds under applicable law.
SECTION 2.11. Computation of Interest. Interest shall be computed on
the Loan on the basis of the number of actual days elapsed assuming that each
calendar year consisted of 360 days.
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<PAGE> 29
SECTION 2.12. Taxes. All amounts payable by the Company under the
Transaction Documents (whether principal, interest, fees, expenses, or
otherwise) to or for the account of Stratford shall, to the maximum extent
permitted under applicable law, be paid in full, free of any deductions or
withholdings for or on account of any Taxes.
SECTION 2.13. Ratable Payments. The Company, Stratford and each
subsequent Noteholder agree that all payments made on the Loan (whether
principal, interest or prepayment penalties, and whether voluntary prepayments,
mandatory prepayments or regularly scheduled prepayments and further including
payments deemed made via right of setoff or otherwise) shall be made to all
Noteholders ratably based on the outstanding principal balance of the Loan held
by each Noteholder. If, notwithstanding the foregoing, any Noteholder shall ever
receive any payment in respect of the Loan in an amount greater than its ratable
percentage of the aggregate of all payments made simultaneously to all
Noteholders, such Noteholder shall purchase for cash (and the other Noteholders
shall sell for cash) non-recourse participations in each such other Noteholder's
share of the outstanding balance of the Loan as would be necessary to cause such
Noteholder to share such excess with all other Noteholders ratably.
ARTICLE III
CONDITIONS PRECEDENT
The obligation of Stratford to advance the proceeds of the Loan and to
purchase the Warrants is subject to the satisfaction of each condition set forth
in this Article III on or before 5:00 p.m., on the Closing Date. In the event
any condition set forth in this Article III is not satisfied by such time,
Stratford may, at its option, without notice to the Company, terminate this
Agreement and all obligations of Stratford hereunder (including, without
limitation, the obligation to advance the proceeds of the Loan and to purchase
the Warrants) shall be of no force or effect.
SECTION 3.1. Documents, Certificates and Opinions. The Company shall
have delivered to Stratford, in form and substance satisfactory to Stratford,
the following documents, certificates and opinions, duly executed and delivered
by the appropriate parties thereto, each of which shall, where Stratford deems
appropriate, be dated the Closing Date:
(a) the Note;
(b) the Shareholders Agreement;
(c) a Warrant Certificate evidencing the Warrants to be issued
to Stratford pursuant to Section 9.1 hereof;
(d) each of the Ancillary Agreements, accompanied by a
certificate from an Authorized Officer stating that (i) except as expressly
disclosed therein, none of such Ancillary Agreements have been amended or
modified in any respect and no rights of any party thereunder have been waived,
(ii) no party to any of the Ancillary Agreements is in default of its
obligations thereunder, and (iii) the Ancillary Agreements are valid, binding
and enforceable obligations of the parties thereto in accordance
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<PAGE> 30
with the terms and are in full force and effect.
(e) each of the Material Agreements listed on Schedule 4.8
hereto, accompanied by a certificate from an Authorized Officer stating that (i)
except as expressly disclosed therein, none of such Material Agreements have
been amended or modified in any respect and no rights of any party thereunder
have been waived, (ii) no party to any of the Material Agreements is in default
of its obligations thereunder, and (iii) the Material Agreements are valid,
binding and enforceable obligations of the Company and, to the best knowledge of
the Company, all other parties thereto, in accordance with their terms (except
to the extent such enforceability may be limited by bankruptcy, insolvency,
moratorium and similar laws affecting creditors generally and equitable
principles) and are in full force and effect.
(f) An Indemnification Agreement in form and substance
acceptable to Stratford pursuant to which the Company indemnifies Stratford's
designee or representative observer to the Company's board of directors
contemplated by Section 6.11;
(g) A certificate of the Secretary of the Company and each of
its Subsidiaries delivering and certifying as to the accuracy of (i) the
Certificate of Incorporation (or Articles of Organization for AEMEC), as
amended, of the Company and each of its Subsidiaries certified by the Secretary
of State of their respective states of organization, (ii) the By-laws (or
Regulations for AEMEC) of the Company and each of its Subsidiaries, and (iii)
resolutions of the Board of Directors of the Company and each of its
Subsidiaries authorizing the execution of this Agreement, the Transaction
Documents and the Ancillary Agreements, and the transactions contemplated hereby
and thereby;
(h) A Certificate from an Authorized Officer certifying that
(i) neither a Default nor an Event of Default has occurred, and (ii) that each
and every representation and warranty of the Company contained in the
Transaction Documents are true and correct in all material respects;
(i) A certificate from an Authorized Officer certifying that
all conditions to closing under each of the Ancillary Agreements have been
satisfied, and that each transaction contemplated thereby will occur
simultaneously with the advance by Stratford of the proceeds of the Loan;
(j) An opinion of Smith, Gambrell & Russell, counsel for the
Company, favorably opining as to the due authorization and enforceability of
each of the Transaction Documents and otherwise being in form and substance
satisfactory to Stratford;
(k) A check in the payment of the fees and expenses of Gardere
& Wynne, L.L.P. counsel to Stratford, contemplated by Section 13.3(a)(i)(A)
hereof, including an amount representing such counsel's reasonable estimate of
fees and expenses for post-closing matters;
(l) Complete and accurate Assurance of Compliance and Size
Status Declaration forms promulgated by the Small Business Administration duly
executed by the Company;
(m) A reliance letter from Arnall, Golden & Gregory ("AGG"),
counsel to Thomas J. Barnette, Philip J. Markert and American European and its
Subsidiaries, in connection with the American European Acquisition authorizing
Stratford to rely on AGG's opinions given in connection with the
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<PAGE> 31
American European Acquisition;
(n) A check for the payment of the commitment fee to Stratford
as contemplated by Section 2.8 hereof;
(o) Subsidiary Guarantees; and
(p) Such other documents, instruments and agreements as
Stratford shall reasonably request.
SECTION 3.2. No Default. No Default or Event of Default shall have
occurred and the disbursement of the Loan shall not cause a Default or an Event
of Default.
SECTION 3.3. Representations and Warranties. Each representation and
warranty contained herein and in the other Transaction Documents shall be true
and correct in all respects and shall be true and correct after the consummation
of the transactions contemplated hereby and contemplated by the Ancillary
Agreements.
SECTION 3.4. Covenants, Agreements and Conditions. All covenants,
agreements and conditions contained in this Agreement and in the Transaction
Documents to be performed or complied with by the Company at or prior to the
Closing Date shall have been performed or complied with in all material
respects.
SECTION 3.5. No Material Adverse Change. There shall not have occurred,
in the sole and absolute discretion of Stratford, any adverse change since May
31, 1996, in (i) the Company's or any of its Subsidiaries' (including for
purpose of this Section 3.5, American European, ACIL and AEMEC) business,
operations, assets, liabilities, financial condition or prospects, or (ii) any
other facts, conditions or circumstances which could result in a Material
Adverse Effect.
SECTION 3.6. Legal Matters. All legal matters, instruments and
documents required to perform this Agreement, the other Transaction Documents,
the Ancillary Agreements and all other agreements and matters relating hereto or
thereto and contemplated hereby or thereby and the consummation of the
transactions contemplated hereby and thereby shall be acceptable to Stratford
and its counsel.
SECTION 3.7. Consents. All authorizations, approvals or permits of, or
filings with any Governmental Authority (excluding the DOE) shall have been duly
obtained by the Company, and shall be effective as of the Closing Date. The
Company shall have also obtained such written consents to the transactions
contemplated by this Agreement and the Transaction Documents as shall be
necessary to effect this Agreement in the opinion of Stratford.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce Stratford to purchase the Securities, the Company,
represents and warrants to Stratford that each of the following statements are
true and correct on the date hereof and will be true and correct after giving
effect to the transactions contemplated hereby and contemplated by the Ancillary
Agreements:
SECTION 4.1. Corporate Existence and Power. (a) Each of the Company and
each of its Subsidiaries (a) is a corporation, or in the case of AEMEC a limited
liability company, duly organized, validly existing and in good standing under
the respective laws of their respective states of organization, (b) has all
corporate power and authority necessary to own the properties owned by it or to
conduct its business as now conducted and as proposed to be conducted, and (c)
is duly qualified as a foreign corporation, or in the case of AEMEC, as a
limited liability company, in those jurisdictions where the ownership of its
properties or conduct of its business requires such qualification, all of which
are listed on Schedule 4.1 attached hereto, except where a failure to be so
qualified would not have a Material Adverse Effect on the Company or such
Subsidiary.
SECTION 4.2. Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and its Subsidiaries the consummation of
the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Warrants) are within the Company's and its Subsidiaries'
corporate powers, have been duly authorized by all necessary corporate action,
requires no action by or in respect of, or filing with, any Governmental
Authority (other than filings with any applicable securities regulatory
authorities to perfect exemptions from the registration or qualification
requirements of applicable securities laws), and, except for matters which have
been waived in writing by the appropriate Person, do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the Certificate of Incorporation or By-laws or other organizational documents of
the Company or any of its Subsidiaries or of any material judgment, injunction,
order, decree or Material Agreement binding upon the Company or any of its
Subsidiaries or their respective assets, or result in the creation or imposition
of any Lien on any asset of the Company or any of its Subsidiaries.
SECTION 4.3. Binding Effect. This Agreement constitutes a legal, valid
and binding agreement of the Company; the Note, the Warrant Certificate and each
other Transaction Document when executed and delivered in accordance with this
Agreement, will constitute legal, valid and binding obligations of the Company
enforceable in accordance with its terms except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors rights generally, and (ii) the availability of equitable remedies may
be limited by equitable principles of general applicability.
SECTION 4.4. Capitalization. (a) The authorized Capital Stock of the
Company consists of 2,000,000 shares of Common Stock, of which (i) 1,000,000
shares are designated Class A Common Stock, (A) 95,000 of which are issued and
outstanding and owned beneficially and of record by the parties listed on
Schedule 4.4, (B) 88,863 of which are reserved for issuance upon an exercise of
the Warrants, (C) 36,730 of which are reserved for issuance upon exercise of the
Senior Lender Warrants, (D) 59,242 of which are reserved for issuance upon the
exercise of the Employee Options and (ii) 1,000,000 shares are designated Class
B Common Stock, 905,000 of which are issued and outstanding and owned
beneficially of record by the parties listed on Schedule 4.4.
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(b) The Company has no Subsidiaries other than those set forth
on Schedule 4.4 hereto. Schedule 4.4 hereto accurately and completely sets forth
(i) authorized, issued and outstanding Capital Stock of every class of each
Subsidiary of the Company, (ii) the jurisdiction of organization of each
Subsidiary of the Company, and (iii) the name of the record and beneficial owner
of the outstanding Capital Stock of each Subsidiary of the Company.
(c) Except for the Warrants and the Senior Lender Warrants,
and preemptive rights expressly set forth in the Shareholders Agreement, (i)
there are not outstanding any options, warrants or other rights to acquire
Capital Stock of any class of the Company or its Subsidiaries or securities
convertible into Capital Stock of any class of the Company or its Subsidiaries,
(ii) no Person has any preemptive or similar rights with respect to any
subsequent issue of Capital Stock by the Company or its Subsidiaries, and (iii)
no Person has any right to require the Company to register any securities of the
Company or its Subsidiaries under the Securities Act.
(d) All shares of Capital Stock of the Company and its
Subsidiaries have been validly issued and are fully paid and nonassessable and
have not been issued in violation of the preemptive rights of any stockholder.
(e) Except for rights provided for in the Shareholders
Agreement, there are (i) no voting trusts or voting agreements or other
arrangements among, or irrevocable proxies executed by, holders of Capital Stock
of the Company or its Subsidiaries and (ii) no obligations (contingent or
otherwise) of the Company or its Subsidiaries to purchase, redeem or otherwise
acquire any shares of its Capital Stock or any interest therein or to pay any
Distribution.
SECTION 4.5. Compliance with Other Instruments. Except as listed on
Schedule 4.5 attached hereto, neither the Company nor any of its Subsidiaries is
in violation of or default under, nor, to the knowledge of the Company, has any
event occurred that, with or without the giving of notice, lapse of time or the
occurrence of any other events, would constitute a violation of or default
under, or permit the termination or the acceleration of maturity of, or result
in the imposition of a Lien, upon any property or asset of the Company or any of
its Subsidiaries or pursuant to, the Certificate of Incorporation or Bylaws or
other organizational documents of the Company or any of its Subsidiaries, or any
Material Agreement to which the Company or any of its Subsidiaries is a party or
to which any of their respective assets are subject, or any judgment, order,
injunction, or decree to which it is a party, by which it is bound, or to which
any of their respective assets is subject.
SECTION 4.6. Valid Issuance of the Securities. The Warrants, when
issued, sold and delivered in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid, nonassessable and free and clear
of all Liens, and will not have been issued in violation of the preemptive
rights of any Person. Upon delivery to Stratford of the Warrant Certificate,
Stratford shall acquire good indefeasible title to the Warrants. The Warrant
Shares issuable upon exercise of the Warrant have been validly reserved and when
issued, will be duly authorized, validly issued, fully paid, nonassessable and
free and clear of all Liens and will not have been issued in violation of the
preemptive rights of any Person.
SECTION 4.7. Financial Information. The Company has delivered to
Stratford true and complete copies of the following financial statements:
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(a) the audited combined balance sheet of American European
and its Subsidiaries as of May 31, 1996, and for the five (5) preceding fiscal
years, and the related audited combined statement of income, stockholder's
equity and cash flows for each of the fiscal years then ended, together with a
true and correct copy of the report on such audited information by Smith &
Howard, P.C. (with respect to the reports for the fiscal years ended May 31,
1996, May 31, 1995, and May 31, 1994) and Williams, Benator and Libby (with
respect to the prior reports) with respect to the results of such audits
(collectively, the "Audited Financial Statements")
Except as set forth in the notes thereto and as disclosed in Schedule 4.7:
(A) all such Audited Financial Statements were
prepared as stated in the applicable auditors' reports in accordance
with GAAP;
(B) all such financial statements fairly present the
combined financial condition and results of operations of American
European and its Subsidiaries covered thereby as of the respective
dates thereof and for the respective periods covered thereby; and
(C) all such financial statements were compiled from
the books and records of American European and its Subsidiaries
regularly maintained by American European and its Subsidiaries and used
to prepare the financial statements of American European and its
Subsidiaries in accordance with the principles stated therein. Except
as set forth in Schedule 4.7, American European and its Subsidiaries
have maintained their respective books and records in a manner
sufficient to permit the preparation of audited financial statements in
accordance with GAAP, such books and records fairly reflect, in all
material respects, the income, expenses, assets and liabilities of
American European and its Subsidiaries and the books and records
provided in fair and accurate basis for the preparation of the Audited
Financial Statements.
(b) Neither the Company nor any of its Subsidiaries has
incurred and there is not outstanding with respect to the Company or any of its
Subsidiaries, any Debt, material liability or material obligation (whether
accrued, absolute, contingent, liquidated or otherwise) other than (i)
obligations under Material Agreements described in Schedule 4.8 hereof, (ii)
obligations under the Ancillary Agreements, (iii) trade payables incurred in the
ordinary course of business, none of which are more than sixty (60) days past
the invoice date, and (iv) Debt of the Company and its Subsidiaries described in
Schedule 4.11 attached hereto, and other liabilities set forth in the opening
balance sheet of the Company referenced in Section 4.7(d).
(c) Since May 31, 1996, there has been no material adverse
change in the businesses, financial positions, results of operations or
prospects of American European or any of its Subsidiaries.
(d) The opening consolidated balance sheet of the Company
prepared by the Company, a copy of which is attached hereto as Schedule 4.7,
fairly presents what the financial position of the Company will be immediately
after giving effect to the transactions contemplated hereby and by the Ancillary
Agreements.
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(e) The Projections set forth the Company's best estimate as
of the date hereof of the Company's consolidated financial condition and results
of operations for the dates and periods covered thereby. The Projections were
prepared in accordance with sound financial planning practices based on
assumptions disclosed in the Projections which the Company believes were
reasonable when the Projections were prepared and which the Company believes
continue to be reasonable on the date hereof; provided, however, that the
Projections shall not and do not constitute a guaranty by the Company of the
financial performance projected therein.
(f) Prior to the consummation of the American European
Acquisition, the Company had no assets, properties or employees other than
rights arising under the Ancillary Agreements and had not conducted any business
or operations except (i) for the activities of EduTrek Systems, Inc. which was
merged into the Company and (ii) for activities incident to its organization and
carrying out of the transactions contemplated by this Agreement and the
Ancillary Agreements.
SECTION 4.8. Material Agreements. Schedule 4.8 attached hereto contains
a complete and accurate description of every Material Agreement to which the
Company or any of its Subsidiaries is a party (other than the Ancillary
Agreements) or by which the Company, any of its Subsidiaries or any of their
respective assets are bound (including all amendments and modifications
thereto). The Company has provided Stratford with a true and correct copy of all
such Material Agreements, including all amendments and modifications thereof. No
rights or obligations of any party to any of such Material Agreements has been
waived, and no party to any of such Material Agreements is in default of its
obligations thereunder. Each of such Material Agreements is a valid, binding and
enforceable obligation of the parties thereto in accordance with its terms and
is in full force and affect. The Company has not received notice of any plan or
intention of any other party to any Material Agreement to exercise any right to
cancel or terminate such Material Agreement, and the Company does not know of
any fact that would justify the exercise of such right. The Company does not
currently contemplate any amendment or change to any Material Agreement.
SECTION 4.9. Ancillary Agreements. The Company has provided Stratford
with a true and correct copy of all of the Ancillary Agreements, including all
amendments and modifications thereby. No rights or obligations of any party to
any of such Ancillary Agreements has been waived, and no party to any of such
Ancillary Agreements is in default of its obligations thereunder. Each of such
Ancillary Agreements is a valid, binding and enforceable obligation of the
parties thereto in accordance with its terms and is in full force and affect.
SECTION 4.10. Investments. The Company has no Investments other than
Permitted Investments.
SECTION 4.11. Outstanding Debt. Schedule 4.11 attached hereto contains
a complete and accurate description of all Debt of the Company and its
Subsidiaries outstanding on the Closing Date. Neither the Company nor any of its
Subsidiaries is in default in payment of any such Debt or in default of any
covenant, agreement, representation, warranty or other term of any document,
instrument or agreement evidencing, securing or otherwise pertaining to any such
Debt.
SECTION 4.12. Transactions with Affiliates. Except for the Ancillary
Agreements, Schedule 4.12 attached hereto contains a complete and accurate
description of all contracts, agreements and other
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arrangements (whether written, oral, express or implied) between the Company or
any of its Subsidiaries and any Affiliate of the Company, including, without
limitation, a complete and accurate description of all Investments of the
Company or any of its Subsidiaries in any Affiliate of the Company.
SECTION 4.13. Employment Matters. Schedule 4.13 attached hereto
contains a complete and accurate list of all employees of the Company or any of
its Subsidiaries who either (a) were paid cash compensation in the Company's (or
such Subsidiary's) calendar year ended December 31, 1995, of $200,000 or more,
and (b) are projected to earn in cash compensation $200,000 or more in the
current calendar year. Such schedule also sets forth the current annual salary
(including projected bonuses and other cash compensation) of all such employees
and all benefits (other than health insurance benefits and other similar
benefits which are both customary in the industry in which the Company is
engaged and provided to all full time employees of the Company generally)
provided to such employees. Schedule 4.13 also contains a complete and accurate
description of all employment contracts and similar agreements to which the
Company or any of its Subsidiaries is a party.
SECTION 4.14. Operating Leases; Real Property Leases. Schedule 4.14
attached hereto contains a complete and accurate description of all Operating
Leases and Real Property Leases to which the Company or any of its Subsidiaries
is a party as of the date hereof which require Rental payments of $25,000 or
more per year. The aggregate amount of all Rental payments under all Operating
Leases and Real Property Leases to which the Company and its Subsidiaries are
parties does not exceed $200,000 and $2,600,000, respectively, per year.
SECTION 4.15. Litigation. Except as set forth in Schedule 4.15 attached
hereto, there is no material action, suit or proceeding pending against, or to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries before any court or arbitrator or any Governmental
Authority.
SECTION 4.16. Employee Benefit Plans and Arrangements; ERISA.
(a) No Other Plans. None of the Company, any of its
Subsidiaries or any ERISA Affiliate thereof, maintains or contributes to, or has
any obligation under, any Employee Benefit Plans other than those identified on
Schedule 4.16. The Company has provided Stratford accurate and complete copies
of all contracts, agreements and documents described on Schedule 4.16.
(b) ERISA and IRC Compliance and Liability. The Company, each
of its Subsidiaries and each ERISA Affiliate thereof, is in compliance with all
applicable provisions of ERISA and the regulations and published interpretations
thereunder with respect to all Employee Benefit Plans except where failure to
comply would not have a Material Adverse Effect on the Company and except for
any required amendments for which the remedial amendment period as defined in
Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that
is intended to be qualified under Section 401(a) of the IRC has been determined
by the Internal Revenue Service to be so qualified, and each trust related to
such plan has been determined to be exempt under Section 501(a) of the IRC. No
material liability has been incurred by the Company, any of its Subsidiaries or
any ERISA Affiliate thereof which remains unsatisfied for any taxes or penalties
with respect to any Employee Benefit Plan or any Multiemployer Plan.
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(c) Funding. No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the IRC) been
incurred (without regard to any waiver granted under Section 412 of the IRC),
nor has any funding waiver from the IRS been received or requested with respect
to any Pension Plan, nor has any of the Company, any of its Subsidiaries or any
ERISA Affiliate thereof failed to make any contributions or to pay any amounts
due and owing as required by Section 412 or the IRC, Section 302 of ERISA or the
terms of any Pension Plan prior to the due dates of such contributions under 412
of the IRC or Section 302 of ERISA, nor has there been any event requiring any
disclosure under Section 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA with respect
to any Pension Plan.
(d) Prohibited Transactions and Payments. None of the Company,
any of its Subsidiaries or any ERISA Affiliate thereof has: (i) engaged in a
nonexempt prohibited transaction described in Section 406 of ERISA or Section
4975 of the IRC; (ii) incurred any liability to the PBGC which remains
outstanding other than the payment of premiums and there are no prepayments
which are due and unpaid; (iii) failed to make a required contribution or
payment to a Multiemployer Plan; or (iv) failed to make a required installment
or other required payment under Section 412 of the IRC.
(e) No ERISA Termination Event. No ERISA Termination Event has
occurred or is reasonably expected to occur.
(f) ERISA Litigation. No material proceeding, claim, lawsuit
and/or investigation is existing or, to the best knowledge of the Company after
due inquiry, threatened concerning or involving any (i) employee welfare benefit
plan (as defined in Section 3(1) of ERISA) currently maintained or contributed
to by the Company, any of its Subsidiaries or any ERISA Affiliate, (ii) Pension
Plan or (iii) Multiemployer Plan.
SECTION 4.17. Taxes and Filing of Tax Returns. The Company and each of
its Subsidiaries have filed all tax returns required to have been filed as of
the date hereof and that will be required to be filed on or prior to the Closing
Date and have paid all Taxes shown to be due and payable on such returns,
including interest and penalties, and all other Taxes which are payable by the
Company and, each of its Subsidiaries. The Company does not know of any proposed
Tax assessment against the Company or any of its Subsidiaries, and all Tax
liabilities of the Company and, each of its Subsidiaries are adequately provided
for and no tax liability of the Company, or any of its Subsidiaries has been
asserted by the Internal Revenue Service for Taxes in excess of those already
paid.
SECTION 4.18. Ownership of Properties; Liens. Except as set forth in
Schedule 4.18, the Company and each of its Subsidiaries has good and marketable
fee simple or leasehold title to all their respective properties and assets,
real and personal, including, without limitation, all assets reflected in the
pro forma consolidated balance sheet of the Company referred to in Section
4.7(d) hereof and all assets which are used by the Company or any of its
Subsidiaries in the operation of their respective business, and none of such
properties or assets is subject to any Lien of any kind, other than Permitted
Encumbrances.
SECTION 4.19. Licenses, Permits, Etc. Except as set forth on Schedule
4.19, the Company and each of its Subsidiaries possesses all material
franchises, certificates, licenses, permits, consents, authorizations,
exemptions and orders of Governmental Authorities as are necessary to carry on
their
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respective business as now being conducted and as proposed to be conducted.
SECTION 4.20. Labor Relations.
Except as set forth on Schedule 4.20:
(a) neither the Company nor any of its Subsidiaries is a party
to any collective bargaining agreements with any union and no collective
bargaining agreement is currently being negotiated by the Company or any of its
Subsidiaries,
(b) there are no unfair labor practice charges, complaints, or
proceedings against the Company or any of its Subsidiaries pending or to the
best knowledge of the Company threatened before the National Labor Relations
Board;
(c) there are no discrimination charges (relating to sex, age,
race, national origin, handicap or veteran status) pending against the Company,
any of its Subsidiaries or any of their respective employees before any federal
or state agency or authority; and
(d) there is no pending representation question involving an
attempt to organize a bargaining unit including any employees of the Company or
any of its Subsidiaries and no labor grievance has been filed.
SECTION 4.21. Corporate Name. There are no actions, suits or
proceedings pending or threatened against or affecting the Company or any of its
Subsidiaries which may result in any impairment of the right of the Company or
any of its Subsidiaries to use its corporate name. To the best of the Company's
knowledge, the use of the corporate name of the Company or any of its
Subsidiaries does not infringe the registered trademark or tradename rights of
any third party.
SECTION 4.22. Proprietary Rights. (a) The Company and each of its
Subsidiaries owns all patents, technology, know-how, processes, trademarks and
copyrights, if any, necessary to conduct their respective business, or possess
adequate licenses or other rights, if any, therefor, without conflict with the
rights of others (the "Proprietary Rights"). All of the Proprietary Rights are
set forth on Schedule 4.22 hereto.
(b) The Company and its Subsidiaries have the sole and
exclusive right to use the Proprietary Rights without infringing or violating
the rights of any third parties. No consent of third parties is required for the
use thereof by the Company and its Subsidiaries, and no claim has been asserted
by any person to the ownership of or right to use any Proprietary Right or
challenging or questioning the validity or effectiveness of any such license or
agreement, and the Company does not know of any basis for any such claim. Each
of the Proprietary Rights is valid and subsisting, has not been cancelled,
abandoned or otherwise terminated and, if applicable, has been duly issued or
filed.
(c) There is no claim that, or inquiry as to whether, any
product, activity or operation of the Company or any of its Subsidiaries
infringes upon or involves, or has resulted in the infringement of, any
Proprietary Right of any other person, corporation or other entity; and no
proceedings have been
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instituted, are pending or to the knowledge of the Company are threatened which
challenge the rights of the Company or any of its Subsidiaries with respect
thereto.
SECTION 4.23. Compliance with Law. The business and operations of the
Company and each of its Subsidiaries have been and are being conducted in all
material respects in accordance with all applicable laws, rules and regulations
of all Governmental Authorities including, without limitation, all Applicable
Environmental Laws.
SECTION 4.24. Environmental Matters. (a) Neither the Company, nor any
of its Subsidiaries has obtained or has been required to have obtained any
permits, licenses or similar authorizations to occupy, operate or use any
buildings, improvements, fixtures or equipment forming a part of any of the real
property currently or heretofore owned or leased by the Company or any of its
Subsidiaries ("Real Property") by reason of any Applicable Environmental Laws.
(b) Except as set forth on Schedule 4.24 hereto, the Company
does not have any knowledge that any underground storage tanks were placed on
the Real Property by any person or entity.
(c) Neither the Company nor any of its Subsidiaries has placed
any asbestos-containing thermal insulation or building products or
PCB-containing products on the Real Property, and the Company does not have any
knowledge that any owner, prior lessee or user has placed any
asbestos-containing thermal insulation or building products or PCB-containing
products on the Real Property.
(d) Neither the Company nor any of its Subsidiaries has ever
been refused, nor does it have any knowledge of any owner, prior lessee or user
ever being refused, insurance coverage, and no insurance coverage has ever been
cancelled, as a result of the presence of hazardous substances on the Real
Property.
(e) Except as set forth on Schedule 4.24 hereto, neither the
Company nor any of its Subsidiaries has installed or maintained any active or
inactive hazardous waste receptacles on the Real Property, and the Company does
not have any knowledge that any active or inactive hazardous waste receptacles
have been installed or maintained on the Real Property by any owner, prior
lessee or user.
(f) Except as set forth on Schedule 4.24 hereto and except for
spills, discharges and releases which could not reasonably be expected to have a
material adverse effect on the Company and its Subsidiaries taken as a whole,
there have been no spills, discharges or other releases of hydrocarbons or
hazardous substances onto or from the Real Property and the Company does not
have any knowledge of any spills, discharges or releases by any owner, prior
lessee or user of the Real Property.
(g) Except as set forth in Schedule 4.24 hereto, there are no
plans or documents, whether or not government approved, including, but not
limited to, contingency plans, closure and post-closure plans, which impose
environmental obligations specifically on the Company or any of its Subsidiaries
or against the Real Property, and the Company does not have any knowledge of any
such documents prepared by any owner, prior lessee or user of the Real Property.
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(h) There are no environmental liens or security interests
against the Real Property nor are there any environmental liens or actions
pending or to the knowledge of the Company threatened which would result in the
creation of any lien relating to environmental conditions of the Real Property.
(i) The Company has provided Stratford with all environmental
studies, records and reports in its possession or control conducted by
independent contractors or the Company, and all correspondence with any
governmental entities concerning environmental conditions of the Real Property,
or which identify underground storage tanks, or otherwise relate to
contamination of the soil or groundwater of the Real Property.
SECTION 4.25. Burdensome Obligations. Neither the Company nor any of
its Subsidiaries or any of their respective properties is subject to any law,
rule, regulation, order or decree of any Governmental Authority or any pending
or threatened change of law, rule, regulation, order or decree of any
Governmental Authority, or is subject to any restriction under its Certificates
of Incorporation or By-laws or other organizational documents or under any
agreement or instrument to which it is a party or by which it or any of its
properties (now owned or hereafter acquired) may be subject or bound, which is
so unusual or burdensome as to be likely in the foreseeable future to have a
Material Adverse Effect on the business, operations or financial condition of
the Company or such Subsidiary;
SECTION 4.26. Fiscal Year. Currently the Company's fiscal year is from
June 1 to May 31. Immediately upon the Closing, the Company's fiscal year will
change to a calendar year fiscal year.
SECTION 4.27. No Default. Neither a Default nor an Event of Default has
occurred.
SECTION 4.28. Distributions. Except as set forth on Schedule 4.28, the
Company has not made any Distributions.
SECTION 4.29. Insurance. Schedule 4.29 contains a complete and accurate
list and description of all insurance policies maintained by the Company and
each of its Subsidiaries as of the date hereof. The Company or one of its
Subsidiaries is beneficiary of policies of insurance, issued by insurers of
recognized responsibility, providing adequate coverage to insure the properties
and businesses thereof against such risks and in such amounts as are prudent and
customary in the Company's industry. All of such policies are, and will be
maintained through the Closing, in full force and effect. All premiums due
thereon have been paid and no notice of cancellation has been received with
respect thereto.
SECTION 4.30. Government Regulation. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Interstate Commerce Act (as any of the preceding acts have been
amended), or any other law which regulates the incurring by the Company of Debt,
including, but not limited to laws relating to common contract carriers of the
sale of electricity, gas, steam, water or other public utility services.
SECTION 4.31. Casualties. Neither the business nor the properties of
the Company or any of its Subsidiaries are affected by any environmental hazard,
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or other casualty (whether or not
covered by insurance) which could have a Material Adverse Effect on the Company
or such Subsidiary.
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SECTION 4.32. Investment Company Act. Neither the Company nor any of
its Subsidiaries is an "investment company" registered or required to be
registered under the Investment Company Act of 1940 as amended. The Company is
not controlled by such a company.
SECTION 4.33. Securities Laws. The offer, issuance and sale of the
Note, the Warrants, the Warrant Shares and all other securities to be issued to
Stratford pursuant to the Transaction Documents are and will be (a) exempt from
the registration and prospectus delivery requirements of the Securities Act, (b)
have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws, and (c) accomplished in conformity with
all other federal and applicable state securities laws, rules and regulations.
SECTION 4.34. Small Business Concern. The Company, together with its
"affiliates" (as that term is defined in Title 13, United States Code of Federal
Regulations Section 121.103) is a "small business concern" within the meaning of
Section 107.50 of Title 13 of the United States Code of Federal Regulations. The
information to be included in the forms referred to in Section 3.1(l) hereof,
when such forms are completed and executed by the Company, will be accurate and
complete in all respects.
SECTION 4.35. Full Disclosure. No information heretofore furnished by
or on behalf of the Company to Stratford for the purposes of this Agreement or
any other Transaction Document or any transaction contemplated hereby or
thereby, contained and no written information hereafter furnished by or on
behalf of the Company to Stratford for purposes of this Agreement or any other
Transaction Document or any transaction contemplated hereby will contain, any
untrue statement of a material fact or omit a material fact necessary to make
the statements therein not misleading. There is no fact or circumstance known to
the Company which could reasonably be expected to have a Material Adverse Effect
on the Company which has not been disclosed to Stratford.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF STRATFORD
In order to induce the Company to issue and sell the Note and the
Warrants to Stratford hereunder, Stratford hereby represents and warrants to the
Company as follows:
SECTION 5.1. Due Authorization; No Conflicts. The execution, delivery
and performance by Stratford of this Agreement and the Shareholders Agreement
(a) are within Stratford's partnership powers, (b) have been duly authorized by
all necessary partnership or corporate action on the part of Stratford, and (c)
do not conflict with or violate any law, rule or regulation applicable to
Stratford, including, without limitation, applicable regulations of the Small
Business Administration.
SECTION 5.2. Securities Representations. (a) Stratford is acquiring the
Note and the Warrants (and, if the Warrants are exercised, the Warrant Shares)
for investment purposes only, for its own account, and not as nominee or agent
for any other Person, and not with a view to, or for resale in connection with,
any distribution thereof within the meaning of the Securities Act.
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(b) Stratford is an "accredited investor" within the meaning
of Rule 501 under the Securities Act. Stratford was not organized for the
specific purpose of acquiring the Note or the Warrants.
(c) Stratford has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its investment
in the Company, and it is able financially to bear the risks thereof.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company agrees that, unless the Majority Holder otherwise consents
in writing, so long as any part of the Obligation remains outstanding or the
Warrant Holders hold more than five percent (5%) of the outstanding Common Stock
of the Company on a Fully Diluted Basis, the Company will comply in every
respect with each covenant contained in this Article VI.
SECTION 6.1. Information. The Company will deliver, or cause to be
delivered, to each Noteholder and Warrant Holder:
(a) as soon as available and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, a
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
of the end of such fiscal year, a consolidated income statement, consolidated
cash flow statement and consolidated statement of change in stockholders' equity
setting forth in each case in comparative form the figures for the previous
fiscal year, all reported by the Company in accordance with GAAP and certified
by a "Big Six" accounting firm or an independent accounting firm satisfactory to
the Majority Holder in its sole discretion; provided, however, the Company shall
deliver preliminary drafts of the foregoing statements within ninety (90) days
after the end of each fiscal year;
(b) as soon as available and in any event within thirty (30)
days, after the end of each calendar month, the Company will deliver (i) the
consolidated and consolidating balance sheet of the Company and its Consolidated
Subsidiaries (showing intercompany eliminations), as at the end of such month
and the related consolidated and consolidating statements of income (showing
intercompany eliminations), stockholders' equity, cash flow and changes in
financial position for such month and for the period from the beginning of then
current calendar year and fiscal year to the end of such month and (ii) a
schedule of the outstanding Debt for borrowed money of the Company and its
Subsidiaries describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt issue or loan.
(c) on or before thirty (30) days before the commencement of
each fiscal year of the Company, projections for such fiscal year in the form of
the Projections setting forth projected revenues, operating expenses, Capital
Expenditures, debt service, Consolidated Cash Flow and balance sheet conditions
of the Company and its Consolidated Subsidiaries for such fiscal year. Such
projections shall (i) be based on assumptions set forth therein which the
Company believes to be reasonable at the time such
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projections are delivered, (ii) be prepared based on sound financial planning
practices, and (iii) represent the Company's best estimate based on existing
circumstances of the financial condition and results of operation for the
Company for such year, and (iv) be accompanied by a certificate of the Financial
Officer certifying as to the matters set forth in (i), (ii) and (iii) preceding;
(d) in addition to the audit report required by Section
6.1(a), copies of all "management letters", reports or other material
information or correspondence provided to the Company by its auditors;
(e) immediately upon any Authorized Officer becoming aware of
the occurrence of any Default or Event of Default hereunder, a certificate of an
Authorized Officer setting forth the details thereof and the action which the
Company is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly upon the filing thereof, copies of all
registration statements, amendments thereto and annual, quarterly or special
reports which the Company may file with the Commission;
(h) promptly notify each Noteholder and Warrant Holder (i) of
the commencement of any litigation, arbitration or similar proceeding by or
against the Company or any of its Subsidiaries involving an amount in
controversy of $100,000 or more and of the threat of any of the foregoing which
is material, (ii) of the occurrence of any event or existence of any condition
which could reasonably be anticipated to have a Material Adverse Effect on the
Company or any of its Subsidiaries, or (iii) of the occurrence of a default
under any Debt in excess of $100,000 owing by the Company or any of its
Subsidiaries or any default under any Material Agreement to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties is bound; and
(i) from time to time such additional information regarding
the financial position or business of the Company and each of its Subsidiaries
as each Noteholder and Warrant Holder may reasonably request.
SECTION 6.2. Right of Inspection. The Company will, and will cause each
of its Subsidiaries to, permit any officer, employee or agent of any Noteholder
or Warrant Holder or any of their respective Affiliates upon reasonable notice
and during normal business hours to visit and inspect any of the assets of the
Company and each of its Subsidiaries, to examine the Company's and each of its
Subsidiaries' books, records, accounts and correspondence, take copies and
extracts therefrom, and discuss the affairs, finances and accounts of the
Company and each of its Subsidiaries with the Company's officers, accountants,
auditors and customers, including the review of any assets of the Company and
its Subsidiaries located at third-party locations.
SECTION 6.3. Maintenance of Insurance. The Company will, and will cause
each of its Subsidiaries to, at all times maintain or cause to be maintained
insurance issued by insurers of recognized responsibility covering such risks
and in such amounts as are customary in the case of companies of
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established reputation engaged in the same or similar business and similarly
situated.
SECTION 6.4. Payment of Taxes and Claims. The Company will, and will
cause each of its Subsidiaries to, pay when due (a) all Taxes imposed upon it or
its assets and with respect to its respective franchises, business, income or
profits before any material penalty or interest accrues thereon and (b) all
material claims (including, without limitation, claims for labor, services,
materials and supplies) for sums which have become due and payable and which by
law have or might become a Lien (other than a Permitted Encumbrance) on any of
its assets; provided, however, no payment of Taxes or claims shall be required
if (i) the amount, applicability or validity thereof is being contested in good
faith by appropriate action promptly initiated and diligently conducted in
accordance with good business practices and no material part of the property or
assets of the Company or any of its Subsidiaries is the subject of any pending
levy or execution, and (ii) the Company has notified each Noteholder and Warrant
Holder of such circumstances, in detail satisfactory to each Noteholder and
Warrant Holder.
SECTION 6.5. Compliance with Laws and Documents. The Company will, and
will cause each of its Subsidiaries to, comply in all material respects with the
provisions of (a) all laws, rules, regulations, orders and decrees of any
Governmental Authority including, without limitation, Applicable Environmental
Laws, (b) its Certificate of Incorporation and By-laws or other organizational
documents, and (c) every Material Agreement to which the Company or any of its
Subsidiaries is a party or by which the Company, any of its Subsidiaries or any
of their respective properties are bound.
SECTION 6.6. Operation of Properties and Equipment. The Company will,
and will cause each of its Subsidiaries to, at all times, maintain, preserve and
keep all material operating equipment used or useful in the operation of its
businesses in proper repair, working order and condition, and make all necessary
or appropriate repairs, renewals, replacements, additions and improvements
thereto so that the efficiency of such equipment shall at all times be properly
preserved and maintained, provided that no item of operating equipment need be
so repaired, renewed, replaced, added to or improved, if the Company shall in
good faith determine that such action is not necessary or desirable for the
continued efficient and profitable operation of its businesses.
SECTION 6.7. Preservation of Corporate Existence, Etc. The Company
will, and will cause each of its Subsidiaries to, preserve and maintain its
corporate existence, rights, franchises and privileges in its states of
organization, and will qualify and remain qualified as a foreign corporation or
limited liability company in every jurisdiction in which such qualification in
necessary or desirable in view of the business and operations of the Company,
any of its Subsidiaries or the ownership of their respective properties.
SECTION 6.8. Additional Documents. The Company will, and will cause
each of its Subsidiaries to, to cure promptly any defects in the creation and
issuance of the Notes and Warrants, and the execution and delivery of this
Agreement and the other Transaction Documents and, at the Company's sole
expense, promptly and duly execute and deliver to each Noteholder and Warrant
Holder, upon reasonable request, all such other and further documents,
agreements and instruments in compliance with or accomplishment of the covenants
and agreements of the Company and its Subsidiaries in this Agreement and the
other Transaction Documents, all as may be reasonably necessary or appropriate
in connection therewith.
SECTION 6.9. Performance of Obligations. The Company will, and will
cause each of its
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Subsidiaries to, promptly perform or cause to be performed every obligation of
the Company or such Subsidiary with any third person whether or not specifically
referred to in this Agreement, the non-performance of which could cause the
acceleration of Debt of the Company or such Subsidiary; provided, however, that
(unless and until foreclosure, distraint, sale or similar proceedings have been
commenced) the Company or such Subsidiary shall have the right in good faith to
contest the obligation.
SECTION 6.10. ERISA. The Company will, and will cause each of its
Subsidiaries, to maintain and administer each Plan maintained by it in
accordance with the applicable requirements of the IRC and ERISA.
SECTION 6.11. Election as Director; Directors Meetings. Upon request of
Stratford at any time the Company shall cause its Board of Directors to include
one Person designated by Stratford. At any time when Stratford has not elected a
director to the Board of Directors of the Company or such director is not an
employee of Stratford, the Company shall permit an employee of Stratford to
attend as an observer all meetings of the Company's Board of Directors. The
Company shall hold a meeting of its Board of Directors not less often than
quarterly and will provide Stratford's director on the board (or its
representative observer) the same notice of meetings provided to other directors
generally; In the event the Company proposes to take any action by written
consent of directors in lieu of a meeting, the Company shall provide a copy of
the proposed written consent to Stratford's director or representative observer
at the same time as a copy is provided to the other directors. The Company will
provide to Stratford's director or representative observer all other written
information provided to directors of the Company generally. The Company will
reimburse Stratford's director or representative observer all reasonable costs
incurred in connection with attending any meeting of the Board of Directors of
the Company or otherwise incurred in connection with fulfilling their duties as
a director of the Company.
SECTION 6.12. Maintenance of Books and Records. The Company will, and
will cause each of its Subsidiaries to, maintain proper books of record and
account in which true and correct entries in conformity with GAAP shall be made
on a timely basis of all dealings and transactions in relation to the Company's
and each Subsidiaries' business and activities.
SECTION 6.13. Environmental Compliance. The Company will, and will
cause each of its Subsidiaries to, comply in all material respects with all
Applicable Environmental Laws, including, without limitation all permitting,
storage, remediation and similar requirements of Applicable Environmental Laws.
Without limiting the foregoing, the Company and its Subsidiaries shall promptly
pay and discharge when due all debts, claims, liabilities and obligations with
respect to any clean up measures necessary to comply with Applicable
Environmental Laws, except for such debts, claims, liabilities and obligations
with respect to any clean up measures which are being contested in good faith
and by appropriate and lawful proceedings and so long as they do not in the
aggregate materially detract from the value of the assets or properties of the
Company and its Subsidiaries, or materially impair the use thereof in the
operation of their respective businesses.
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ARTICLE VII
NEGATIVE COVENANTS
The Company agrees that, unless the Majority Holder otherwise consents
in writing, so long as any part of the Obligation remains unpaid or the Warrant
Holders hold more than five percent (5%) of the outstanding Common Stock on a
Fully Diluted Basis, the Company will comply in every respect with each covenant
contained in this Article VII.
SECTION 7.1. Distributions by the Company. The Company will not, and
will not permit any of its Subsidiaries to, make any Distribution other than (a)
Distributions to the Company or to wholly owned Subsidiaries of the Company, and
(b) Distributions to Warrant Holders and (c) Distributions to Mark Barnette
pursuant to AEMEC's Amended and Restated Operating Agreement dated as of October
1, 1996.
SECTION 7.2. Incurrence of Debt. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume, suffer to exist, or be or remain liable with respect to, any Debt or
enter into any commitment with any lender for incurrence of Debt other than the
Permitted Debt.
SECTION 7.3. Change in Corporate Structure; Sale of Assets. The Company
will not, and will not permit any of its Subsidiaries to, (a) amend their
respective certificates of incorporation, bylaws, partnership agreements,
regulations or other organizational documents other than as required by law or
other than amendments which would not cause any such organizational documents to
conflict with any provisions of this Agreement or any Transaction Document, or
which is otherwise adverse to Stratford, (b) consolidate or merge with or into
any other Person unless the Company is the surviving corporation (in the case of
a merger or consolidation involving the Company) or such Subsidiary is the
survivor (in the case of a merger or consolidation including a Subsidiary of the
Company) and remains a wholly owned Subsidiary of the Company, (c) effect a
reclassification or recapitalization of the outstanding capital stock of the
Company or any of its Subsidiaries, (d) sell, lease, abandon or otherwise
transfer any of the assets of the Company or any of its Subsidiaries to any
other Person other than Permitted Asset Dispositions, or (e) engage in any
business outside of the education industry or providing of corporate education
and training services. The Company will not register any class of its capital
stock under the Securities Act of 1933 or complete any public offering of any
class of its capital stock other than its Class A Common Stock.
SECTION 7.4. Acquisition of Another Business. The Company will not, and
will not permit any of its Subsidiaries to, acquire all or substantially all of
the assets or Capital Stock of any Person or any operating division of any
Person other than acquisitions which constitute Permitted Acquisitions.
SECTION 7.5. Investments. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, make any Investments other than
Permitted Investments. To the extent the Company or any of its Subsidiaries
makes any Permitted Investment (or any other Investment that Stratford consents
to in writing), that results in the formation or acquisition of any Subsidiary
of the Company, then, simultaneously with the creation or acquisition of such
Subsidiary, the Company shall cause such Subsidiary to execute and deliver to
Stratford a Subsidiary Guarantee and such other documents, certificates or
opinions which Stratford may require including without limitation an opinion of
counsel acceptable to Stratford and its counsel regarding (a) the due
organization and existence of such Subsidiary,
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(b) the due authorization, execution and delivery of the Subsidiary Guarantee,
(c) the enforceability of the Subsidiary Guarantee and (d) such other matters
with respect to such Subsidiary as Stratford shall reasonably require.
SECTION 7.6. Transactions with Affiliates. The Company will not, and
will not permit any of its Subsidiaries to, enter into any transaction with an
Affiliate or make any payment to an Affiliate (whether in cash or property)
other than transactions entered into in the ordinary course of business which
are on terms no less favorable to the Company or its Subsidiaries than could be
obtained from an unaffiliated third party other than as set forth on Schedule
7.6 attached hereto.
SECTION 7.7. Liquidation and Dissolution. The Company will not, and
will not permit any of its Subsidiaries to, take any action to place the Company
or any of its Subsidiaries in dissolution, liquidation or receivership.
SECTION 7.8. Capital Expenditures. The Company will not, and will not
permit any of its Subsidiaries to, make Capital Expenditures in excess of: (a)
for the period commencing on the Closing Date and ending on December 31, 1996,
$500,000, (b) for calendar year 1997, $1,000,000, (c) for calendar year 1998,
$1,000,000 multiplied by the sum of (i) one (1) and (ii) the percentage growth,
if any (stated as a decimal and rounded up to the nearest 0.001), in the
revenues of the Company and its Consolidated Subsidiaries for calendar year 1997
over calendar year 1996, and (d) for each calendar year thereafter, the amount
of the immediately prior calendar year's allowable Capital Expenditures
multiplied by the sum of (i) one (1) and (ii) the percentage growth, if any
(stated as a decimal and rounded up to the nearest 0.001), in the revenues of
the Company and its Consolidated Subsidiaries over the immediately prior
calendar year.
SECTION 7.9. Liens. The Company will not, and will not permit any of
its Subsidiaries to, create, assume or permit to exist any Lien of any kind
against any of their respective assets of any character, whether owned as of the
date of this Agreement or hereafter acquired, except Permitted Encumbrances.
SECTION 7.10. Modification of Capitalization Documents and Ancillary
Agreements. The Company will not, and will not permit any of its Subsidiaries
to, enter into any amendment or modification of any of the Ancillary Agreements
or waive or fail to enforce any material right of the Company thereunder;
provided, that the Company and its Subsidiaries may enter into amendments and
modifications of the NB Senior Loan Agreement and the other Senior Debt
Documents which are not prohibited by the Senior Subordination Agreement.
SECTION 7.11. Use of Proceeds. The proceeds of the Loan will be used by
the Company to pay a portion of the purchase price of the American European
Acquisition and to pay transaction costs associated with the American European
Acquisition and the closing of the transactions contemplated by the Ancillary
Agreements. None of the proceeds of the Loan will be used, directly or
indirectly, for the any other purpose.
SECTION 7.12. Lease Obligations. The Company will not, and will not
permit any of its Subsidiaries to, enter into or become or remain liable as
lessee under any Operating Leases or Real Property Leases other than (a) the
Operating Leases described in Schedule 4.14 attached hereto, (b)
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intercompany leases between the Company and its Subsidiaries, (c) additional
Operating Leases provided that the aggregate additional annual Rentals required
to be paid by the Company and its Subsidiaries under all Operating Leases shall
not exceed $200,000 per fiscal year, and (d) additional Real Property Leases
provided that aggregate annual Rentals required to be paid by the Company and
its Subsidiaries under all Real Property Leases shall not exceed the Real
Property Rental Limit.
SECTION 7.13. Executive Compensation; Management Fees. (a) The Company
will not, and will not permit any of its Subsidiaries to, make payments of
salary or bonus or otherwise provide compensation (including benefits) to its
principal executive officers or employees which are in excess of those
customarily paid by in the industry in which the Company and its Subsidiaries
are engaged, and in no event will the Company or any of its Subsidiaries pay any
bonus to any officer, director or employee whose total annual compensation,
including such bonus is in excess of $175,000 unless such bonus has been
approved by the Board of Directors of the Company.
(b) The Company will not, and will not permit any of its
Subsidiaries to, pay any management, consulting or similar fees to any Affiliate
of the Company or to any director, officer or employee of the Company or any of
its Subsidiaries except as set forth on Schedule 7.13.
SECTION 7.14. Payment of Subordinate Obligations. The Company will not,
and will not permit any of its Subsidiaries to, make payments of Debt which is
subordinate, in right of payment to the payment of the Loan to the extent such
payments would be in violation of the Subordination Provisions applicable to
such Debt. Nothing contained in this Section 7.14 shall be deemed to permit the
incurrence of any such Debt not permitted by Section 7.2 hereof.
SECTION 7.15. Contingent Obligations. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create or become
or be liable with respect to any Contingent Obligation except:
(a) Contingent Obligations resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
(b) Contingent Obligations in favor of the Senior Lender constituting
Guarantees or security for the Senior Obligations;
(c) Contingent Obligations under Interest Rate Agreements, approved by
the Senior Lender, with respect to the Senior Obligations;
(d) Contingent Obligations existing on the Closing Date and described
in Schedule 7.14 attached hereto;
(e) Contingent Obligations with respect to customary indemnification
and purchase price adjustment obligations incurred in connection with Asset
Dispositions, Permitted Acquisitions or Permitted Investments;
(f) Contingent Obligations incurred in the ordinary course of business
with respect to surety
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and appeal bonds, performance and return-of-money bonds and other similar
obligations;
(g) Contingent Obligations with respect to Debt permitted by Section
7.2 hereof; and
(h) Contingent Obligations arising with respect to indemnities granted
in favor of officers and directors of the Company or its Subsidiaries pursuant
to their respective corporate charters, bylaws, or other organizational
documents.
ARTICLE VIII
FINANCIAL COVENANTS
Unless the Majority Holder otherwise consents in writing, so long as
any part of the Obligation remains outstanding or the Warrant Holders hold more
than five percent (5%) of the outstanding Common Stock on a Fully Diluted Basis,
the Company will comply with each covenant contained in this Article VIII.
SECTION 8.1. Total Capitalization. The Company shall not permit, at the
end of each calendar quarter of the Company during the term of this Agreement,
its Total Capitalization to be less than (a) $10,800,000 at Closing Date and
through and including September 30, 1997, (b) $12,150,000 October 1, 1997
through and including September 30, 1998, (c) $14,850,000 October 1, 1998
through and including September 30, 1999, (d) $19,350,000 October 1, 1999
through and including September 30, 2000, (e) $24,750,000 October 1, 2000
through and including September 30, 2001 and (e) $31,500,000 December 31, 2001
and each calendar quarter thereafter.
SECTION 8.2. Interest Coverage Ratio. The Company shall not permit, at
the end of each calendar quarter of the Company during the term of this
Agreement, commencing with the calendar quarter ending September 30, 1997, its
Interest Coverage Ratio to be less than the following ratios corresponding to
the following periods: (a) 2.025 to 1 calendar quarter ending September 30,
1997, (b) 2.16 to 1 October 1, 1997 through and including September 30, 1998,
(c) 2.25 to 1 October 1, 1998 through and including September 30, 1999, and (d)
2.25 to 1 for each calendar quarter occurring thereafter.
SECTION 8.3. Consolidated Debt Service Coverage Ratio. The Company will
not permit, on the dates set forth below, its Consolidated Debt Service Coverage
Ratio to be less than the following ratios corresponding to the following dates:
(a) 1 to 1 on December 31, 1997, (b) 1.17 to 1 on December 31, 1998, (c) 1.35 to
1 on December 31, 1999, and (d) 1.35 to 1 on December 31, 2000 and each December
31 thereafter.
SECTION 8.4. Consolidated Total Liabilities to Consolidated Net Worth.
The Company shall not permit, at the Closing Date and at the end of each
calendar quarter of the Company during the term of this Agreement, the ratio
obtained by dividing (a) Consolidated Total Liabilities at such time minus the
Obligations outstanding at such time by (b) Consolidated Net Worth at such time
plus the Obligations outstanding at such time to be greater than the following
ratios corresponding to the following periods: (i) 3.3 to 1 at Closing Date and
through and including September 30, 1997, (ii) 2.75 to 1 October 1, 1997,
through and including September 30, 1998, (iii) 2.2 to 1 October 1, 1998 through
and including September 30, 1999, (iv) 1.65 to 1 October 1, 1999 through and
including September 30, 2000, and (v) 1.1 to 1
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October 1, 2000 for each calendar quarter occurring thereafter.
SECTION 8.5. Government Required Ratios. The Company shall cause
American European and its educational institutions to comply with all
requirements of the DOE with respect to institutional eligibility to participate
in Title IV programs under the Higher Education Act of 1965 (20 U.S.C. 1070 et
seq.), as amended from time to time, including, but not limited to, meeting the
standards of administrative capability and financial responsibility published by
the DOE from time to time, or to take such other action as may be necessary, to
qualify American European or its educational institutions for the GSL Program
and to maintain its good standing thereunder.
SECTION 8.6. Enrollment. The Company shall not permit, as of the end of
the established student withdrawal period, the aggregate student enrollment for
all educational institutions now or hereafter operated by the Company and its
Subsidiaries (other than The American College in Dubai), in any two consecutive
academic quarters a decline in enrollment of in excess of 7.75% in each such
academic quarter when compared with the corresponding academic quarter for the
immediately prior academic year, provided, however, that, for purposes of this
Section 8.6, the academic quarters to be considered shall include only the Fall,
Winter and Spring academic quarters. The Company shall deliver, within five days
after the end of the established student withdrawal period for each such
academic quarter, the aggregate student enrollment for such academic quarter
together with the other aggregate student enrollment numbers and the
computations required under this Section 8.6.
SECTION 8.7. Government Default Rate. The Company shall not permit the
cohort default rate with respect to the academic institutions operated by the
Company and its Subsidiaries, as defined in Section 435(m) of the Higher
Education Act of 1965 (20 U.S.C. 1085(m)), as amended from time to time, and as
published by the DOE, on student loans provided through the GSL Program to
exceed 22% for any educational institution operated by the Company and its
Subsidiaries.
ARTICLE IX
WARRANTS
SECTION 9.1. Issuance and Sale. In consideration of the payment by
Stratford to the Company of One Hundred and No/100 Dollars ($100.00) receipt of
which is hereby acknowledged, the Company hereby agrees to issue and sell to
Stratford on the Closing Date _Eighty-Eight Thousand Eight Hundred and
Sixty-Three (88,863) Warrants.
SECTION 9.2. Exercise of Warrants. (a) The Warrants may be exercised in
whole or in part at any time on or prior to the Warrant Expiration Date. The
Warrants shall be exercised by presentation of the Warrant Certificate
evidencing the Warrants to be exercised, with the form of election to purchase
on the reverse thereof duly completed and signed, to the Company at the offices
of Company as set forth on the signature page of this Agreement, together with
payment of the aggregate Warrant Exercise Price for the number of Warrant Shares
in respect of which such Warrants are being exercised in lawful money of the
United States of America; provided, that, to the extent the Warrant Holder
exercising such Warrants is also the holder of the Note, such Warrant Holder may
elect, by written notice to the Company delivered
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with such presentation, to elect to pay the applicable Warrant Exercise Price by
offsetting the principal balance of the Note by an amount equal to the aggregate
Warrant Exercise Price payable in connection with such exercise of Warrants. No
prepayment penalty will be owing by the Company to such Warrant Holder upon any
such offset. In the event the applicable Warrant Holder makes such election, the
principal balance of the Note will be deemed to be reduced by such amount on the
date of such presentation. Upon such presentation, the Company shall issue and
cause to be delivered to or upon the written order of the registered Holder(s)
of such Warrants and in such name or names as such registered Holder(s) may
designate, a certificate for the Warrant Share or Warrant Shares issued upon
such exercise of such Warrants. Any Person(s) so designated to be named therein
shall be deemed to have become holder(s) of record of such Warrant Share or
Warrant Shares as of the date of exercise of such Warrants; provided, that no
Warrant Holder will be permitted to designate that such Warrant Shares be issued
to any Person other than such Warrant Holder unless each condition to transfer
contained in Section 9.7 hereof which would be applicable to a transfer of
Warrants or Warrant Shares has been satisfied.
(b) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant Certificate or Certificates
shall be issued for the remaining number of Warrants evidenced by such Warrant
Certificate. All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled.
(c) The Company shall not be required to issue fractional
shares of any Common Stock upon exercise of any Warrants issued by it, but shall
pay for any such fraction of a share an amount in cash equal to the value of
such fractional share determined by the Company's board of directors in good
faith.
(d) The Company will pay all Taxes attributable to the initial
issuance of Warrant Shares upon the exercise of the Warrants issued by it;
provided that each Warrant Holder shall use its reasonable efforts to avoid any
such Tax on the issuance of Warrant Shares; and provided further that the
Company shall not be required to pay any income Tax or any other Tax which may
be payable in respect of any transfer involved in the issue of any Warrant
Certificate or any certificate for Warrant Shares in a name other than that of
the registered holder of a Warrant Certificate surrendered upon the exercise of
such a Warrant, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
SECTION 9.3. Adjustment of Warrant Exercise Price and Number of Warrant
Shares Purchasable. The number of Warrant Shares purchasable upon the exercise
of each Warrant is subject to adjustment from time to time upon the occurrence
of any of the events enumerated in this Section 9.3.
(a) In the event that the Company shall at any time after the
date of this Agreement (i) declare a dividend on the Common Stock in shares of
its capital stock (whether shares of such Common Stock or of capital stock of
any other class of the Company), (ii) split or subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, the number of Warrant Shares purchasable upon an exercise of each
Warrant after the time of the record date for such dividend or of the effective
date of such split, subdivision or combination shall be adjusted to equal the
number of shares of Common
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Stock which a Holder having the same number of shares of Common Stock as the
number of Warrant Shares into which each Warrant is exercisable immediately
prior to such record date or effective date, as the case may be, would own or be
entitled to receive after such record date or effective date.
(b) In the event that the Company shall at any time after the
date of this Agreement (i) issue any shares of Common Stock (other than the
Warrant Shares, shares issuable upon exercise of the Employee Options or the
shares issuable upon exercise of the Senior Lender Warrants) without
consideration or at a price per share less than the Stipulated Equity Value, or
(ii) issue options, rights or warrants to subscribe for or purchase such Common
Stock (or securities convertible into such Common Stock) (other than the Senior
Lender Warrants and Employee Options) without consideration or at a price per
share (or having a conversion price per share, if a security convertible into
such Common Stock) less than the Stipulated Equity Value immediately prior to
such issuance, the number of Warrant Shares purchasable upon an exercise of each
Warrant after the date of such issuance shall be adjusted to equal the product
obtained by multiplying the number of Warrant Shares into which each Warrant is
exercisable immediately prior to the date of such issuance by a fraction, the
numerator shall be the number of shares of Common Stock outstanding on a Fully
Diluted Basis immediately after such issuance, and the denominator of which
shall be the number of shares of Common Stock outstanding on a Fully Diluted
Basis immediately prior to such issuance plus the number of shares of such
Common Stock which the aggregate offering price of the total number of shares of
such Common Stock so to be issued or to be offered for subscription or purchase
(or the aggregate initial conversion price of the convertible securities so to
be offered) would purchase at the Stipulated Equity Value immediately prior to
such issuance. In case such subscription price may be paid in a consideration
part or all of which shall be in a form other than cash, the value of such
consideration shall be as determined by a Qualified Appraiser reasonably
acceptable to the Majority Warrant Holders (the cost of the engagement of said
investment banking firm to be borne by the Company). Shares of such Common Stock
owned by or held for the account of the Company or any Subsidiary thereof shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever the date of such issuance is
fixed (which date of issuance shall be the record date for such issuance if a
record date therefor is fixed); and, in the event that such shares or options,
rights or warrants are not so issued, the number of Warrant Shares into which
each Warrant is exercisable shall again be adjusted to be such number of Warrant
Shares into which each Warrant is exercisable if the date of such issuance had
not been fixed.
(c) In case the Company shall make a distribution to all
holders of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Company is the surviving corporation but
excluding any Distribution permitted by Section 7.1 hereof) of evidences of its
indebtedness or assets (including cash), the number of Warrant Shares into which
each Warrant is exercisable after such date of distribution shall be adjusted to
equal the product obtained by multiplying the number of Warrant Shares
purchasable upon an exercise of each Warrant immediately prior to such date by a
fraction, the numerator of which shall be the Stipulated Equity Value
immediately prior to such distribution, and the denominator of which shall be
the Stipulated Equity Value immediately prior to such distribution less the fair
market value as determined by a Qualified Appraiser reasonably acceptable to the
Majority Warrant Holders (the cost of the engagement of said investment banking
firm to be borne by the Company) of the portion of the assets or evidences of
indebtedness so to be distributed applicable to one share of Common Stock. Such
adjustment shall be made successively whenever a date for such distribution is
fixed (which date of distribution shall be the record date for such issuance if
a record date therefor is
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fixed); and, if such distribution is not so made, the number of Warrant Shares
into which each Warrant is exercisable shall again be adjusted to be such number
of Warrant Shares which would then be in effect if the date of such distribution
had not been fixed.
(d) No adjustment in the number of Warrant Shares purchasable
upon an exercise of each Warrant shall be required unless such adjustment would
require an increase or decrease of at least one-tenth of one percent (.1%) in
such number of Warrant Shares; provided that any adjustments which by reason of
this Section 9.3(d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 9.3 shall be made to the nearest hundredth of one percent.
(e) The Warrant Exercise Price in effect immediately prior to
any adjustment of the number of Warrant Shares into which each Warrant is
exercisable shall be simultaneously adjusted (but not below the par value of the
Common Stock) by multiplying the Warrant Exercise Price immediately prior to
such adjustment by a fraction, the numerator of which shall be the number of
Warrant Shares into which each Warrant is exercisable immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
into which each Warrant is exercisable immediately after such adjustment.
(f) In the event of any capital reorganization of the Company,
or of any reclassification of any Common Stock for which any Warrant is
exercisable (other than a subdivision or combination of outstanding shares of
such Common Stock), or in case of the consolidation of the Company with or the
merger of the Company with or into any other corporation or of the sale of the
properties and assets of the Company as, or substantially as, an entirety to any
other Person, each Warrant shall after such capital reorganization,
reclassification of such Common Stock, consolidation, merger or sale be
exercisable, upon the terms and conditions specified in this Agreement, for the
number of shares of stock or other securities or assets to which a holder of the
number of Warrant Shares purchasable (at the time of such capital
reorganization, reclassification of such Common Stock, consolidation, merger or
sale) upon exercise of such Warrant would have been entitled upon such capital
reorganization, reclassification of such Common Stock, consolidation, merger or
sale; and in any such case, if necessary, the provisions set forth in this
Section 9 with respect to the rights thereafter of such Warrant shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock or other securities or assets thereafter deliverable on
the exercise of such Warrants. The Company shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with 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 appropriate corporation or entity shall assume, by written
instrument, the obligation to deliver to each Warrant Holder the shares of
stock, securities or assets to which, in accordance with the foregoing
provisions, such Warrant Holder may be entitled pursuant to this Section 9.4(f).
(g) If any question shall at any time arise with respect to
the adjusted number of Warrant Shares, such question shall be determined by the
independent firm of certified public accountants of recognized national standing
selected by the Company and approved by the Majority Warrant Holders.
(h) Notwithstanding anything in this Section 9.3 to the
contrary, the Company shall not be permitted to take any action described in
this Section 9.3 (such as, but not by way of limitation, any
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dividend, consolidation merger or reorganization) if such action is prohibited
under any other provision of this Agreement, including, without limitation, any
provision of Article VII hereof.
(i) As used in this Section 9.3, "Stipulated Equity Value"
initially means the greater of (i) $5.00 per share (the "Fixed Price Equity
Value") or (ii) the Market Value at the date of the event triggering the
adjustment provisions of this Section 9.3; provided, that (A) after giving
effect to any event described in Section 9.3(a) or (b) hereof, the Fixed Price
Equity Value shall be adjusted to an amount equal to the quotient obtained by
dividing (1) the product of the number of outstanding shares of Common Stock of
the Company on a Fully Diluted Basis immediately prior to the occurrence of such
event times the Fixed Price Equity Value immediately prior to the occurrence of
such event, by (2) the number of outstanding shares of Common Stock of the
Company on a Fully Diluted Basis immediately after giving effect to such event,
and (B) after giving effect to any event described in Section 9.3(c) hereof, the
Fixed Price Equity Value shall be adjusted to an amount equal to the quotient
obtained by dividing (1) the remainder of (a) the product of the number of
outstanding shares of Common Stock of the Company on a Fully Diluted Basis times
the Fixed Price Equity Value immediately prior to the occurrence of such event,
minus (b) the fair market value of the aggregate evidence of the Company's
indebtedness and assets distributed to the holders of Common Stock, by (2) the
number of outstanding shares of Common Stock of the Company on a Fully Diluted
Basis.
SECTION 9.4. Notices to Warrant Holders. Upon any adjustment of the
Warrant Exercise Price of any Warrant pursuant to Section 9.4, the Company shall
promptly, but in any event within thirty (30) days thereafter, cause to be given
to each Warrant Holder, at its address appearing on the Warrant Register, by
first class mail, postage prepaid, a certificate signed by the Company's
Financial Officer setting forth the Warrant Exercise Price as so adjusted and
the number of Warrant Shares issuable upon the exercise of each Warrant as so
adjusted and describing in reasonable detail the facts accounting for such
adjustment and the method of calculation used. Where appropriate, such
certificate may be given in advance and included as part of the notice required
to be mailed under the other provisions of this Section 9.4.
In the event:
(a) that the Company shall authorize the issuance to all
holders of its Common Stock of rights or warrants to subscribe for or purchase
capital stock of the Company or of any other subscription rights or warrants; or
(b) that the Company shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or assets; or
(c) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any capital reorganization or
reclassification or change of the Common Stock (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 subdivision or combination); or
(d) of the voluntary dissolution, liquidation or winding up of
the Company; or
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(e) that the Company proposes to take any other action which
would require an adjustment of the Warrant Exercise Price of the Warrants issued
by it pursuant to Section 9.3;
then the Company shall cause to be given to each Warrant Holder at such Warrant
Holder's address appearing on the Warrant Register, at least twenty (20) days
prior to the applicable record date hereinafter specified, by first class mail,
postage prepaid, a written notice stating (i) the date as of which the holders
of record of Common Stock to be entitled to receive any such rights, warrants or
distribution are to be determined, or (ii) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up.
SECTION 9.5. Put Rights. (a) At any time on or after October 8, 2003,
until the earlier of the completion of a Qualified Public Offering or the
Warrant Expiration Date, any Warrant Holder ("Exercising Warrant Holder") may,
by written notice of such intent to the Company (the "Put Notice"), require the
Company to purchase all of the Exercising Warrant Holder's Warrants and Warrant
Shares at the Put Price determined as of the date of the Put Notice. The Put
Notice shall set forth a date (which shall be not less than sixty (60) days, nor
more than ninety (90) days after the date of the Put Notice and which shall be a
Business Day) (the "Put Closing Date") for the purchase and sale of the
Exercising Warrant Holders Warrants and Warrant Shares. On the Put Closing Date,
the Exercising Warrant Holder shall deliver the certificates evidencing the
Warrants and Warrant Shares held by the Exercising Warrant Holder to the Company
duly endorsed, free and clear of all Liens (other than any arising under this
Agreement, the Shareholders Agreement or under applicable Securities Laws), and
the Company shall pay to the Exercising Warrant Holder, in cash, an amount equal
the sum of (i) the Put Price multiplied by the number of Warrant Shares held by
the Exercising Warrant Holder, plus (ii) (A) the Put Price multiplied by the
number of Warrant Shares which would be purchased upon an exercise of all
unexercised Warrants held by the Exercising Warrant Holder, less (B) the
aggregate Warrant Exercise Price which would be required to be paid by the
Exercising Warrant Holder to exercise all unexercised Warrants held by the
Exercising Warrant Holder. The amount payable by the Company to the Exercising
Warrant Holder upon exercise of the Put shall be paid by certified or cashier's
check, by wire transfer or other immediately available funds. In the event the
Put Notice is delivered prior to the Warrant Expiration Date, the Put shall
remain enforceable notwithstanding that the Warrant Expiration Date may occur
prior to the Put Closing Date. The failure of the Exercising Warrant Holder to
deliver the certificates evidencing the Warrants and/or Warrant Shares held by
the Exercising Warrant Holder to the Company shall not limit or impair the right
of Exercising Warrant Holder to receive the consideration to be paid to the
Exercising Warrant Holder upon exercise of the Put. However, the Company may
withhold payment of such consideration pending receipt from the Exercising
Warrant Holder of such certificates or evidence that such certificates have been
mutilated, lost, stolen or destroyed as contemplated by Section 9.9 hereof.
Pending delivery of such certificate(s) (or other evidence), the consideration
to be paid to the Exercising Warrant Holder shall be held in trust by the
Company for the Exercising Warrant Holder and shall be set aside in a separate
account for the benefit of the Exercising Warrant Holder, segregated from the
other assets of the Company.
(b) If the Company is unable to purchase all Warrants and
Warrant Shares of the
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Exercising Warrant Holder on the Put Closing Date due to state law restrictions,
the Company shall purchase all Warrants and Warrant Shares which it is then
permitted to purchase without violating such state law restrictions (on a pro
rata basis from each Exercising Warrant Holder), and the Company shall purchase
the remaining Warrants and Warrant Shares as soon thereafter as possible without
violating such state law restrictions; provided, that in the event the purchase
of such remaining securities is postponed for more than ninety (90) days
following the original Put Closing Date, the Exercising Warrant Holder shall
have the right to have the Put Price redetermined as of such date and may elect
to have the Put Price be the higher of the original Put Price or the Put Price
determined at such later date.
SECTION 9.6. Reservation and Issuance of Warrant Shares. (a) The
Company will at all times have authorized, and reserve and keep available, free
from preemptive rights, for the purpose of enabling it to satisfy any obligation
to issue Warrant Shares upon the exercise of the Warrants, the number of shares
of Common Stock deliverable upon exercise of all outstanding Warrants.
(b) Before taking any action which would cause an adjustment
pursuant to Section 9.3 hereof reducing the Warrant Exercise Price below the
then par value (if any) of the Warrant Shares the Company will take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Warrant
Exercise Price as so adjusted.
(c) The Company covenants that all Warrant Shares issued by it
will, upon issuance in accordance with the terms of this Agreement, be fully
paid and nonassessable and free from all Taxes with respect to the issuance
thereof and free from all liens.
SECTION 9.7. Restrictions on Transfer. Stratford understands and agrees
that the Warrants and Warrant Shares have not been registered under the
Securities Act, and that accordingly, they will not be fully transferable except
as permitted under various exemptions contained in the Securities Act, or upon
satisfaction of the registration and prospectus delivery requirements of the
Securities Act. Stratford acknowledges that it must bear the economic risk of
its investment in the Warrants and Warrant Shares for an indefinite period of
time (subject, however, to the Company's obligations with respect to the Put and
the Company's obligation to register the Registrable Securities pursuant to
Article X hereof) since they have not been registered under the Securities Act
and therefore cannot be sold unless they are subsequently registered or an
exemption from registration is available. Absent an effective notification under
Regulation A or a registration statement under the Securities Act covering the
disposition of the Warrants and Warrant Shares, Stratford will not sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any or all of the
Warrants or Warrant Shares without first providing the Company with an opinion
of counsel to the effect that such sale, transfer, assignment, pledge,
hypothecation or other disposition will be exempt from the registration and
prospectus delivery requirements of the Securities Act and the registration or
qualification requirements of any applicable state securities laws.
SECTION 9.8. Registration, Transfer and Exchange of Certificates. (a)
The Company shall maintain at the offices of Company as set forth on the
signature pages of this Agreement, the Warrant Register for registration of the
Warrants and Warrant Certificates and transfers thereof. On the Closing Date,
the Company shall register the outstanding Warrants and Warrant Certificates in
the name of Stratford. The Company may deem and treat the registered Warrant
Holder(s) as the absolute owner(s) of the Warrants registered to such holders
and (notwithstanding any notation of ownership or other writing on
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the Warrant Certificates made by any person) for the purpose of any exercise
thereof or any distribution to the Warrant Holder(s), and for all other
purposes.
(b) Upon satisfaction of each condition set forth in Section
9.7 hereof, the Company shall register the transfer of any outstanding Warrants
in the Warrant Register upon surrender of the Warrant Certificate(s) evidencing
such Warrants to the Company at the offices of Company as set forth on the
signature pages of this Agreement, accompanied (if so required by it) by a
written instrument or instruments of transfer in form satisfactory to it, duly
executed by the registered Warrant Holder of by the duly appointed legal
representative thereof. Upon any such registration of transfer, new Warrant
Certificate(s) evidencing such transferred Warrants shall be issued to the
transferee(s) and the surrendered Warrant Certificate(s) shall be cancelled. If
less than all the Warrants evidenced by a Warrant Certificate(s) surrendered for
transfer are to be transferred, a new Warrant Certificate(s) shall be issued to
the Warrant Holder surrendering such Warrant Certificate(s) evidencing such
remaining number of Warrants.
(c) Warrant Certificates may be exchanged at the option of the
Warrant Holder(s) thereof, when surrendered to the Company at the offices of
Company as set forth on the signature pages of this Agreement, for another
Warrant Certificate or other Warrant Certificates of like tenor and representing
in the aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be cancelled.
(d) No charge shall be made for any such transfer or exchange
except for any tax or other governmental charge imposed in connection therewith.
SECTION 9.9. Mutilated or Missing Warrant Certificates. If any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor and
representing an equivalent number of Warrants, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of such Warrant
Certificate and, if requested, indemnity satisfactory to it. No service charge
shall be made for any such substitution, but all expenses and reasonable charges
associated with procuring such indemnity and all stamp, tax and other
governmental duties that may be imposed in relation thereto shall be borne by
the holder of such Warrant Certificate.
ARTICLE X
REGISTRATION RIGHTS
SECTION 10.1. Demand Registration. (a) Subject to the limitations
provided herein, at any time after the effective date of the Company's first
registration statement under the Securities Act, upon the written request
(specifying that it is being made pursuant to this Section 10.1) of one or more
Holders of Restricted Securities representing 51% or more of the Restricted
Securities at the time outstanding, requesting that the Company effect the
registration under the Securities Act of all or part of such Holders'
Registrable Securities, and specifying (x) the intended method of disposition
thereof, (y) whether or not
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such requested registration is to be an underwritten offering, and (z) the price
range (net of underwriting discount and commissions) acceptable to such Holder
or Holders to be received for such Registrable Securities, the Company will
within ten (10) business days after the Company receives such written request
give written notice of such requested registration to all other Holders of
Registrable Securities and thereupon the Company will use reasonable efforts to
effect an effective registration under the Securities Act of:
(i) the Registrable Securities which the Company has been
so requested to register by such Holders; and
(ii) all other Registrable Securities which the Company
has been requested to register by the other Holders thereof by written request
given to the Company within 30 days after the giving of such written notice by
the Company (which request shall specify the same information called for by the
original request to effect registration described above), all to the extent
requisite to permit the disposition (in accordance with Section 10.1(b) hereof)
of the Registrable Securities so to be registered.
If the Company is required to effect a registration pursuant to this Section
10.1 and the Company furnishes to the Holders of Registrable Securities
requesting such registration a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company it would be seriously detrimental to the Company and its shareholders
for such registration statement to be filed on or before the date such filing
would otherwise be required hereunder and it is therefore necessary to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than ninety (90) days after receipt of the
request for such registration from the Holder or Holders of Registrable
Securities requesting such registration; provided that during such time the
Company may not file a registration statement for securities to be issued and
sold for its own account or that of anyone other than the Holder or Holders of
Registrable Securities requesting such registration.
(b) The Holders of a majority of the Registrable Securities to
be included in such registration statement shall determine the method of
distribution of the Registrable Securities so included; provided, however, that
if no agreement of Holders of a majority of the Registrable Securities to be
included in such registration statement is obtained, then if Holders of thirty
percent (30%) of the Registrable Securities to be included in such registration
statement request an underwritten public offering, an underwritten public
offering shall be the method of distribution with other methods permitted to the
extent the managing underwriter for such offering, in its sole discretion,
agrees to other methods of distribution being covered by such registration
statement.
(c) Whenever the Company shall effect a registration pursuant
to this Section 10.1 in connection with an underwritten offering, no securities
other than Registrable Securities shall be included among the securities covered
by such registration unless (i) the managing underwriter of such offering shall
have advised each Holder of Registrable Securities to be covered by such
registration in writing that the inclusion of such other securities would not
adversely affect such offering or (ii) the Holders of a majority or more of all
Registrable Securities to be covered by such registration shall have consented
in writing to the inclusion of such other securities.
(d) Registrations under this Section 10.1 shall be on such
appropriate registration
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form of the Commission (i) as shall be selected by the Company and as shall be
reasonably acceptable to the Holders of a majority or more of the Registrable
Securities to be registered, and (ii) as shall permit the disposition of such
Registrable Securities in accordance with the method or methods of disposition
selected pursuant to Section 10.1(b).
(e) Except as otherwise provided in this Section 10.1 or in
Section 10.2, all expenses incurred in connection with an effective registration
pursuant to Section 10.1 and each registration pursuant to Section 10.2
(excluding in each case underwriter's discounts and commissions applicable to
Registrable Securities), including, without limitation, in each case, all
registration, filing and National Association of Securities Dealer fees; all
fees and expenses of complying with securities or blue sky laws; all word
processing, duplicating and printing expenses, messenger, delivery and shipping
expenses; fees and disbursements of the accountants and counsel for the Company
including the expenses of any special audits or "cold comfort" letters or
opinions required by or incident to such registrations; and the reasonable fees
and disbursements of one firm of counsel retained by the Holders of such
Registrable Securities, premiums and other costs of policies of insurance
against liabilities arising out of the public offering of the Registrable
Securities, any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding underwriting discounts and
commissions, if any, shall be borne by the Company. In all cases, each Holder of
Registrable Securities shall pay the underwriter's discounts and commissions
applicable to the securities sold by such Holder.
(f) A registration requested pursuant to this Section 10.1
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective (unless a substantial cause of the
failure of such registration statement to become effective shall be attributable
to one or more Holders of Registrable Securities whose Restricted Securities
were to have been included in such registration statement), (ii) if after it has
become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason, resulting in a failure to consummate the
offering of Registrable Securities offered thereby, (iii) if after a
registration statement with respect thereto has become effective, the offering
of Registrable Securities offered thereby is not consummated due to factors
beyond the control of the Holders of such Registrable Securities, including
without limitation in the context of a proposed firm commitment underwriting,
the fact that the underwriters have advised the Holders of such Registrable
Securities that such Registrable Securities cannot be sold at a net price equal
to or above the net price anticipated at the time of filing of the preliminary
prospectus or (iv) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied (unless a substantial cause of such conditions to
closing not being satisfied shall be attributable to one or more Holders of
Registrable Securities whose Registrable Securities were included in such
registration statement).
(g) If a requested registration pursuant to this Section 10.1
involves an underwritten offering, the underwriter or underwriters thereof shall
be selected by the Company with the approval of the Holders of a majority or
more of the Registrable Securities to be so registered.
(h) If a requested registration pursuant to this Section 10.1
involves an underwritten offering, and the managing underwriter shall advise the
Company in writing (with a copy to each Person requesting registration) that, in
its opinion, the number of securities requested to be included in such
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registration exceeds the number which can be sold in such offering within a
price range acceptable to the Holders of a majority or more of the Registrable
Securities requested to be included in such registration, then the Registrable
Securities requested to be registered pursuant to this Section 10.1 shall be
reduced to the number of Registrable Securities which the Company is so advised
can be sold in (or during the time of) such offering by first decreasing any
securities to be registered on behalf of any other Person other than the Holder
requesting such registration and second, but only if the number of securities to
be registered by all such other Persons shall have been reduced to zero, by
decreasing the Other Securities requested to be registered (pro rata among the
Persons requesting such registration on the basis of the percentage of Other
Securities held by such Person immediately prior to the filing of the
registration statement with respect to such registration) and then, to the
extent necessary, by decreasing the Registrable Securities (other than the Other
Securities) requested to be registered (pro rata among the Persons requesting
such registration on the basis of the percentage of Registrable Securities
(other than Other Securities) held by such Person immediately prior to the
filing of the registration statement with respect to such registration). In
connection with any registration as to which the provisions of this clause (h)
apply, no securities other than Registrable Securities shall be covered by such
registration.
(i) Notwithstanding the other provisions of this Section 10.1,
the Company shall not be required by this Section 10.1 to effect more than one
effective registration statement; provided, however, the Company shall be
required by this Section 10.1 to effect, at the sole expense of the holders of
Registrable Securities requesting registration (unless such registration is a
demand registration exercised pursuant to the other provisions of this Section
10.1 in which case the Company will bear the expenses of such registration in
accordance with Section 10.1(e)), an unlimited number of registrations on Form
S-3 (or any successor similar form), provided that the Registrable Securities to
be registered thereon are expected to have an aggregate disposition price
(before deductions for underwriting discounts and commissions) of at least
$500,000.
SECTION 10.2. Piggyback Registration. (a) If the Company at any time
proposes to register any of its securities under the Securities Act (other than
by a registration on Form S-8, S-4 or any successor similar forms or any other
form not available for registering the Registrable Securities) for sale to the
public and other than pursuant to Section 10.1, whether or not for sale for its
own account, it will each such time, at least 30 days prior to filing the
registration statement, give written notice to all Holders of Registrable
Securities of its intention to do so. Upon the written request of any such
Holder made within 15 days after the receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Holder and the intended method of disposition thereof), the Company will use
reasonable efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the Holders of such Registrable Securities, to the extent requisite to permit
the disposition (determined pursuant to the provisions of Section 10.1(b) of the
Registrable Securities so to be registered, provided that if, at any time after
giving written notice of its intention to register any securities 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 Securities
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay expenses in
accordance with Section 10.1(e)), without prejudice, however, to the rights of
any Holder or Holders of Registrable Securities entitled to do so to request
that
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such registration be effected as a registration under Section 10.1, and (ii) in
the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities being registered pursuant to this
Section 10.2, for the same period as the delay in registering such other
securities. No registration effected under this Section 10.2 shall relieve the
Company of its obligation to effect any registration upon request under Section
10.1.
(b) If (i) a registration pursuant to this Section 10.2
involves an underwritten offering of the securities so being registered, whether
or not for sale for the account of the Company, to be distributed (on a firm
commitment basis) by or through one or more underwriters of recognized standing,
whether or not the Registrable Securities so requested to be registered for sale
for the account of Holders of Registrable Securities are also to be included in
such underwritten offering, and (ii) the managing underwriter of such
underwritten offering shall inform the Company and the Holders of the
Registrable Securities requesting such registration by letter of its belief that
the number of securities requested to be included in such registration exceeds
the number which can be sold in (or during the time of) such offering, then the
Company will include in such offering, first, all securities proposed by the
Company to be sold for its own account, second, all securities of the Company
owned by the Senior Lender or The Robinson-Humphrey Company, Inc. ("RH"), but
only to the extent that registration is requested hereunder in connection with a
registration required because of an exercise of demand registration rights under
Section 14.1 of the Warrant Agreement dated as of the date hereof between the
Company and the Senior Lender or under Section 3.1 of the Registration and
Anti-Dilution Rights Agreement dated as of the date hereof between the Company
and RH, third, the number of Registrable Securities and other securities of the
Company requested hereunder to be included in such registration by decreasing
the number of Registrable Securities and securities of the Company owned by the
Senior Lender and RH requested to be included in such registration (pro rata on
the basis of the number of shares of such securities held by such Person
immediately prior to the filing of the registration statement with respect to
such registration) to the extent in the registration to the level recommended by
the managing underwriter and fourth, all other securities of the Company
requested to be included in such registration.
SECTION 10.3. Registration Procedures. If and whenever the Company is
required to use reasonable efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 10.1 and 10.2, the
Company will, subject to the limitations provided herein, as expeditiously as
possible:
(a) 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 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 reasonable
efforts to cause such registration statement to become effective, provided that
the Company may discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances specified in Section
10.1(f)(iii) its securities which are Registrable Securities) at any time prior
to the effective date of the registration statement relating thereto;
(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
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registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement until 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; provided, however,
that the Company shall not in any event be required to keep the registration
statement effective for a period of more than nine months after such
registration statement becomes effective;
(c) furnish to each seller of Registrable Securities covered
by such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), 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 under
the Securities Act, and such other documents, as such seller may reasonably
request;
(d) use its reasonable best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of 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 (provided, however, that the Company shall not in any event be required
to keep such registration or qualification in effect for a period of more than
nine months after such registration or qualification becomes effective), 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 foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
subsection (d) be obligated to be so qualified or to consent to general service
of process in any such jurisdiction;
(e) use its reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other United States Federal or state governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities;
(f) furnish to each seller of Registrable Securities a copy,
or, upon request, a signed counterpart, addressed and the underwriters, if any,
of:
(i) an opinion of counsel for the Company, 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), and
(ii) 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 audited the
Company's financial statements included in such registration statement,
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
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such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the accountants'
letter, such other financial matters as the underwriters, if any, may reasonably
request;
(g) notify each seller of Registrable Securities 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,
prepare and furnish to such seller 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;
(h) otherwise use reasonable 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 earnings statement
covering the period of at least twelve months beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act, and will furnish to each such seller, upon request of such
seller, at least five 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 delivered to the Company an
opinion of counsel 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;
(i) provide and cause to be maintained a transfer agent for
all Registrable Securities covered by such registration statement from and after
a date not later than the effective date of such registration statement;
(j) use its reasonable best efforts to list all Registrable
Securities covered by such registration statement on any securities exchange on
which any of the Registrable Securities is then listed; and
(k) except with respect to registrations made pursuant to
Section 10.1(i), refrain from making any sale or distribution of any equity
securities of the Company, except pursuant to any employee stock option plan and
any preexisting agreement for the sale of such securities, for at least ninety
(90) days after the closing of the public offering pursuant to such
registration.
It shall be a condition precedent to the obligations of the Company to
take any action with respect to registering a Holder's Registrable Securities
pursuant to this Section 10.3 that such seller of Registrable Securities as to
which any registration is being effected furnish the Company in writing such
information regarding such seller, the Registrable Securities and other
securities of the Company held by such seller, and the distribution of such
securities as the Company may from time to time reasonably request in writing.
If a Holder refuses to provide the Company with any of such information on the
grounds that it is not
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necessary to include such information in the registration statement, the Company
may exclude such Holder's Registrable Securities from the registration statement
if the Company provides such Holder with an opinion of counsel to the effect
that such information must be included in the registration statement and such
Holder thereafter continues to withhold such information. The deletion of such
Holder's Registrable Securities from a registration statement shall not affect
the registration of the other Registrable Securities to be included in such
registration statement.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 10.3(g), such Holder
will forthwith discontinue such Holder's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 10.3(g) 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 Securities current at the time of receipt of such
notice.
SECTION 10.4. Underwritten Offerings. (a) If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant to
a registration requested under Section 10.1 except Section 10.1(i), the Company
will enter into an underwriting agreement with such underwriters for such
offering, such agreement to be reasonably satisfactory in substance and form to
each Holder of Registrable Securities being registered, the Company and the
underwriters and to contain such representations and warranties by the Company
and each such Holder 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 10.6. Each such Holder of
Registrable Securities will cooperate with the Company in the negotiation of the
underwriting agreement and will give consideration to the reasonable requests of
the Company regarding the form thereof, provided, that nothing herein contained
shall diminish the foregoing obligations of the Company. Any such Holder 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 Securities and other
securities of the Company, such Holder's intended method of distribution, and
any representations, warranties or agreements required by law.
(b) If the Company at any time proposes to register any of its
securities under the Securities Act as contemplated by Section 10.2 and such
securities are to be distributed by or through one or more underwriters, the
Company will, if requested by any Holder of Registrable Securities as provided
in Section 10.2 and subject to the provisions of Section 10.2(b), arrange for
such underwriters to include all the Registrable Securities to be offered and
sold by such Holder owning the securities to be distributed by such
underwriters. In such event, the Holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Company and such underwriters. Any such Holder 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 Securities or other securities of the
Company, such Holder's intended method of distribution and any representations,
warranties or agreements required by law.
SECTION 10.5. Preparation; Reasonable Investigation. In connection with
the preparation and
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filing of each registration statement under the Securities Act pursuant to this
Agreement, the Company will give the Holders of Registrable Securities
registered under such registration statement, their underwriters, if any, and
one counsel or firm of counsel representing all the Holders of Registrable
Securities to be registered under such registration statement, the opportunity
to participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each amendment
thereof or supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business of the Company
with its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of such Holders' and
such underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
SECTION 10.6. Indemnification. (a) In the event any Registrable
Securities are included in a registration statement under this Section 10, to
the extent permitted by law, the Company will, and hereby does, indemnify and
hold harmless the seller of any Registrable Securities 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
each 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
under 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 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 solely out of or is
based solely 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 expressly for use in the preparation thereof or the
failure of such seller to furnish such information, 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 Securities or any other Person, if any,
who controls such underwriter 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 or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities 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. The Company may require,
as a condition to
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including any Registrable Securities in any registration statement filed
pursuant to Section 10.3, that the Company shall have received an undertaking
satisfactory to it from the prospective seller of such securities, to indemnify
and hold harmless (in the same manner and to the same extent as set forth in
subdivision (a) of this Section 10.6) each underwriter, each Person who controls
such underwriter within the meaning of the Securities Act, 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 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 thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in strict conformity with written information furnished to
the Company by such seller expressly for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided that such prospective seller shall
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securities or any other Person, if any, who controls such
underwriter 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 or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities 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 any
underwriter, the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller. In no event shall
the liability of any selling holder of Registrable Securities under this Section
10.6(b) be greater in amount than the dollar amount of the proceeds received by
such holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(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
10.6, 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 10.6, 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 and indemnifying parties shall exist in respect of such
claim, the indemnifying parties 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. 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
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subdivisions of this Section 10.6 (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 Federal
or state law or regulation of any governmental authority other than the
Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 10.6 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.
(f) Contribution. If the indemnification provided for in this
Section 10.6 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue
statement of material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 10.6(c), any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 10.6(f) were 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 immediately preceding
paragraph. Notwithstanding the provisions of this Section 10.6(f), no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such underwriter has otherwise been required to pay by reason
on such untrue or alleged untrue statement or omission or alleged omission, and
no selling holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
selling holder were offered to the public exceeds the amount of any damages
which such selling holder has otherwise been required to pay by reason of such
untrue statement or omission. 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.
If indemnification is available under this Section 10.6, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Section 10.6(a) through Section 10.6(e) without regard to the
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 10.6(f).
SECTION 10.7. Reporting Requirements Under Securities Exchange Act of
1934. (a) When it is first legally required to do so, the Company shall register
its Common Stock under Section 12 of the
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Exchange Act (as hereinafter defined) and shall keep effective such registration
and shall timely file such information, documents and reports as the Commission
may require or prescribe under Section 13 of the Exchange Act. From and after
the effective date of the first registration statement filed by the Company
under the Securities Act, the Company shall (whether or not it shall then be
required to do so) timely file such information, documents and reports which a
corporation, partnership or other entity subject to Section 13 or 15(d)
(whichever is applicable) of the Exchange Act is required to file.
Immediately upon becoming subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange Act, the Company
shall forthwith upon request furnish any Holder of Registrable Securities (i) a
written statement by the Company that it has complied with such reporting
requirements, (ii) a copy or the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents filed by the Company with
the Commission as such Holder may reasonably request in availing itself of an
exemption for the sale of Registrable Securities without registration under the
Securities Act. The Company acknowledges and agrees that the purposes of the
requirements contained in this Section 10.7 are (i) to enable any such Holder to
comply with the current public information requirement contained in Paragraph
(c) of Rule 144 under the Securities Act should such Holder ever wish to dispose
of any of the securities of the Company acquired by it without registration
under the Securities Act in reliance upon Rule 144 (or any other similar
exemptive provision) and (ii) to qualify the Company for the use of registration
statements on Form S-3. In addition, the Company shall take such other measures
and file such other information, documents and reports, as shall hereafter be
required by the Commission as a condition to the availability of Rule 144 under
the Securities Act (or any similar exemptive provision hereafter in effect) and
the use of Form S-3. The Company also covenants to use its best efforts, to the
extent that it is reasonably within its power to do so, to qualify for the use
of Form S-3.
SECTION 10.8. Shareholder Information. The Company may require each
Holder of Registrable Securities as to which any registration is to be effected
pursuant to this Section 10 to furnish the Company such information in writing
with respect to such Holder and the distribution of such Registrable Securities
as the Company may from time to time reasonably request in writing and as shall
be required by law or by the Commission in connection therewith.
SECTION 10.9. Forms. All references in this Agreement to particular
forms of registration statements are intended to include, and shall be deemed to
include, references to all successor forms which are intended to replace, or to
apply to similar transactions as, the forms herein referenced.
ARTICLE XI
DEFAULTS
SECTION 11.1. Events of Default. If one or more of the following events
(collectively "Events of Default" and individually an "Event of Default") shall
have occurred and be continuing:
(a) the Company shall fail to pay when due any principal on
the Note or any amount payable upon an exercise of the Put;
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(b) the Company shall fail to pay when due any interest on the
Note or any fees or other amounts payable by the Company hereunder or under any
other Transaction Document (other then the amounts referenced in Section 11.1(a)
above) and such failure shall continue for five (5) days following the date
written notice of such failure is given by Stratford to the Company;
(c) the Company shall fail to observe or perform any covenant
or agreement contained in Article VII or Article VIII hereof;
(d) the Company shall fail to observe or perform any covenant
or agreement contained in this Agreement, or any other Transaction Documents
(other than those covenants referenced in Sections 11.1(a), (b) and (c)) and
such failure shall continue for a period of thirty (30) days following the
earlier of (i) the discovery of such failure by an Authorized Officer of the
Company, or (ii) the date notice of such failure is given by Stratford to the
Company; provided, that, such thirty (30) day period shall be extended for up to
thirty (30) additional days if (A) such failure is susceptible of being cured
within such additional period, and (B) the Company commences such cure within
the initial thirty (30) day period and diligently pursues such cure thereafter.
(e) any representation, warranty, certification or statement
made or deemed to have been made by the Company in this Agreement or any of the
other Transaction Documents or by the Company or any other Person on behalf of
the Company in any certificate, financial statement or other document delivered
pursuant to this Agreement or any of the other Transaction Documents, shall
prove to have been incorrect in any material respect when made;
(f) a default or event which, with the giving of notice, lapse
of time or both could (unless cured or waived) become a default, shall occur
under the terms of any Debt of the Company or any of its Subsidiaries having a
principal balance of $100,000 or more or having an aggregate principal balance
of $200,000 or more, including, without limitation, the occurrence of a default
or event of default under the Senior Loan Documents or any other condition or
event shall occur which, with the giving of notice, lapse of time or both
(unless cured or waived) will constitute a default or event of default
thereunder, other than a default or an event of default pursuant to Sections 6.2
through 6.8 of the Senior Loan Agreement;
(g) the Company or any of its Subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Company or any of its Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period
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of sixty (60) days; or an order for relief shall be entered against the Company
or any of its Subsidiaries under the federal bankruptcy laws as now or hereafter
in effect;
(i) any judgment or order for the payment of money in excess
of $250,000 or in the aggregate at any time in excess of $500,000 shall be
rendered against the Company or any of its Subsidiaries and such judgment or
order (i) shall continue unsatisfied and unstayed for a period of thirty (30)
days or (ii) is not fully paid and satisfied at least ten (10) days prior to the
date on which any of its assets may be lawfully sold to satisfy such judgment or
order;
(j) the failure at any time for any reason of R. Steven Bostic
to serve on a full-time basis as the chief executive officer of the Company and
its Subsidiaries; it being understood and acknowledged by the parties hereto
that an integral factor in the decision of Stratford to enter into this
Agreement is the perceived management skill and expertise of said Person;
(k) (i) R. Steven Bostic and/or any other Related Party or
Related Parties thereto shall fail or cease to own and control directly at least
75% of the issued and outstanding Voting Stock of the Company; provided,
however, that in the event of a Qualified Public Offering of Class A Common
Stock of the Company, such required percentage of ownership shall be reduced
from 75% to 30%; and/or (ii) the Company shall cease to own and control all of
the issued and outstanding Securities of Edutrek; and (iii) Edutrek shall cease
to own and control directly all of the issued and outstanding Securities of
American European, ACIL and Edutrek Systems, Inc., a Georgia corporation, and/or
(iv) American European shall cease to own and control at least 85% of the Voting
Stock of AEMEC; and
(l) the Company or any of its Subsidiaries shall fail to
maintain their respective accreditations by the Southern Association of Colleges
and Schools ("SACS"), including failure to satisfy the capital criteria in
accordance with the capital accreditation requirements of SACS;
then, so long as any such event is continuing, each Noteholder may without
presentment, notice or demand (unless expressly provided for herein or in the
other Transaction Documents) of any kind (including, without limitation, notice
of intention to accelerate and acceleration), all of which are hereby waived,
take all such actions as may be permitted by the Transaction Documents including
without limitation, declaring the Note (together with accrued interest thereon)
to be, and the Note shall thereupon become, immediately due and payable;
provided that in the case of any of the Events of Default specified in Section
11.1(g) or (h), without any notice to the Company or any other act by any
Noteholder, the Note (together with accrued interest thereon) shall become
immediately due and payable.
ARTICLE XII
SUBORDINATION
The Obligations shall be subordinate, junior and inferior in right of
payment and priority to the payment and priority of the Senior Obligations on
the terms and to the extent provided in the Senior Subordination Agreement.
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ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telex, telecopy
or similar writing) and shall be given to such party at its address, telex or
telecopy number set forth on the signature pages hereof or such other address,
telex or telecopy number as such party may hereafter specify for the purpose by
notice to the other party. Each such notice, request or other communication
shall be effective (i) if given by telex or telecopy, when such telex or
telecopy is transmitted to the telex or telecopy number specified in this
Section 13.1 and the appropriate answer back is received or receipt is otherwise
confirmed, (ii) if given by mail, one (1) Business Day after deposit in the
mails with first class postage prepaid, addressed as aforesaid or (iii) if given
by any other means, when delivered at the address specified in this Section
13.1.
SECTION 13.2. No Waivers. No failure or delay by Stratford in
exercising any right, power or privilege hereunder or under any Note or other
Transaction Document shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law or in any of the other Transaction Documents.
SECTION 13.3. Expenses; Indemnification. (a) The Company shall pay on
demand (i) all out-of-pocket expenses reasonably incurred by Stratford,
including reasonable fees and disbursements of counsel for Stratford, in
connection with (A) Stratford's due diligence investigation and analysis of the
Company and the transactions contemplated hereby and by the Ancillary Documents,
(B) the preparation and negotiation of this Agreement and the other Transaction
Documents and the closing of the transactions contemplated hereby and thereby,
and (C) any waiver or consent which may be granted in connection herewith, or
any amendment hereof or of any other Transaction Document; and (ii) if an Event
of Default occurs, all out-of-pocket expenses incurred by Stratford, including
(A) reasonable fees and disbursements of counsel to Stratford in connection with
such Event of Default and collection and other enforcement proceedings resulting
therefrom, and (B) reasonable fees of auditors and consultants incurred by
Stratford in connection therewith; provided, that, the Company will not be
required to pay fees and expenses of counsel to Stratford incurred by Stratford
in the prosecution or defense of any litigation arising under or pursuant to the
Transaction Documents or any transactions contemplated hereby or thereby unless
Stratford is the prevailing party in such litigation. All costs and expenses
incurred by Stratford and to be paid by the Company hereunder shall bear
interest from and after the date due at the Maximum Lawful Rate from the date
such costs and expenses are incurred until the date such costs and expenses are
paid to Stratford by the Company.
(b) The Company agrees to indemnify Stratford and hold
Stratford 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 counsel for Stratford in connection with any
investigative, administrative or judicial proceeding, whether or not Stratford
shall be designated a party thereto) which may be incurred by Stratford relating
to or arising out of (a) this Agreement and any of the other Transaction
Documents or any transactions contemplated hereby or thereby, (b) any actual or
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proposed use of proceeds of the Loan hereunder; (c) any collateral for the Loan,
including without limitation, any liability, loss, damage, cost or expense
incurred by Stratford with respect to, or resulting from (i) any delay in the
payment of any and all sales, excise or other Taxes which may be payable or
determined to be payable with respect to such collateral, or (ii) with respect
to, or resulting from, any failure to comply with any or all laws, rules or
regulations applicable to the Company, or any collateral which may hereafter be
granted for the Loan, provided that Stratford shall not have the right to be
indemnified hereunder for its own gross negligence or willful misconduct, IT
BEING THE INTENTION HEREBY THAT STRATFORD SHALL BE INDEMNIFIED FOR THE
CONSEQUENCES OF ITS OWN NEGLIGENCE. THE INDEMNITY CONTAINED IN THIS SECTION
13.3(B) IS IN ADDITION TO THE INDEMNITY CONTAINED IN SECTION 10.6.
SECTION 13.4. Modification of Agreement; Sale of Interest. Any
provision of this Agreement, the Notes or other Transaction Documents may be
amended or waived if, but only if such amendment or waiver is in writing and is
signed by the Majority Holder; provided that no such amendment or waiver shall,
unless signed by all Noteholders (at any time that the Loan remains outstanding
in whole or in part or Majority Warrant Holders if the Loan is no longer
outstanding), (a) forgive any of the principal of or reduce the rate of interest
on the Loan or any fees provided for hereunder, (b) postpone the dates fixed for
payment of principal or interest on the Loan or any fees payable hereunder,
including the maturity date of the Loan or (c) permit the Company to assign any
of its rights or obligations hereunder. The Company hereby consents to any
participation, sale, assignment, transfer or other disposition which complies
with applicable state and federal securities laws, at any time or times
hereafter, of this Agreement and any of the other Transaction Documents, or of
any portion hereof or thereof, including, without limitation, Stratford's
rights, title, interests, remedies, powers, and duties hereunder or thereunder.
SECTION 13.5. Survival. All representations, warranties and covenants
made by the Company herein or in any certificate or other instrument delivered
by it or in its behalf under the Transaction Documents shall be considered to
have been relied upon by Stratford and shall survive the delivery to Stratford
of such Transaction Documents or the extension of the Loan (or any part
thereof), regardless of any investigation made by or on behalf of Stratford.
SECTION 13.6. Limitation on Interest. Regardless of any provision
contained in the Transaction Documents, Stratford shall never be entitled to
receive, collect, or apply, as interest on the Loan, any amount in excess of the
Maximum Lawful Rate, and in the event Stratford ever receives, collects or
applies as interest any such excess, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and if the Loan is paid in full, any remaining excess shall promptly be
paid to the Company. In determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Lawful Rate, the Company and
Stratford shall, to the extent permitted under applicable law, (a) characterize
any nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effects thereof and (c) amortize,
prorate, allocate and spread, in equal parts, the total amount of the interest
throughout the entire contemplated term of the Notes, so that the interest rate
is the Maximum Lawful Rate throughout the entire term of the Notes; provided,
however, that if the unpaid principal balance thereof is paid and performed in
full prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Lawful
Rate, Stratford shall refund to the Company the amount of such excess and, in
such event, Stratford shall not be subject to any penalties
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provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of the Maximum Lawful Rate.
SECTION 13.7. Fair Market Value of Note and Warrants. The Company and
Stratford hereby agree that for purposes of IRC Treasury Regulations Section
1.1273-2(h), (a) the "issue price" of the investment unit consisting of the Note
and the Warrants is $7,000,000, (b) the fair market value of the Note is
$6,900,000 and (c) the fair market value of the Warrants is $100,000. The
Company and Stratford agree to use the foregoing issue price and fair market
values for U.S. federal tax purposes with respect to the transactions
contemplated by this Agreement (unless otherwise required by a final
determination by the Internal Revenue Service or a court of competent
jurisdiction or applicable law).
SECTION 13.8. Invalid Provisions. If any provision of the Transaction
Documents is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term thereof, such provision shall be fully
severable, the Transaction Documents shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part thereof,
and the remaining provisions thereof shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance therefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of the
Transaction Documents a provision as similar in terms to such illegal, invalid,
or unenforceable provision as may be possible and be legal, valid and
enforceable.
SECTION 13.9. Successors and Assigns. (a) This Agreement and each
Transaction Document binds and inures to the parties to it, any intended
beneficiary of it, and each of their respective successors and permitted
assigns. The Company shall not assign or transfer any rights or obligations
under this Agreement or any Transaction Document without first obtaining all
Noteholders' and Warrant Holders' consent, and any purported assignment or
transfer without all Noteholders' and Warrant Holders' consent is void. No
Noteholder may transfer, pledge, assign, sell any participation in, or otherwise
encumber the Note held by it or any amounts payable in respect of the Loan
except as permitted by clauses (b) or (c) below.
(b) Any Noteholder may (subject to the provisions of this
section, in accordance with applicable law, in the ordinary course of its
business, and at any time) sell to one or more Persons (each a "Participant")
participating interests in its Note or amounts payable to it in respect of the
Loan. The selling Noteholder remains a "Noteholder" under the Transaction
Documents, the Participant does not become a "Noteholder" under this Agreement
and the Transaction Documents, and the selling Noteholder's obligations under
this Agreement and the Transaction Documents remain unchanged. The selling
Noteholder remains solely responsible for the performance of its obligations and
remains the holder of its share of the outstanding Loan for all purposes under
this Agreement and the Transaction Documents. The Company shall continue to deal
solely and directly with the selling Noteholder in connection with that
Noteholder's rights and obligations under this Agreement and the Transaction
Documents, and each Noteholder must retain the sole right and responsibility to
enforce due obligations of the Company. Participants have no rights under this
Agreement and the Transaction Documents except certain voting rights as provided
below. No Noteholder may sell any participating interest under which the
Participant has any rights to approve any amendment, modification, or waiver of
this Agreement or any Transaction Document except as to matters requiring the
approval of all Noteholders as set forth in Section 13.4 hereof.
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(c) Each Noteholder may also assign to one or more assignees
(each an "Assignee") all or any part of its Note and amounts payable to it in
respect of the Loan and all related rights and obligations under this Agreement
and the Transaction Documents so long as (i) the assignor Noteholder and
Assignee execute and deliver to the Company an assignment and assumption
agreement in substantially the form of Exhibit D (an "Assignment and Assumption
Agreement"); and (i) the conditions for that assignment set forth in the
applicable Assignment and Assumption Agreement are satisfied. From and after the
Effective Date stated in the Assignment and Assumption Agreement (i) the
Assignee automatically becomes a party to this Agreement and, to the extent
provided in that Assignment and Assumption Agreement, has the rights and
obligations of a Noteholder under this Agreement and the Transaction Documents;
(ii) the Company shall execute and deliver to the assignor Noteholder and the
transfer, and (iii) upon delivery of the Notes under clause (ii) preceding, the
assignor Noteholder shall return to the Company all Notes previously delivered
to that Noteholder under this Agreement.
(d) Notwithstanding anything else contained in this Section
13.09, unless and until an Event of Default shall have occurred, (a) no
Noteholder shall effect any assignment of any interest in its Note or the
principal of the Loan in an amount less than $500,000, and (b) Stratford and
Stratford Affiliates shall at all times hold at least 5/7th's of the outstanding
principal amount of the Loan.
SECTION 13.10. Governing Law. (A) THIS AGREEMENT, THE NOTE, AND THE
OTHER TRANSACTION DOCUMENTS HAVE BEEN DRAFTED SUBSTANTIALLY IN THE STATE OF
TEXAS. THE EMPLOYEES OF STRATFORD WITH PRIMARY RESPONSIBILITY FOR UNDERWRITING
AND ADMINISTRATING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE EMPLOYED
AT STRATFORD'S OFFICE IN DALLAS, TEXAS. THE TERMS OF THIS AGREEMENT AND THE
OTHER TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY
HAVE BEEN NEGOTIATED IN SUBSTANTIAL PART IN THE STATE OF TEXAS. THE PRINCIPAL
PLACE OF BUSINESS OF THE COMPANY IS IN THE STATE OF GEORGIA. THIS DOCUMENT WAS
EXECUTED AND DELIVERED IN THE STATE OF GEORGIA. EXCEPT AS EXPRESSLY PROVIDED IN
CLAUSE (B) OF THIS SECTION 13.10, THIS AGREEMENT, THE NOTE AND THE OTHER
TRANSACTION DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA.
(B) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE
MAXIMUM LAWFUL RATE, AND ANY QUESTIONS OR ISSUE WITH RESPECT TO WHETHER
INTEREST, FEES AND OTHER CONSIDERATION CHARGED, CONTRACTED FOR OR RECEIVED BY
STRATFORD HEREUNDER OR UNDER ANY OF THE OTHER TRANSACTION DOCUMENTS EXCEEDS THE
MAXIMUM LAWFUL RATE SHALL BE GOVERNED BY THE LAWS, OTHER THAN THE CONFLICTS OF
LAWS THEREOF, OF THE STATE OF GEORGIA.
SECTION 13.11. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when Stratford shall have
received
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counterparts hereof signed by all of the parties hereto.
SECTION 13.12. No Third Party Beneficiaries. It is expressly intended
that there shall be no third party beneficiaries of the covenants, agreements,
representations or warranties herein contained other than transferees or
assignees of all or any part of Stratford's interest hereunder.
SECTION 13.13. FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SECTION 13.14. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES TRIAL BY
JURY IN ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.
SECTION 13.15. CONSENT TO JURISDICTION/VENUE. Any suit, action or
proceeding brought by Stratford with respect to this Agreement or any of the
other Transaction Documents may be brought in the courts of the State of Texas,
County of Dallas, or in the Federal courts located in the Northern District of
Texas, as Stratford may select in its sole discretion. The Company hereby
submits to the non-exclusive jurisdiction of such courts for the purpose of any
such suit, action or proceeding. The Company hereby irrevocably waives any
objections which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
other Transaction Document brought in the courts located in the State of Texas,
County of Dallas, and hereby waives any claim that any such suit, action or
proceeding brought in any such court has been brought in any inconvenient forum.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers on the day and year first
above written.
COMPANY:
E HOLDINGS, INC. Address for Notice:
One Buckhead Plaza
3060 Peachtree Road, N.W.
By: /s/ S. Bostic Suite 1420
------------------------------- Atlanta, Georgia 30305
R. Steven Bostic, Fax No. (404) 264-8949
Chief Executive Officer Attn: R. Steven Bostic
STRATFORD:
STRATFORD CAPITAL PARTNERS, L.P. Address for Notice:
By: Stratford Capital GP Associates, L.P.,
its General Partner Stratford Capital Partners, L.P.
200 Crescent Court, Suite 1600
By: Stratford Capital Corporation, Fax No. (214) 740-7340
its General Partner Attn: John Farmer
By: /s/ John Farmer
--------------------------------
John Farmer,
Managing Director
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EXHIBIT A
SUBORDINATE PROMISSORY NOTE
THE RIGHTS, TITLE AND INTERESTS OF ANY HOLDER OF THIS PROMISSORY NOTE ARE
SECONDARY, SUBORDINATE AND INFERIOR TO THE RIGHTS, TITLE AND INTERESTS OF THE
HOLDERS OF (A) THAT CERTAIN TERM NOTE IN THE STATED PRINCIPAL AMOUNT OF
$21,000,000 DATED OCTOBER 8, 1996, EXECUTED BY E HOLDINGS, INC., PAYABLE TO THE
ORDER OF NATIONSBANK, N.A. (SOUTH), (B) THAT CERTAIN LA TERM NOTE IN THE STATED
PRINCIPAL AMOUNT OF $500,000 DATED OCTOBER 8, 1996, EXECUTED BY E HOLDINGS,
INC., PAYABLE TO THE ORDER OF NATIONSBANK, N.A. (SOUTH), (C) THAT CERTAIN
REVOLVING NOTE IN THE STATED PRINCIPAL AMOUNT OF $2,500,000 DATED OCTOBER 8,
1996, EXECUTED BY E HOLDINGS, INC., PAYABLE TO THE ORDER OF NATIONSBANK, N.A.
(SOUTH), AND (D) THAT CERTAIN LETTER OF CREDIT FACILITY DATED OCTOBER 8, 1996,
BY AND BETWEEN E HOLDINGS, INC. AND NATIONSBANK, N.A. (SOUTH), AS EACH OF THE
FOREGOING MAY BE MODIFIED, AMENDED, RENEWED, EXTENDED, RESTATED OR REPLACED FROM
TIME TO TIME.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS NOTE
MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO A VALID EXEMPTION COVERING SUCH
TRANSFER.
$7,000,000.00 Dallas, Texas __________, 19__
FOR VALUE RECEIVED, the undersigned E Holdings, Inc. a Georgia
corporation ("Maker") hereby promises to pay to the order of
____________________________________________________ ("Payee"), not later than
2:00 P.M. (Dallas, Texas time), on the date when due, in Federal or other funds
immediately available in Dallas, Texas, at Payee's offices at 200 Crescent
Court, Suite 1600, Dallas, Texas 75201, or such other address in Dallas, Texas,
given to Maker by Payee, the principal sum of __________________________________
DOLLARS ($____________), together with interest, as hereinafter described.
Whenever any payment of principal of, or interest on, this Note shall be due on
a day which is not a Business Day, the date for payment thereof shall be
extended to the next succeeding Business Day. If the date for payment of
principal is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time.
This Note has been executed and delivered pursuant to, and is subject
to and governed by, the terms of that certain Subordinate Loan and Warrant
Purchase Agreement dated as of October 8, 1996, by and between Maker and
Stratford Capital Partners, L.P., a Texas limited partnership (the "Agreement").
This Note is one of the "Notes" referred to in the Agreement. Unless otherwise
defined herein or unless the context hereof otherwise requires, each term used
herein with its initial letter capitalized has the meaning given to such term in
the Agreement.
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Maker promises to pay interest on the outstanding principal balance
hereof, prior to the occurrence of an Event of Default, at a rate per annum
equal to the lesser of (a) the Fixed Rate or (b) the Maximum Lawful Rate, in
Federal or other funds immediately available in Dallas, Texas, at the offices of
Payee above referenced, as it accrues commencing on December 31, 1996, and
continuing on the last day of each March, June, September and December
thereafter until the maturity date. Interest shall be computed on the Loan on
the basis of the number of actual days elapsed, assuming that each calendar year
consisted of 360 days. The entire outstanding principal balance of this Note and
all accrued but unpaid interest thereon shall be due and payable in full in a
single installment on October 8, 2003.
Upon and subject to the terms and conditions of the Agreement
(including all provisions requiring the payment of prepayment penalties), Maker
shall be entitled to prepay the principal of or interest on this Note from time
to time and at any time, in whole or in part.
Upon the occurrence and during the continuance of an Event of Default,
and upon the conditions stated in the Agreement, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this Note
immediately due and payable (provided that, upon the occurrence of certain
Events of Default, and upon the conditions stated in the Agreement, such
acceleration shall be automatic), without notice, demand, or presentment, all of
which are hereby waived, and the holder hereof shall have the right to offset
against this Note any sum or sums owed by the holder hereof to Maker. After the
occurrence of an Event of Default, interest shall accrue on the outstanding
principal balance of this Note and, to the extent permitted by applicable law,
on accrued but unpaid interest, at the lesser of (a) the Default Rate or (b) the
Maximum Lawful Rate.
If this Note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceedings, Maker agrees to pay the court
costs, reasonable attorneys' fees, and other costs of collection of the holder
hereof.
Maker, and each surety, endorser, guarantor, and other party ever
liable for payment of any sums of money payable on this Note, jointly and
severally waive presentment and demand for payment, protest, notice of protest
and nonpayment, and notice of acceleration and the intention to accelerate, and
agree that their liability on this Note shall not be affected by any renewal or
extension in the time of payment hereof, by any indulgences, or by any release
or change in any security for the payment of this Note, and hereby consent to
any and all renewals, extensions, indulgences, releases, or changes, regardless
of the number of such renewals, extensions, indulgences, releases or changes.
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THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS COLLECTIVELY REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
E HOLDINGS, INC.
By:
Its:
----------------------------------------
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EXHIBIT B
GUARANTY
This Guaranty (this "Guaranty") is executed and effective as of the
____ day of _______________, 1996, by ___________________, a ______ corporation
("Guarantor"), in favor of Stratford Capital Partners, L.P., a Texas limited
partnership ("Stratford").
WITNESSETH:
WHEREAS, E Holdings, inc., a Georgia corporation ("Borrower"), and
Stratford are parties to that certain Subordinate Loan and Warrant Purchase
Agreement (the "Loan Agreement") dated as of August __, 1996, pursuant to which
Stratford has agreed to make a subordinate loan in the amount of $7,000,000 to
Borrower (unless otherwise defined herein, all terms used herein with their
initial letter capitalized shall have the meaning given such terms in the Loan
Agreement); and
WHEREAS, Stratford required, as a condition to making the Loan under
the Loan Agreement, that Guarantor execute and deliver this Guaranty; and
WHEREAS, Guarantor has determined that valuable benefits will be
derived by it as a result of the Loan Agreement and the Loan to be made by
Stratford thereunder; and
WHEREAS, Guarantor has further determined that the benefits accruing to
it from the Loan Agreement exceed Guarantor's anticipated liability under this
Guaranty.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged and confessed, Guarantor hereby covenants and
agrees as follows:
1. Guarantor hereby absolutely and unconditionally guarantees the
prompt, complete and full payment when due, no matter how such shall become due,
of the Obligations, and further guarantees that Borrower will properly and
timely perform the Obligations. Notwithstanding any contrary provision in this
Guaranty, however, Guarantor's maximum liability under this Guaranty is limited,
to the extent, if any, required so that its liability is not subject to
avoidance under applicable Debtor Relief Laws (as such term is defined in
Paragraph 8 hereof). Further, the rights and remedies of Stratford (or other
holder of this Guaranty) and the obligations of Guarantor hereunder are subject
to the terms of that certain Subordination Agreement dated as of October 8,
1996, by and among the Borrower, Stratford and NationsBank, N.A. (South).
2. If Guarantor is or becomes liable for any indebtedness owing by
Borrower to Stratford by endorsement or otherwise than under this Guaranty, such
liability shall not be in any manner impaired or affected hereby, and the rights
of Stratford hereunder shall be cumulative of any and all other rights that
Stratford may ever have against Guarantor. The exercise by Stratford of any
right or remedy hereunder or under any other instrument, at law or in equity,
shall not preclude the concurrent or subsequent exercise of any other right or
remedy.
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3. In the event of default by Borrower in payment of the
Obligations, or any part thereof, when the Obligations become due, either by
their terms or as the result of the exercise of any power to accelerate,
Guarantor shall, on demand, and without further notice of dishonor and without
any notice having been given to Guarantor previous to such demand of the
acceptance by Stratford of this Guaranty, and without any notice having been
given to such Guarantor previous to such demand of the creating or incurring of
the Obligations, pay the amount due thereon to Stratford at the Stratford's
office as set forth in the Loan Agreement, and it shall not be necessary for
Stratford, in order to enforce such payment by Guarantor, first, to institute
suit or exhaust its remedies against Borrower or others liable on the
Obligations, to have Borrower joined with Guarantor in any suit brought under
this Guaranty or to enforce its rights against any security which shall ever
have been given to secure such indebtedness; provided, however, that in the
event Stratford elects to enforce and/or exercise any remedies it may possess
with respect to any security for the Obligations prior to demanding payment from
Guarantor, Guarantor shall nevertheless be obligated hereunder for any and all
sums still owing Stratford on the Obligations and not repaid or recovered
incident to the exercise of such remedies.
4. Notice to Guarantor of the acceptance of this Guaranty and of the
making, renewing or assignment of the Obligations and each item thereof, are
hereby expressly waived by Guarantor.
5. Each payment on the Obligations shall be deemed to have been made
by Borrower unless express written notice is given to Stratford at the time of
such payment that such payment is made by Guarantor as specified in such notice.
6. If all or any part of the Obligations at any time are secured,
Guarantor agrees that Stratford may at any time and from time to time, at its
discretion and with or without valuable consideration, allow substitution or
withdrawal of collateral or other security and release collateral or other
security or compromise or settle any amount due or owing under the Loan
Agreement or amend or modify in whole or in part the Loan Agreement or any
Transaction Document executed in connection with same without impairing or
diminishing the obligations of Guarantor hereunder. Guarantor further agrees
that if Borrower executes in favor of Stratford any collateral agreement,
mortgage or other security instrument, the exercise by Stratford of any right or
remedy thereby conferred on Stratford shall be wholly discretionary with
Stratford, and that the exercise or failure to exercise any such right or remedy
shall in no way impair or diminish the obligation of Guarantor hereunder.
Guarantor further agrees that Stratford shall not be liable for its failure to
use diligence in the collection of the Obligations or in preserving the
liability of any person liable for the Obligations, and Guarantor hereby waives
presentment for payment, notice of nonpayment, protest and notice thereof
(including, notice of acceleration), and diligence in bringing suits against any
Person liable on the Obligations, or any part thereof
7. Guarantor agrees that Stratford, in its discretion, may (i) bring
suit against all guarantors (including, without limitation, Guarantor hereunder)
of the Obligations jointly and severally or against any one or more of them,
(ii) compound or settle with any one or more of such guarantors for such
consideration as Stratford may deem proper, and (iii) release one or more of
such guarantors from liability hereunder, and that no such action shall impair
the rights of Stratford to collect the Obligations (or the unpaid balance
thereof) from other such guarantors of the Obligations, or any of them, not so
sued, settled with or released. Guarantor agrees, however, that nothing
contained in this paragraph, and no action by
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Stratford permitted under this paragraph, shall in any way affect or impair the
rights or obligations of such guarantors among themselves.
8. Guarantor represents and warrants to Stratford that (i) Guarantor
is a corporation duly organized and validly existing under the laws of the State
of ______________; (ii) Guarantor possesses all requisite authority and power to
authorize, execute, deliver and comply with the terms of this Guaranty; this
Guaranty has been duly authorized and approved by all necessary action on the
part of Guarantor and constitutes a valid and binding obligation of Guarantor
enforceable in accordance with its terms, except as the enforcement thereof may
be limited by applicable Debtor Relief Laws; and no approval or consent of any
court or governmental is required for the authorization, execution, delivery or
compliance with this Guaranty which has not been obtained (and copies thereof
delivered to Stratford); and (iii) Guarantor is neither involved in, nor aware
of the threat of, any litigation or proceeding which, in the event of an outcome
unfavorable to Guarantor, could have a material adverse effect on the financial
position, business operations, or prospects of Guarantor, nor are there any
outstanding or unpaid judgments against Guarantor. As used in this Paragraph 8,
"Debtor Relief Laws" means the Bankruptcy Code of the United States of America
and all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments
or similar debtor relief laws from time to time in effect affecting the rights
of creditors generally.
9. Guarantor covenants and agrees that until the Obligations are
paid and performed in full, except as otherwise provided in the Loan Agreement
or unless Stratford gives its prior written consent to any deviation therefrom,
it will (i) at all times maintain its existence and authority to transact
business in any State where Guarantor has assets and operations; and (ii)
promptly deliver to Stratford such information respecting its business affairs,
assets and liabilities as Stratford may reasonably request. The failure of
Guarantor to comply with the terms of this paragraph shall be a Default under
the Loan Agreement.
10. This Guaranty is for the benefit of the Stratford, its successors
and assigns, and in the event of an assignment by Stratford (or its successors
or assigns) of the Obligations, or any part thereof, the rights and benefits
hereunder, to the extent applicable to the Obligations so assigned, may be
transferred with the Obligations. Subject to the preceding paragraph hereof,
this Guaranty is binding, not only on Guarantor, but on the legal
representatives, successors and assigns of Guarantor.
11. No modification, consent, amendment or waiver of any provision of
this Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by Stratford, and then
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on Guarantor in any case shall, of itself, entitle
Guarantor to any other or further notice or demand in similar or other
circumstances. No delay or omission by Stratford in exercising any power or
right hereunder shall impair any such right or power or be construed as a waiver
thereof or any acquiescence therein, nor shall any single or partial exercise of
any such power preclude other or further exercise thereof, or the exercise of
any other right or power hereunder. All rights and remedies of Stratford
hereunder are cumulative of each other and of every other right or remedy which
Stratford may otherwise have at law or in equity or under any other contract or
document, and the exercise of one or more rights or remedies shall not prejudice
or impair the concurrent or subsequent exercise of other rights or remedies.
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12. No provision herein or in any promissory note, instrument or any
other Transaction Document executed by Borrower or Guarantor evidencing the
Obligations shall require the payment or permit the collection of interest in
excess of the Maximum Lawful Rate. If any excess of interest in such respect is
provided for herein or in any such promissory note, instrument, or any other
Transaction Document, the provisions of this paragraph shall govern, and neither
Borrower nor Guarantor shall be obligated to pay the amount of such interest to
the extent that it is in excess of the Maximum Lawful Rate. The intention of the
parties being to conform strictly to any applicable federal or state usury laws
now in force, all promissory notes, instruments and other Transaction Documents
executed by Borrower or Guarantor evidencing the Obligations shall be held
subject to reduction to the amount allowed under said usury laws as now or
hereafter construed by the courts having jurisdiction.
13. If Guarantor should breach or fail to perform any provision of
this Guaranty, Guarantor agrees to pay Stratford all costs and expenses
(including court costs and reasonable attorneys fees) incurred by Stratford in
the enforcement hereof.
14. The liability of Guarantor under this Guaranty shall in no manner
be impaired, affected or released by the insolvency, bankruptcy, making of an
assignment for the benefit of creditors, arrangement, compensation, composition
or readjustment of Borrower, or any proceedings affecting the status, existence
or assets of Borrower or other similar proceedings instituted by or against
Borrower and affecting the assets of Borrower.
15. Guarantor hereby subordinates and makes inferior any and all
indebtedness now or at any time hereafter owed by Borrower to Guarantor to the
Obligations evidenced by the Loan Agreement and agrees after the occurrence of a
Default under the Loan Agreement not to permit Borrower to repay, or to accept
payment from Borrower of, such indebtedness or any part thereof without the
prior written consent of Stratford.
16. Guarantor hereby waives any and all rights of subrogation to
which Guarantor may otherwise be entitled against Borrower as a result of any
payment made by Guarantor pursuant to this Guaranty.
17. As of the date hereof the fair salable value of the property of
Guarantor is greater than the total amount of liabilities (including contingent
and unliquidated liabilities) of Guarantor, and Guarantor is able to pay all of
its liabilities as such liabilities mature and Guarantor does not have
unreasonably small capital within the meaning of Section 548, Title 11, United
States Code, as amended. In computing the amount of contingent or liquidated
liabilities, such liabilities have been computed at the amount which, in light
of all the facts and circumstances existing as of the date hereof, represents
the amount that can reasonably be expected to become an actual or matured
liability.
18. If any provision of this Guaranty is held to be illegal, invalid,
or unenforceable, such provision shall be fully severable; this Guaranty shall
be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining provisions hereof
shall remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid, or unenforceable provision there
4
<PAGE> 84
shall be added automatically as a part of this Guaranty a provision as similar
in terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid and enforceable.
19. (a) Except to the extent required for the exercise of the
remedies provided in the other security instruments, Guarantor hereby
irrevocably submits to the non-exclusive jurisdiction of any Texas state or
federal court over any action or proceeding arising out of or relating to this
Guaranty or any other Transaction Document, and Guarantor hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such Texas state or federal court. Guarantor hereby irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of venue of any litigation or proceeding arising
out of or in connection with this Guaranty or any of the Transaction Documents
brought in district courts of Dallas County, Texas, or in the United States
District Court for the Northern District of Texas, Dallas Division. Guarantor
hereby irrevocably waives any claim that any litigation or proceeding brought in
any such court has been brought in an inconvenient forum. Guarantor hereby
agrees to designate and maintain an agent for service of process in Dallas,
Texas in connection with any such litigation or proceeding and to deliver to
Stratford evidence thereof Guarantor hereby irrevocably consents to the service
of process out of any of the aforementioned courts in any such litigation or
proceeding by the mailing of copies thereof by certified mail, return receipt
requested, postage prepaid, to Guarantor, c/o E Holdings, Inc., One Buckhead
Plaza, Suite 1420, 3060 Peachtree Road, N.W. Atlanta, Georgia 30205. Guarantor
irrevocably agrees that any legal proceeding against Stratford shall be brought
in the district courts of Dallas County, Texas, or in the United States District
Court for the Northern District of Texas, Dallas Division. Nothing herein shall
affect the right of Stratford to commence legal proceedings or otherwise proceed
against Guarantor in any jurisdiction or to serve process in any manner
permitted by applicable law.
(b) Nothing in this Paragraph 19 shall affect any right of
the Stratford to serve legal process in any other manner permitted by law or
affect the right of Stratford to bring any action or proceeding against
Guarantor either jointly or severally in the courts of any other jurisdictions.
(c) To the extent that Guarantor has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Guarantor hereby irrevocably waives such immunity in respect of its obligations
under this Guaranty and the other Transaction Documents.
20. THIS GUARANTY AND THE TRANSACTION DOCUMENTS COLLECTIVELY
REPRESENT THE FINAL AGREEMENT BY AND AMONG STRATFORD, BORROWER AND THE GUARANTOR
AND MAY. NOT. BE CONTRADICTED BY EVIDENCE. OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF STRATFORD AND THE GUARANTOR. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN STRATFORD AND THE GUARANTOR.
21. GUARANTOR" FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, AND STRATFORD
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RIGHT TO
A JURY TRIAL, IN ANY LITIGATION ARISING OUT OF OR IN
5
<PAGE> 85
CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER TRANSACTION DOCUMENTS.
22. (A) THIS GUARANTY AND THE OTHER TRANSACTION DOCUMENTS HAVE BEEN
DRAFTED SUBSTANTIALLY IN THE STATE OF TEXAS. THE EMPLOYEES OF STRATFORD WITH
PRIMARY RESPONSIBILITY FOR UNDERWRITING AND ADMINISTRATING THE TRANSACTIONS
CONTEMPLATED BY THIS GUARANTY AND THE OTHER TRANSACTION DOCUMENTS ARE EMPLOYED
AT STRATFORD'S OFFICE IN DALLAS, TEXAS. THE TERMS OF THIS GUARANTY AND THE OTHER
TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY HAVE
BEEN NEGOTIATED IN SUBSTANTIAL PART IN THE STATE OF TEXAS. THE PRINCIPAL PLACE
OF BUSINESS OF BORROWER AND [GUARANTOR] IS IN THE STATE OF GEORGIA. THIS
DOCUMENT WAS EXECUTED AND DELIVERED IN THE STATE OF GEORGIA. EXCEPT AS EXPRESSLY
PROVIDED IN CLAUSE (B) OF THIS PARAGRAPH 22, THIS GUARANTY AND THE OTHER
TRANSACTION DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA.
(B) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE
MAXIMUM LAWFUL RATE, AND ANY QUESTIONS OR ISSUE WITH RESPECT TO WHETHER
INTEREST, FEES AND OTHER CONSIDERATION CHARGED, CONTRACTED FOR OR RECEIVED BY
STRATFORD UNDER THIS GUARANTY, THE LOAN AGREEMENT OR UNDER ANY OF THE OTHER
TRANSACTION DOCUMENTS EXCEEDS THE MAXIMUM LAWFUL RATE SHALL BE GOVERNED BY THE
LAWS, OTHER THAN THE CONFLICTS OF LAWS THEREOF, OF THE STATE OF GEORGIA.
EXECUTED as of the date first above written.
GUARANTOR
---------------------
By:
-----------------------------------
Its:
----------------------------------
FINANCIAL REPORT CERTIFICATE
6
<PAGE> 86
EXHIBIT C
FORM OF WARRANT CERTIFICATE
THE OFFER AND SALE OF THE WARRANTS EVIDENCED BY THIS CERTIFICATE AND THE
SECURITIES ISSUABLE UPON AN EXERCISE OF SUCH WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SALE OR TRANSFER OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
(WHICH MAY BE COUNSEL FOR THE COMPANY) STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON AN
EXERCISE OF SUCH WARRANTS ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER, CERTAIN REPURCHASE OPTIONS, CERTAIN VOTING AGREEMENTS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN A SHAREHOLDERS AGREEMENT AMONG THE COMPANY,
CERTAIN SHAREHOLDERS AND CERTAIN INVESTORS, DATED AS OF OCTOBER 8, 1996, A COPY
OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE
OF BUSINESS.
No. W-1 _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate ("Warrant Certificate") certifies that
______________________________, a __________________ ("______________"), or
registered assigns, is the registered holder of ( ) Warrants ("Warrants") to
purchase Class A Common Stock of E Holdings, Inc., a Georgia corporation (the
"Company"). Each Warrant entitles the holder, subject to the conditions set
forth herein and in the Subordinate Loan and Warrant Purchase Agreement referred
to below, to purchase from the Company before 5:00 P.M., Dallas, Texas time,
five years following the repayment in full of the Note (as defined in the
Subordinate Loan and Warrant Purchase Agreement) (the "Expiration Date"), one
fully paid and nonassessable share of the Common Stock of the Company (the
"Warrant Shares") at a price (the "Warrant Exercise Price") of $.01 per Warrant
Share, subject to adjustment as provided in Section 9.3 of the Subordinate Loan
and Warrant Purchase Agreement, payable in lawful money of the United States of
America (or, subject to the terms of Section 9.2 of the Subordinate Loan and
Warrant Purchase Agreement, by offsetting the principal balance of the Note),
upon surrender of this Warrant Certificate, execution of the form of Election to
Purchase on the reverse hereof, and payment of the Warrant Exercise Price (in
lawful money of the United States of America or by offsetting the principal
balance of the Note, as applicable) to the Company, at its offices located at
One Buckhead Plaza, 3060 Peachtree Road, N.W., Suite 1400, Atlanta, Georgia
30305, or at such other address as the Company may specify in writing to the
registered holder of the Warrants evidenced hereby (the "Warrant Office"). The
Warrant Exercise Price and number of Warrant Shares purchasable upon exercise of
the Warrants are subject to adjustment prior to the Expiration Date upon the
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occurrence of certain events as set forth in Section 9.3 of the Subordinate Loan
and Warrant Purchase Agreement.
No Warrant may be exercised after 5:00 P.M., Dallas, Texas time, on the
Expiration Date, except as provided in Section 9.5 of the Subordinate Loan and
Warrant Purchase Agreement, all rights of the registered holders of the Warrants
shall cease after 5:00 P.M., Dallas, Texas time, on such date.
The Company may deem and treat the registered holder(s) of the Warrants
evidenced hereby as the absolute owner(s) thereof (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof and 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.
Warrant Certificates, when surrendered at the office of the Company at
the above-mentioned address by the registered holder hereof in person or by a
legal representative duly authorized in writing, may be exchanged, in the manner
and subject to the limitations provided in the Subordinate Loan and Warrant
Purchase Agreement, but without payment of any service charge, for another
Warrant Certificate or Warrant Certificates of like tenor evidencing in the
aggregate a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Company at the above-mentioned address and
subject to the conditions set forth on this Certificate and in Section 9.7 of
the Subordinate Loan and Warrant Purchase Agreement, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued in exchange for this Warrant Certificate to
the transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Subordinate Loan and Warrant Purchase Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred to
in the Subordinate Loan and Warrant Purchase Agreement, dated as of October 8,
1996, between the Company and Stratford Capital Partners, L.P., a Texas limited
partnership. Said Subordinate Loan and Warrant Purchase Agreement is hereby
incorporated by referenced in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officers and has caused its corporate seal to
be affixed hereunto.
E HOLDINGS, INC.
By:
-------------------------------------
Title:
----------------------------------
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<PAGE> 88
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ Warrant Shares and
herewith tenders payment for such Warrant Shares to the order of the Company in
the amount of $_______ in accordance with the terms hereof, or represents and
warrants to the Company that the undersigned is the legal and beneficial owner
of the Note and hereby advises the Company that on the date hereof the
undersigned has offset the principal balance of the Note in the amount of
$__________ in payment for the Warrant Shares. The undersigned requests that a
certificate for such Warrant Shares be registered in the name of ___________
whose address is ________ _____________ and that such certificate be delivered
to __________ whose address is ____________________. If said number of Warrant
Shares is less than all of the Warrant Shares purchased hereunder, the
undersigned requests that a new Warrant Certificate be registered in the name of
______________ whose address is ______________ and that such Warrant Certificate
is to be delivered to _______________ whose address is __________________.
Signature:
----------------------------------
(Signature must conform in all respects to
name as specified on the face of the Warrant
Certificate.)
Date:
-----------------
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<PAGE> 89
EXHIBIT D
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is dated
_____,199_, between _______________________ ("Assignor") and ___________________
("Assignee").
BACKGROUND.
A. Reference is made to that certain Subordinate Loan and Warrant
Purchase Agreement dated as of October 8, 1996 (as it may hereafter be amended
or otherwise modified from time to time, being referred to as the "Loan
Agreement") between E Holdings, Inc., a Georgia corporation (the "Company") and
Stratford Capital Partners, L.P., a Texas limited partnership. Unless otherwise
defined, terms are used herein as defined in the Loan Agreement.
B. This Agreement is made with reference to the following facts:
(i) Assignor is a Note Holder under and as defined in the Loan
Agreement and, as such, presently holds a percentage of the rights and
obligations of the Note Holders under the Loan Agreement.
(ii) As of the date hereof, the outstanding principal balance of
the Note held by the Assignor is $_______________.
(iii) On the terms and conditions set forth below, Assignor
desires to sell and assign to Assignee, and Assignee desires to purchase
and assume from Assignor, as of the Effective Date (as defined below)
$________ of the outstanding principal balance of the Note (the
"Assigned Amount").
AGREEMENT.
NOW, THEREFORE, Assignor and Assignee hereby agree as follows:
1. By this Agreement, and effective as of___________, 199_, Assignor
hereby sells and assigns to Assignee, without recourse and, except as provided
in paragraph 2 of this Agreement, without representation and warranty, and
Assignee hereby purchases and assumes from Assignor, Assignor's rights and
obligations under the Loan Agreement with respect to the Loan, to the extent of
the Assigned Amount.
2. Assignor (a) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (b) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Agreement,
any other Transaction Document or any other instrument or document furnished
pursuant thereto, or with respect to the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Agreement or any
other Transaction Document or any other instrument or document furnished
pursuant thereto; and (c) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company or any
Person or the performance or observance by the Company or any Person of any of
its obligations under the
<PAGE> 90
Loan Agreement and the Transaction Documents or any other instrument or document
furnished pursuant thereto.
3. Assignee (a) confirms that it has received a copy of the Loan
Agreement, together with copies of the most recent financial statements
delivered to Assignor pursuant to Section 6.1 of the Loan Agreement, and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Agreement; (b) agrees that it
will, independently and without reliance upon Assignor and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Agreement and the other Transaction Documents; and (c) specifies, as its address
for notice, the office set forth beneath its name on the signature pages hereof.
4. The Company acknowledges its obligations under the Loan
Agreement, and agrees, within five (5) domestic Business Days after receiving an
executed copy of this Agreement to execute and deliver to the Assignor, in
exchange for the Notes originally delivered to Assignor, new Notes to the order
of Assignor and Assignee in amounts equal to their respective outstanding
principal balances of their Notes.
5. As of the Effective Date, (a) Assignee shall be a party to the
Loan Agreement and, to the extent provided in this Agreement, have the rights
and obligations of a Note Holder thereunder, (b) Assignor shall, to the extent
provided in this Agreement, relinquish its rights and be released from its
obligations under the Loan Agreement and other Transaction Documents, and (c)
the outstanding principal balance of Assignor's Note shall be $_______, and the
outstanding principal balance of the Assignee's Note shall be $_______________.
6. From and after the Effective Date, the Company shall make all
payments under the Loan Agreement in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest, fees and
other amounts with respect thereto) to Assignee. Assignor and Assignee shall
make all appropriate adjustments in payments under the Loan Agreement for
periods prior to the Effective Date directly between themselves.
7. This Agreement shall not become effective until (a) counterparts
of this Agreement are executed and delivered by Assignor and Assignee to the
Company and (b) the Company shall execute such counterparts.
8. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Texas, without reference to principles of
conflict of laws.
ASSIGNOR:
--------------------------------------
By:
-----------------------------------
Name:
---------------------------------
Its:
---------------------------------
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ASSIGNEE:
Address for Notice:
- -------------------------------- --------------------------------------
- --------------------------------
- --------------------------------
- --------------------------------
Attn: By:
--------------------------- -----------------------------------
Tel: Name:
--------------------------- ---------------------------------
Fax: Its:
--------------------------- ---------------------------------
COMPANY:
Accepted and approved this ___ day
of ________________________, 199_:
E HOLDINGS, INC.
By:
---------------------------------
R. Steven Bostic,
Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as
of the 21 day of March, 1997, by and between Stephen G. Franklin, Sr. (the
"Employee") and E Holdings, Inc., a Georgia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company operates a multi-branch educational institution
presently doing business as "The American College;" and
WHEREAS, Employee desires to become an employee of the Company, and the
Company desires to employ Employee, all in accordance with the terms and
conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the above premises, the
mutual covenants and agreements hereinafter set forth and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
1. Employment and Duties.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company shall employ Employee, and Employee shall serve the
Company, as Chairman and Dean of the School of International Business. In
connection with his duties as Chairman and Dean of the School of International
Business, Employee will be appointed to serve as a member of the Board of
Directors of the Company (the "Board").
(b) At all times during the term hereof, Employee shall, for the
benefit of the Company, use his skills, knowledge and specialized training to
perform the duties and exercise the powers, functions and discretions incident
to his position as Chairman and Dean of the School of International Business or
which from time to time, consistent with such position may be assigned to or
vested in him by the chief executive officer ("CEO"), chancellor ("Chancellor")
or Board, in an efficient and competent manner and on such terms and subject to
such restrictions as the CEO, Chancellor or Board may from time to time impose.
(c) At all times during the term hereof, Employee shall during
working hours, devote the whole of his time, attention and ability to his duties
hereunder at such location or locations as the Company may require from time to
time except as provided in Section 1(g) below.
(d) Except as otherwise provided in Section 1(g) below, at all
times during the term hereof, Employee shall comply with all reasonable
requests, instructions and regulations made by the CEO, Chancellor or Board and
give to Company such explanations, information and assistance as the CEO,
Chancellor or Board may reasonably require.
(e) At all times during the term hereof, Employee shall
faithfully serve the Company to the best of his ability and use his best efforts
to promote the interests of the Company.
(f) Except as otherwise provided in Section 1(g) below, at all
times during the term hereof, Employee agrees to be a full-time employee of the
Company and to devote his full and exclusive time, energy and skill to the
business of the Company, and to the fulfillment of Employee's obligation under
this Agreement. In addition to the foregoing and not in limitation thereof,
during the term hereof, Employee shall not carry on, engage in, or otherwise be
interested in, directly or indirectly, any other business or activity that is
competitive with the activities and business of the Company, that is of a nature
similar to the Company's business, that would result in a conflict of interest
with the Company's business, or that would materially affect Employee's ability
to perform his duties as set forth in this Agreement. Moreover, Employee shall
not take part in any activities detrimental to the Company's best interest.
<PAGE> 2
(g) Notwithstanding anything contained in this Agreement to the
contrary, the Company acknowledges and agrees that the Employee may continue his
preexisting consulting activities for a period of time expiring on the later to
occur of (i) two (2) years from the date hereof, or (ii) when Employee has
earned at least $350,000 pursuant to this Agreement during any year, beginning
on the date hereof or any anniversary date hereof. Moreover, notwithstanding
anything contained in this Agreement to the contrary, the Company acknowledges
and agrees that the Employee may act, on a part-time basis, as an independent
sales representative for Edutrek Partners, LLC ("Edutrek Partners"). The
fulfillment of such consulting activities as set forth above and the
representation of Edutrek Partners, on a part-time basis, shall not be deemed a
violation of this Agreement; provided, however, that the Employee will endeavor
in good faith to manage his time and services effectively so as to minimize any
interference with his duties to the Company.
2. Term.
The Employee's employment under this Agreement shall begin as of
the date hereof (the "Commencement Date"), and shall, unless earlier terminated
as set forth herein, end on the fifth (5th) anniversary thereof. Employee agrees
that should he elect to resign his position with the Company, Employee will
provide the Company with not less than ninety (90) days prior notice.
3. Compensation.
(a) Subject to the terms of this Agreement, in consideration of
Employee's services, the Company shall pay Employee so long as he shall be
employed under this Agreement a base salary of no less than One Hundred Sixty
Five Thousand Dollars ($165,000) per annum. The Employee's base salary shall be
reviewed by the Company on each successive anniversary of this Agreement and the
rate thereof shall be increased as of such review date by such amount as the
Company deems appropriate in its sole discretion, PROVIDED ALWAYS that the
salary in effect during the twelve (12) months period immediately preceding the
review date shall be increased each review date by an amount not less than the
percentage increase in the "Consumer Price Index" for the preceding twelve (12)
month period. For purposes of this provision, the "Consumer Price Index" shall
mean and refer to that table in the Consumer Price Index published by the U.S.
Department of Labor, Bureau of Labor Statistics, now known as the "Consumer
Price Index for All Urban Consumers: U.S. City Average--(CPI-U) All Items
(1982-84=100)." If the Consumer Price Index referenced above is changed, and
such change affects the calculations described above, the Consumer Price Index
shall be converted in accordance with the conversion factor published by the
U.S. Department of Labor, Bureau of Labor Statistics. If the Consumer Price
Index is discontinued or revised during the term of this Agreement, such other
government index or computation with which it is replaced shall be used in order
to obtain substantially the same result as would have been obtained if the
Consumer Price Index had not been discontinued or revised. If the Consumer Price
Index is discontinued and there is no substituted government index or
computation, then the most closely comparable statistics on the purchasing power
of the consumer dollar of urban consumers, as published by a responsible
financial authority and selected by the Company shall be utilized in lieu of
such index. Employee's base salary shall be payable to Employee on the regularly
reoccurring pay period established by the Company, but in no event in less than
monthly installments. Employee's salary shall be subject to all withholdings
pursuant to applicable law or regulation.
(b) In addition to the base salary provided in subsection (a)
above, Company shall provide to Employee an incentive bonus to be calculated and
paid as follows. After the close of the first full fiscal year of the Company
occurring during the term of the Employee's employment hereunder (i.e. May 31,
1998), and after the close of each subsequent fiscal year of the Company,
Company shall cause its accountants to prepare financial statements for the
quarter then ended which reflect the net tuition revenue (tuition, net of
scholarships and discounts, excluding housing revenues, student fees, books and
non-tuition related revenue) generated from the Business School Programs and
Courses (as hereinafter defined) for each of the Atlanta, Los Angeles, London
and Dubai campuses. Within thirty (30) days after the review and approval of
such financial statements by the Board, the Company shall declare and pay to
Employee a cash bonus equal to:
(i) three percent (3%) of the increase, if any, in the net
tuition revenue generated from the Business School Programs and
Courses for the Atlanta, Los Angeles and London campuses, such
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increase to be calculated by comparing, on an aggregate basis:
(x) the net tuition revenue for all three campuses for the
fiscal year then ended, to (y) the net tuition revenue for such
campuses for the preceding fiscal year; and
(ii) Employee's Percentage Participation (as hereinafter
defined) of the increase, if any, in the net tuition revenue
generated from the Business School Programs and Courses for the
Dubai campus, such increase to be calculated by comparing: (x)
the net tuition revenue for the Dubai campus for the fiscal year
then ended, to (y) the net tuition revenue for such campus for
the preceding fiscal year.
If the Company opens any new campuses or acquires additional campuses or
businesses after the Commencement Date and the Employee participates in the
operation thereof in a manner that is at least substantially equivalent to his
participation in the operation of the Atlanta, Los Angeles, London and Dubai
campuses, then the Company will provide to Employee an incentive bonus based on
the revenue generated from such new campuses, such bonus to be calculated in
such manner as may be agreed upon in writing from time to time by the Company
and Employee. Any bonus paid hereunder shall be subject to all withholdings
pursuant to applicable law and regulation. In no event shall a bonus accrue
until the day the bonus is declared and Employee is notified of the same. The
Employee will not be entitled to any bonus hereunder unless he is employed by
the Company pursuant to this Agreement, at the time the bonus is declared and
Employee is notified of the same. The financial statements prepared by the
Company's accountants and approved by the Board shall be deemed conclusive
evidence of the Company's financial results for the purposes of calculating the
bonus payable to Employee. For purposes of this provision, the following
definitions shall apply: The term "Employee's Percentage Participation" shall
mean an amount calculated as follows: three percent (3%) multiplied by a
fraction the numerator of which is the Company's percentage participation in the
revenue generated by the Dubai campus, and the denominator of which is one
hundred percent (100%), with the result rounded to the nearest half percent
(1/2%). By way of example, under the Company's current arrangements, the Company
receives thirty percent (30%) of the total revenue generated by the Dubai
campus; accordingly, Employee's Percentage Participation is one percent (1%)
calculated as follows: 3% x 30%/100% = .90% rounded to 1%. The term "Business
School Programs and Courses" shall mean all courses taken in the School of
International Business.
(c) In addition to the base salary provided in subsection (a)
above and the incentive bonus provided in subsection (b) above, Company shall at
the end of each fiscal year provide Employee with an incentive bonus not to
exceed fifty percent (50%) of the Employee's annual base salary for such fiscal
year (or the applicable portion of such base salary if Employee was not employed
by the Company pursuant to this Agreement for all of such fiscal year) if: (i)
the Company achieves certain financial goals established for such year by the
CEO in his sole discretion reasonably exercised after consultation with the
Employee; and (ii) the Employee achieves all of the business objectives and
goals established for such year by the CEO in his sole discretion reasonably
exercised after consultation with the Employee. Any bonus paid hereunder shall
be subject to all withholdings pursuant to applicable law and regulation. In no
event shall a bonus accrue until the day the bonus is declared and Employee is
notified of the same. The Employee will not be entitled to any bonus hereunder
unless he is employed by the Company pursuant to this Agreement, at the time the
bonus is declared and Employee is notified of the same.
(d) Employee hereby acknowledges that Employee may be required
to work beyond standard working hours in order to perform his duties hereunder.
Employee shall not be entitled to compensation for overtime or extra hours
worked in performance of his duties hereunder except as required by law.
(e) In addition to the compensation described in this Agreement,
Employee shall be entitled to reimbursement by the Company for all actual,
reasonable and direct expenses incurred by him in the performance of his duties
hereunder, provided such expenses are properly characterized as being business
expenses that are properly tax deductible for the Company, and further provided
that such expenses were incurred only in accordance with the policies and
procedures established by the Company from time to time. Employee shall provide
the Company with written documentation of such expenses in form complying with
the records required of the Company by the Internal Revenue Service and
appropriate state authorities for tax deductibility purposes in such cases, and
reimbursement for each item of approved expense shall be made within a
reasonable time after receipt by Company of the written documentation thereof.
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4. Employment Benefits.
(a) Employee shall have the right to participate in any and all
employee benefit programs established or maintained by the Company from time to
time, in accordance with the terms and conditions of such employee benefit
programs, including, without limitation, such medical, dental plans, retirement,
pension, profit sharing, stock bonus or stock option plans as may be established
from time to time by the Company. To the extent Employee participates in such
programs, Employee shall be subject to the terms and conditions set forth
therein. The Company reserves the right, in its sole discretion, to alter, amend
or discontinue any of such employee benefit programs at any time.
(b) Notwithstanding anything contained in Section 4(a) to the
contrary, the Company covenants and agrees that the Employee shall be entitled
to participate in any and all employee benefit programs established or
maintained by the Company for the benefit of the Company's executive officers on
terms and conditions that are no less advantageous than those made available to
the current Chairman of the Board (i.e., Steven R. Bostic); provided, however,
that any obligation to provide disability income shall be calculated on a pro
rata basis based on the base annual compensation of the Chairman of the Board
and the Employee; provided further that Company shall provide Employee with a
disability income insurance policy which will pay Employee a minimum of
$6,000.00 per month if Employee is fully disabled. By way of example, if the
Chairman of the Board has a base annual salary of $250,000 per annum and the
Employee has a base annual salary of $165,000 per annum, and the Company commits
to provide the Chairman of the Board with an insurance policy providing $10,000
per month in disability income, then the Employee would be entitled to a similar
insurance policy providing not less than $6,600 per month in disability income.
(c) Pursuant to, and in accordance with, a separate agreement by
and between the Employee and the Company of even date herewith (the "Option
Agreement"), Employee shall be granted (i) an option to purchase up to 15,000
shares of the Class A Common Stock of E Holdings, Inc., the Company's indirect
parent corporation, such option to vest ratably over the initial five (5) year
duration of Employee's employment under this Agreement beginning on the date
hereof; (ii) an option to purchase an additional 1,000 shares of the Class A
Common Stock of E Holdings, Inc., if the Company's total annual revenue for the
first full fiscal year of the Company occurring during the term of Employee's
employment hereunder (i.e., May 31, 1998) has increase by at least twenty
percent (20%) over the total annual revenue for the prior fiscal year; (iii) an
option to purchase an additional 1,000 shares of the Class A Common Stock of E
Holdings, Inc., if the Company's total annual revenue for the second full fiscal
year of the Company occurring during the term of Employee's employment hereunder
(i.e., May 31, 1999) has increased by at least twenty percent (20%) over the
total annual revenue of the Company for the prior fiscal year; (iv) an option to
purchase an additional 1,000 shares of the Class A Common Stock of E Holdings,
Inc., if the Company's total annual revenue for the third full fiscal year of
the Company occurring during the term of Employee's employment hereunder (i.e.,
May 31, 2000) has increased by at least twenty percent (20%) over the total
annual revenue of the Company for the prior fiscal year; (v) an option to
purchase an additional 1,000 shares of the Class A Common Stock of E Holdings,
Inc., if the Company's total annual revenue for the fourth full fiscal year of
the Company occurring during the term of Employee's employment hereunder (i.e.,
May 31, 2001) has increased by at least twenty percent (20%) over the total
annual revenue of the Company for the prior fiscal year; and (vi) an option to
purchase an additional 1,000 shares of the Class A Common Stock of E Holdings,
Inc., if the Company's total annual revenue for the fifth full fiscal year of
the Company occurring during the term of Employee's employment hereunder (i.e.,
May 31, 2002) has increased by at least twenty percent (20%) over the total
annual revenue of the Company for the prior fiscal year; (vii) an option to
purchase 5,000 shares of the Class A Common Stock of E Holdings, Inc. less any
shares to which the Employee has already attained an option under clauses (ii)
through (vi) above, if the Company's total annual revenue for the fifth full
fiscal year of the Company occurring during the term of Employee's employment
hereunder (i.e., May 31, 2002) is not less than the Company's total annual
revenue for the fiscal year ended May 31, 1997 compounded at the rate of twenty
percent (20%) per annum (i.e. approximately $85 million). All of the foregoing
options shall vest immediately the Company's current Chairman of the Board
(i.e., Steven R. Bostic) should cease to maintain control over the Company, all
is more fully described in the Option Agreement. This Section 4(c) is included
within this Agreement for information purposes only. Any options described
herein shall in all events be granted pursuant and subject to all of the terms
and conditions of the Option Agreement.
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(d) At the time of the exercise of all or a portion of the
options set forth in Section 4(c) hereof, Company shall pay to Employee a
supplemental cash compensation amount equal to the option exercise price per
share for each option exercised plus an amount equal to the state and federal
tax consequences to Employee attributable to such exercise by Employee and such
supplemental cash compensation, as determined by the Board of Directors of the
Company on date of such exercise and based upon such information and
calculations as the Board of Directors of the Company in its sole discretion
shall deem appropriate.
(e) In addition to such public holidays as are observed by the
Company, the Employee shall be entitled to twenty (20) working days paid
vacation during each calendar year (reduced pro rata on a per diem basis for any
partial calendar year occurring within the term of the Employee's employment
under this Agreement) to be taken at such time or times as may be agreed upon by
the Company's Chief Executive Officer. The Employee may not carry forward any
unused part of his vacation entitlement to any subsequent calendar year.
(f) Employee acknowledges that the Company may promulgate
employee handbooks, policies and procedures from time to time and Employee
agrees to adhere to the terms of any handbook, policy or procedures which the
Company may promulgate. The Company reserves the right, in its sole discretion,
to alter, amend or terminate any handbook, policy or procedure.
5. Illness, Incapacity or Death During Employment.
(a) If by reason of illness, injury or incapacity, Employee is
unable, despite reasonable accommodation, to perform his services or discharge
his duties hereunder on a full time basis for ninety (90) or more consecutive
days or one hundred twenty(120) days in the aggregate during any twelve (12)
month period (or any such longer periods as may be required by law), then upon
ten (10) days' prior notice, the Company may terminate the employment of
Employee, and thereupon, Employee shall be paid his base salary from the date of
termination through the 10-day notice period. If the Company maintains a long
term disability insurance policy for the benefit of Employee, then,
notwithstanding the previous sentence, the Company may by written notice to the
Employee, terminate the employment of the Employee at any time after the
Employee qualifies for the payment of benefits under such policy.
(b) In the event of Employee's death, all obligations of the
Company under this Agreement shall terminate other than Employee's rights with
respect to the payment of that portion of the base salary earned by Employee to
the date of death, a pro rata share (through the date of death) of any bonus due
Employee (based on the year ending immediately subsequent to the date of death),
plus reimbursement of all pre-approved expenses that were reasonably incurred by
Employee in performing his responsibilities and duties for the Company prior to
and including such date.
6. Termination of Employment.
(a) If during the term of this Agreement the Employee should
resign or the Company terminates Employee's employment hereunder With Cause (as
hereinafter defined) or pursuant to Section 5, all obligations of Company to
provide compensation and benefits under this Agreement shall cease, and Employee
shall have no claim against the Company for damages or otherwise by reason of
such termination. Company's election to terminate Employee's employment With
Cause shall be without prejudice to any remedy the Company may have against
Employee for the breach or non-performance of any of the provisions of this
Agreement.
(b) If during the term of this Agreement Company terminates
Employee's employment hereunder Without Cause (as hereinafter defined), then
Employee will be entitled to continue to receive Employee's base salary for
twelve (12) months after the date of termination or until the second anniversary
of the Commencement Date (as defined in Section 3(a)), whichever is longer
together with a pro rata share (through date of termination) of any bonus due
Employee (based on the year ending immediately subsequent to the date of
termination); provided, however, that post-employment compensation shall cease
to accrue and Employee shall have no further entitlement to the same from and
after the earlier of (i) the Employee's death, or (ii) the date Employee
breaches any of the post-employment covenants set forth in this Agreement.
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(c) "With Cause" means the termination of employment
resulting from:
(i) any act or omission which constitutes a material
breach by Employee of his obligations under this Agreement;
(ii) the commission by Employee of a felony or any crime
involving moral turpitude, fraud or dishonesty;
(iii) the perpetration by Employee of any act of dishonest
whether relating to the Company, the Company's employee or
otherwise;
(iv) the use of illegal drugs by the Employee, or
drunkenness or substance abuse by the Employee which interferes
with the performance of his duties hereunder;
(v) gross negligence on the part of Employee in the
performance of his duties hereunder;
(vi) the issuance of a final consent decree, cease and
desist or similar order against Employee by a regulatory agency
relating to violations or alleged violations of any federal or
state law or regulation governing the conduct of the business
of the Company; or
(vii) any other act or omission (other than an act or
omission resulting from the exercise by Employee of good faith
business judgment) which materially impairs the financial
condition or business reputation of the Company or is otherwise
materially detrimental to the Company.
provided, however, prior to giving notice to Employee of termination With Cause,
to the extent such matter is capable of being cured or corrected Company shall
give Employee thirty (30) days written notice of the right to cure or correct
the items set forth in Section 6(c)(i)(v) and (vii) above, and if Employee has
cured or corrected said items or if said items cannot be cured or corrected
within said thirty (30) days, Employee has commenced measures to cure or correct
said matter within a reasonable period of time, then Company shall not be able
to terminate Employee due to these matters; provided further that Company shall
be obligated to give only one (1) such notice during the term of this Agreement.
(d) "Without Cause" means the termination of employment
resulting from any reason other than those enumerated in subsection (c) above or
Section 5 of this Agreement.
7. Employee's Obligations upon Termination of Employment.
Upon the termination of his employment hereunder for whatever
reason Employee shall:
(a) Forthwith tender his resignation from any directorship
or office he may hold in the Company or its subsidiaries or affiliates; and
(b) Not at any time represent himself still to be connected
or to have any connection with the Company or its subsidiaries or affiliates.
8. Effect of Termination.
The provisions of this Agreement shall survive the termination
of this Agreement and the termination of Employee's employment with the Company
to the extent required to give full effect to the covenants and agreements
contained herein.
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9. Confidentiality.
(a) Employee agrees that, both during the term of his employment
and after the termination of his employment for any reason, Employee will hold
in a fiduciary capacity for the benefit of the Company, and shall not directly
or indirectly use or disclose, except as authorized by the Company in connection
with the performance of Employee's duties, any Confidential Information, as
defined hereinafter, that Employee may have or acquire (whether or not developed
or compiled by Employee and whether or not Employee has been authorized to have
access to such Confidential Information) during the term of his employment. The
term "Confidential Information" as used in this Agreement shall mean and include
any information, data and know-how relating to the business of the Company that
is disclosed to Employee by the Company or known by him as a result of his
relationship with the Company and not generally within the public domain
(whether constituting a trade secret or not), including without limitation, the
following information:
(i) financial information, such as Company's earnings,
assets, debts, prices, fee structure, volumes of purchases
or sales or other financial data, whether relating to
Company generally, or to particular products, services,
geographic areas, or time periods;
(ii) supply and service information, such as information
concerning the goods and services utilized or purchased by
the Company, the names or addresses of suppliers, terms of
supply or service contracts, or of particular transactions,
or related information about potential suppliers, to the
extent that such information is not generally known to the
public, and to the extent that the combination of suppliers
or use of a particular supplier, though generally known or
available, yields advantage to Company the details of
which are not generally known;
(iii) marketing information, such as details about ongoing
or proposed marketing programs or agreements by or on
behalf of Company, marketing forecasts or results of
marketing efforts or information about impending
transactions;
(iv) intellectual property information, such as formulas,
design details or parameters, software source code,
proprietary programs, devises, techniques and processes,
ongoing or planned activities in intellectual property
development, ongoing or planned joint venture
activities, and licensing terms or conditions;
(v) personnel information, such as employees' personal or
medical histories, compensation or other terms of
employment, actual or proposed promotions, hiring,
resignations, disciplinary actions, terminations or reasons
therefor, training methods, performance, or other
employee information;
(vi) customer information, such as any compilation of past,
existing or prospective customers, customer proposals or
agreements between customers and Company, status of
customer accounts or credit, or related information about
actual or prospective customers; and
(vii) information with respect to any customer affairs that
the Company agreed to treat as confidential.
The term "Confidential Information" does not include information that has become
generally available to the public by the act of one who has the right to
disclose such information without violating any right of the Company or the
customer to which such information pertains.
(b) The covenant contained in this Section 9 shall survive the
termination of Employee's employment with the Company for any reason for a
period of two (2) years; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Employee's obligations of confidentiality and non-disclosure as set forth in
this Section 9 shall continue to survive after said two (2) year period
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<PAGE> 8
to the greatest extent permitted by applicable law. These rights of the Company
are in addition to those rights the Company has under the common law or
applicable statutes for the protection of trade secrets.
10. Non-Competition.
(a) Employee expressly covenants and agrees that during the term
of his employment hereunder and after termination of his employment for any
reason, he will not, directly or indirectly, seek, obtain or accept a
"Competitive Position" in the "Restricted Territory" with a "Competitor" of the
Company (as such terms are hereafter defined). For purposes of this Agreement, a
"Competitor" of the Company means any business, individual, partnership, joint
venture, association, firm, corporation or other entity (other than the Company
or its affiliates or any nonprofit institution of higher learning) engaged,
wholly or partly, in the sale or distribution of educational products or
services that are the same as, or similar to, or competitive with the products
or services sold or distributed by the Company (or its affiliates); a
"Competitive Position" means any employment with any Competitor of the Company
whereby Employee will use or is likely to use any Confidential Information (as
that term is defined in Section 9), or whereby Employee has duties for such
Competitor that are the same as or substantially similar to those actually
performed by him pursuant to the terms hereof; and the "Restricted Territory"
means the following geographical area: the States of California and Georgia.
Employee acknowledges and agrees that he has been or will be working within the
Restricted Territory as defined above or has had or will have material contact
with actual or prospective students, alumni, student referral sources, student
out-placement sources, educators, vendors and other parties having business
dealings with the Company located within such areas. The parties agree to review
the geographical area included within the Restricted Territory from time to time
at either party's request in order that the Restricted Territory may be reformed
so that its coverage upon Employee's termination will extend only to the
geographical area in which the Employee is working at such time, including any
area where any operations performed, supervised or assisted in by the Employee
are conducted and any area where actual or prospective students, alumni, student
referral sources, student out-placement sources, educators, vendors and other
parties having business dealings with the Company are present. Any reformation
to be evidenced only by written amendment to this Agreement. Nothing contained
in this Section 10 is intended to prevent Employee from investing in stock or
other securities listed on a national securities exchange or actively traded on
the over the counter market of any corporation engaged, wholly or partly, in the
sale or distribution of educational products or services; provided, however,
that Employee and members of his immediate family shall not, directly or
indirectly, hold more than a total of five percent (5%) of all issued and
outstanding stock or other securities of any such corporation.
(b) The covenant contained in this Section 10 shall survive the
termination of Employee's employment with the Company for any reason for a
period of eighteen (18) months; provided, however, that if the Employee is
terminated Without Cause, the covenant contained in this Section 10 shall
survive until the earlier of (i) the eighteenth (18th) monthly anniversary of
the date of termination of the Employee's employment, or (ii) the date scheduled
for the final payment of post-employment compensation owing under Section 6(a)
(without regard to any premature termination of the post-employment compensation
resulting from Employee's breach of any post-employment covenants).
11. Non-Solicitation of Employees.
Employee agrees that he will, for so long as he is employed
hereunder and for a period of twenty four (24) months after termination of his
employment, refrain from recruiting or hiring, or attempting to recruit or hire,
directly or by assisting others, any other employee of the Company who is
employed by the Company or any successor or affiliate of the Company.
12. Tolling of Period of Restraint.
Employee hereby expressly acknowledges and agrees that in the
event the enforceability of any of the terms of this Agreement shall be
challenged in court or pursuant to arbitration and Employee is not enjoined from
breaching any of the restraints set forth in Sections 9 through 11, then if a
court of competent jurisdiction or arbitration panel finds that the challenged
restraint is enforceable, the time period of the restraint shall be deemed
tolled upon the
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filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
13. Acknowledgments.
Employee hereby acknowledges and agrees that the restrictions
contained in Sections 9 through 11 are fair and reasonable and necessary for the
protection of the legitimate business interests of the Company. Employee
acknowledges that in the event Employee's employment with the Company terminates
for any reason, Employee will be able to earn a livelihood without violating the
restrictions contained in Sections 9 through 11 and that Employee's ability to
earn a livelihood without violating such restrictions is a material condition to
Employee's employment and continued employment with the Company.
14. Rights to Materials.
All records, files, memoranda, reports, price lists, student
lists, lists of student out placement sources, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
his employment or upon the prior demand of the Company, he shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company.
15. Works Made for Hire.
The Company and Employee acknowledge that in the course of
Employee's employment by the Company, Employee may from time to time create for
the Company copyrightable works. Such works may consist of manuals, pamphlets,
instructional materials, computer programs, films, tapes or other copyrightable
material, or portions thereof, and may be created within or without the
Company's facilities and before, during or after normal business hours. All such
works related to or useful in the business of the Company are specifically
intended to be works made for hire and shall be the property of the Company, and
Employee shall cooperate with the Company in the protection of the Company's
copyrights therein and, to the extent deemed desirable by the Company, the
registration of such copyrights.
16. Discoveries.
Employee agrees that any inventions, discoveries or improvements
that Employee may develop or conceive during the course of Employee's employment
shall be the sole property of the Company. Employee agrees to promptly disclose
to the Company in writing all such inventions, discoveries and improvements,
whether directly or indirectly related to the business of the Company or whether
made solely by the Employee or in conjunction with others. At the Company's
request and expense, both during and after Employee's employment, Employee will
promptly execute a specific assignment of title to the Company (or any specified
member thereof) of each invention, discovery or improvement described in the
preceding paragraph, and perform all other acts reasonably necessary to enable
the Company to secure a patent therefor in the United States and in foreign
countries and to maintain, defend and assert such patents. This obligation shall
survive the termination or expiration of this Agreement.
17. Severability
Except as noted below, should any provision of this Agreement be
declared or determined by any court of competent jurisdiction to be
unenforceable or invalid for any reason, the validity of the remaining parts,
terms or provisions of this Agreement shall not be affected thereby and the
invalid or unenforceable part, term or provision shall be deemed not to be a
part of this Agreement. The covenants set forth in this Agreement are to be
reformed pursuant to Section 18 if held to be unreasonable or enforceable, in
whole or in part, and, as written and as reformed, shall be deemed to be part of
this Agreement.
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18. Reformation.
If any of the covenants or promises of this Agreement are
determined by any court of law or equity, with jurisdiction over this matter, to
be unreasonable or unenforceable, in whole or in part, as written, Employee
hereby consents to and affirmatively requests that said court reform the
covenant or promise so as to be reasonable and enforceable and that said court
enforce the covenant or promise as so reformed.
19. Injunctive Relief.
Employee understands, acknowledges and agrees that in the event
of a breach or threatened breach of any of the covenants and promises contained
in Sections 9, 10, 11, 14, 15 and 16, the Company will suffer irreparable injury
for which there is no adequate remedy at law and the Company will therefore be
entitled to injunctive relief enjoining said breach or threatened breach.
Employee further acknowledges, however, that the Company shall have the right to
seek a remedy at law as well as or in lieu of equitable relief in the event of
any such breach.
20. Assignment.
The terms and provisions of this Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns, and
upon Employee and his heirs and personal representatives. The term "Company" as
used in this Agreement shall be deemed to include the successors and assigns of
the original or any subsequent entity constituting the Company as well as any
and all divisions, subsidiaries, or affiliates thereof.
21. Waiver.
The waiver by any party to this Agreement of a breach of any of
the provisions of this Agreement shall not operate or be construed as a waiver
of any subsequent or simultaneous breach.
22. Applicable Law and Mutual Submissions.
This Agreement has been entered into in and shall be governed by
and construed under the laws of the State of Georgia.
23. Headings and Captions.
The headings and captions used in this Agreement are for
convenience of reference only, and shall in no way define, limit, expand or
otherwise affect the meaning or construction of any provision of this Agreement.
24. Notice.
Any notice required or permitted to be given pursuant to this
Agreement shall be deemed sufficiently given when delivered in person or when
deposited in the United States mail, first class postage prepaid.
25. Gender.
All pronouns or any variations thereof contained in this
Agreement refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
26. Right to Arbitration.
Any controversy or claim arising out of or relating to
Employee's employment by the Company, or the termination thereof, or this
Agreement, or the breach thereof (including, without limitation, any claim that
any provision of this Agreement or any obligation of Employee is illegal or
otherwise unenforceable or voidable under law, ordinance or ruling or that
Employee's employment by the Company was illegally terminated) shall be settled
by arbitration at the
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<PAGE> 11
/s/ SB
- ----------
Company's
Initials
/s/ SGF
- ----------
Employee's
Initials
office of the American Arbitration Association in Atlanta, Georgia, in
accordance with the United States Arbitration Act Company and Employee each
consents and submits to the personal jurisdiction and venue of the trial courts
of Fulton County, Georgia, and also to the personal jurisdiction and venue of
the United States District Court for the Northern District of Georgia for
purposes of enforcing this provision. All awards of the arbitration shall be
binding and non-appealable except as otherwise provided in the United States
Arbitration Act. Judgment upon the award of the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall take place at a time
noticed by the American Arbitration Association regardless of whether one of the
parties fails or refuses to participate. The arbitrator shall have no authority
to award punitive damages, but will otherwise have the authority to award any
remedy or relief that a court of competent jurisdiction could order or grant,
including, without limitation, specific performance of any obligation created
under this Agreement, the issuance of an injunction or other provisional relief,
or the imposition of sanctions for abuse or frustration of the arbitration
process. The parties shall be entitled to engage in reasonable discovery,
including a request for the production of relevant documents. Depositions may be
ordered by the arbitrator upon a showing of need. The foregoing provisions shall
not preclude the Company from bringing an action in any court of competent
jurisdiction for injunctive or other provisional relief as the Company may
determine is necessary or appropriate.
27. Prevailing Party.
In the event suit, action or other legal proceeding of any kind
(including arbitration) is brought by any party hereto against the other to
enforce such party's rights hereunder, the prevailing party shall be entitled to
an award of costs, expenses and attorneys' fees incurred in connection
therewith.
28. Entire Agreement.
This Agreement constitutes the entire agreement between the
Company and Employee with respect to the subject matter of this Agreement and
supersedes any prior agreements or understandings between the Company and
Employee with respect to such subject matter. No amendment or waiver of this
Agreement or any provision hereof shall be effective unless in writing signed by
both of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, under seal, as of the day and year first above written.
"COMPANY"
E HOLDINGS, INC.
Attest: By: /s/ Steve Bostic
------------------------------- -----------------------------
Title: Title:
------------------------------- -----------------------------
[CORPORATE SEAL] "EMPLOYEE"
/s/ Stephen G. Franklin (SEAL)
-------------------------------
STEPHEN G. FRANKLIN, SR.
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<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as
of the 8th day of October, 1996, by and between Phillip Markert (the "Employee")
and American-European Corporation, a Georgia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company operates a multi-branch educational institution
doing business as the "American College"; and
WHEREAS, Employee is currently an employee of the Company, and desires
to enter into this written agreement to memorialize the terms and conditions of
his continued employment by the Company, and the Company desires to continue to
employ Employee, all in accordance with the terms and conditions hereinafter set
forth;
NOW, THEREFORE, for and in consideration of the above premises, the
mutual covenants and agreements hereinafter set forth and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
1. Employment and Duties.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company shall employ Employee, and Employee shall serve the
Company, as President, or such additional or alternative executive positions as
may be assigned to the Employee from time to time by the chief executive officer
("CEO") or board of directors of the Company (the "Board").
(b) At all times during the term hereof, Employee shall, for the
benefit of the Company, use his best efforts to apply his skills, knowledge and
specialized training to perform the duties and exercise the powers, functions
and discretions incident to his then current executive position with the Company
or which from time to time, consistent with such position may be assigned to or
vested in him by the CEO or the Board, in an efficient and competent manner and
on such terms and subject to such restrictions as the CEO or Board may from time
to time impose. Notwithstanding anything contained in this Agreement to the
contrary, the Company shall not assign to the Employee any alternative executive
position or additional or alternative duties that are promptly and reasonably
objected to by the Employee on the basis of the Employee being unqualified to
perform the same due to lack of experience or training.
(c) At all times during the term hereof, Employee shall during
working hours, devote the whole of his time, attention and ability to his duties
hereunder at such of the Company's locations in the metropolitan Atlanta,
Georgia area as the Company may require from time to time. In connection with
the performance of his duties hereunder, the Employee may also be required to
undertake such reasonable business travel as the Company may require from time
to time.
(d) At all times during the term hereof, Employee shall comply
with all reasonable requests, instructions and regulations made by the CEO or
Board and give to Company such explanations, information and assistance as the
CEO or Board may reasonably require.
(e) At all times during the term hereof, Employee shall
faithfully serve the Company to the best of his ability and use his best efforts
to promote the interests of the Company.
(f) At all times during the term hereof, Employee agrees to be a
full-time employee of the Company and to devote his full and exclusive time,
energy and skill to the business of the Company, and to the
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<PAGE> 2
fulfillment of Employee's obligation under this Agreement. In addition to the
foregoing and not in limitation thereof, during the term hereof, Employee shall
not carry on, engage in, or otherwise be interested in, directly or indirectly,
any other business or activity that is competitive with the activities and
business of the Company, that is of a nature similar to the Company's business,
that would result in a conflict of interest with the Company's business, or that
would materially affect Employee's ability to perform his duties as set forth in
this Agreement.
2. Term.
The term of this Agreement shall begin as of the date hereof,
and shall, unless earlier terminated as set forth herein, end on the fifth (5th)
anniversary thereof.
3. Compensation.
(a) Subject to the terms of this Agreement, in consideration of
Employee's services, the Company shall pay Employee so long as he shall be
employed under this Agreement a base salary of Two Hundred Thousand Dollars
($200,000) per annum. It being agreed, however, that Employee's salary shall be
subject to all withholdings pursuant to applicable law or regulation. Employee's
base salary shall be payable to Employee on the regularly reoccurring pay period
established by the Company, but in no event in less than monthly installments.
(b) Employee hereby acknowledges that, from time to time,
Employee may be required to work beyond standard working hours in order to
perform his duties hereunder. Employee shall not be entitled to compensation for
overtime or extra hours worked in performance of his duties hereunder except as
required by law.
(c) In addition to the compensation described in this Agreement,
Employee shall be entitled to reimbursement by the Company for all actual,
reasonable and direct expenses incurred by him in the performance of his duties
hereunder, provided such expenses were incurred in accordance with the policies
and procedures established by the Company from time to time. Employee shall
provide the Company with written documentation of such expenses in form
complying with the records required by the Company in such cases, and
reimbursement for each item of approved expense shall be made within a
reasonable time after receipt by Company of the written documentation thereof.
4. Employment Benefits.
(a) Employee shall have the right to participate in any and all
employee benefit programs established or maintained by the Company from time to
time, in accordance with the terms and conditions of such employee benefit
programs, including, without limitation, such retirement plans and medical or
dental plans, or other fringe benefit plans (such as a Section 125 cafeteria
plan) as may be established from time to time by the Company. To the extent
Employee participates in such programs, Employee shall be subject to the terms
and conditions set forth therein. The Company reserves the right, in its sole
discretion, to alter, amend or discontinue any of such employee benefit programs
at any time.
(b) Employee acknowledges that the Company may promulgate
employee handbooks, policies and procedures from time to time and Employee
agrees to adhere to the terms of any handbook, policy or procedures which the
Company may promulgate. The Company reserves the right, in its sole discretion,
to alter, amend or terminate any handbook, policy or procedure.
5. Illness, Incapacity or Death During Employment.
(a) Subject to Section 5(b) hereof, the employment of Employee
under this Agreement may be terminated immediately by the Company in the event
of Employee's Disability upon notice of termination served in accordance with
Section 24 hereof, such Disability being specified in the notice. The term
"Disability" as used in this Agreement means the inability of Employee to
perform his duties under this Agreement in a manner
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<PAGE> 3
consistent with what is normally required of an employee holding a similar
position in similarly situated companies as a result of Employee suffering from
an illness or physical or mental impairment.
(b) In the event that the Company delivers to Employee a notice
of termination for Disability, which Disability the Company believes in good
faith will continue beyond the next following three (3) months, such notice will
be effective on the fifteenth (15th) day following delivery thereof unless prior
to the end of such fifteen (15) day period Employee delivers to the Company a
written opinion of a competent medical doctor that such inability is not
expected to continue for the three-month period following delivery of such
notice. If such opinion is delivered, then the Company may obtain a second
medical opinion (and Employee shall submit to a medical examination in
connection therewith upon request of the Company). If such second medical
opinion states that such inability is expected to so continue, then within
fifteen (15) days following delivery of such second medical opinion, the medical
doctors chosen by Employee and by the Company shall choose a third medical
doctor who shall deliver to the Company a written opinion as to whether such
inability is expected to so continue, which opinion shall be final and
conclusive, and shall be effective on the fifteenth (15th) day following
delivery thereof.
(c) In the event of Employee's death, all obligations of the
Company under this Agreement shall terminate other than Employee's rights with
respect to the payment of that portion of the base salary earned by Employee to
the date of death, plus reimbursement of all business expenses that were
reasonably incurred by Employee pursuant to the provisions of Section 3(c) above
in performing his responsibilities and duties for the Company prior to and
including such date.
6. Termination of Employment.
(a) If during the term of this Agreement Company terminates
Employee's employment hereunder With Cause (as hereinafter defined) or pursuant
to Section 5, all obligations of Company to provide compensation and benefits
under this Agreement shall cease, and Employee shall have no claim against the
Company for damages or otherwise by reason of such termination. Company's
election to terminate Employee's employment With Cause shall be without
prejudice to any remedy the Company may have against Employee for the breach or
non-performance of any of the provisions of this Agreement.
(b) If during the term of this Agreement Company terminates
Employee's employment hereunder Without Cause (as hereinafter defined), then
Employee will be entitled to continue to receive Employee's base salary for
twenty-four (24) months after the date of termination; provided, however, that
post-employment compensation shall cease to accrue and Employee shall have no
further entitlement to the same from and after the earlier of (i) the Employee's
death, or (ii) the date Employee breaches any of the post-employment covenants
set forth in this Agreement.
(c) "With Cause" means the termination of employment
resulting from:
(i) any act or omission which constitutes a material
breach by Employee of his obligations under this Agreement,
which act or omission, if subject to cure, shall not be cured
within five (5) days after notice thereof is provided by
Company to Employee;
(ii) the commission by Employee of a felony or any crime
involving moral turpitude, fraud or dishonesty;
(iii) the perpetration by Employee of any material act of
dishonesty relating to the Company or the Company's employees;
(iv) the use of illegal drugs by the Employee after the date
hereof, or drunkenness or substance abuse by the Employee which
results in the Employee being unable to perform his duties
hereunder
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<PAGE> 4
in a manner consistent with the efficient and competent manner
in which the parties hereto contemplate that such duties will be
performed;
(v) gross negligence on the part of Employee in the
performance of his duties hereunder; or
(vi) the issuance of a final consent decree, cease and desist or
similar order against Employee by a regulatory agency relating
to violations or alleged violations of any federal or state law
or regulation governing the conduct of the business of the
Company.
(d) "Without Cause" means the termination of employment
resulting from any reason other than those enumerated in subsection (c) above or
Section 5 of this Agreement.
7. Employee's Obligations upon Termination of Employment.
Upon the termination of his employment hereunder for whatever
reason Employee shall:
(a) Forthwith tender his resignation from any directorship or
office he may hold in the Company or its subsidiaries or affiliates; and
(b) Not represent himself still to be connected with the
Company or its subsidiaries or affiliates.
8. Effect of Termination.
The provisions of this Agreement shall survive the termination
of this Agreement and the termination of Employee's employment with the Company
to the extent required to give full effect to the covenants and agreements
contained herein.
9. Confidentiality.
(a) Employee agrees that, both during the term of his
employment and after the termination of his employment for any reason,
Employee will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose, except as authorized by the
Company in connection with the performance of Employee's duties, any
Confidential Information, as defined hereinafter, that Employee may have or
acquire (whether or not developed or compiled by Employee and whether or not
Employee has been authorized to have access to such Confidential Information)
during the term of this Agreement. The term "Confidential Infor mation" as used
in this Agreement shall mean and include any information, data and know-how
relating to the business of the Company that is disclosed to Employee by the
Company or known by him as a result of his relationship with the Company and
not generally within the public domain (whether constituting a trade secret or
not), including without limitation, the following information:
(i) financial information, such as Company's earnings, assets,
debts, prices, fee structure, volumes of purchases or sales or
other financial data, whether relating to Company generally, or
to particular products, services, geographic areas, or time
periods;
(ii) supply and service information, such as information
concerning the goods and services utilized or purchased by the
Company, the names or addresses of suppliers, terms of supply or
service contracts, or of particular transactions, or related
information about potential suppliers, to the extent that such
information is not generally known to the public, and to the
extent that the combination of suppliers or use of a particular
supplier, though generally known or available, yields advantages
to Company the details of which are not generally known;
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<PAGE> 5
(iii) marketing information, such as details about ongoing or
proposed marketing programs or agreements by or on behalf of
Company, marketing forecasts or results of marketing efforts or
information about impending transactions;
(iv) intellectual property information, such as formulas,
design details or parameters, software source code, proprietary
programs, devises, techniques and processes, ongoing or planned
activities in intellectual property development, ongoing or
planned joint venture activities, and licensing terms or
conditions;
(v) personnel information, such as employees' personal or
medical histories, compensation or other terms of employment,
actual or proposed promotions, hiring, resignations,
disciplinary actions, terminations or reasons therefor, training
methods, performance, or other employee information;
(vi) customer information, such as any compilation of past,
existing or prospective customers, customer proposals or
agreements between customers and Company, status of customer
accounts or credit, or related information about actual or
prospective customers; and
(vii) information with respect to any customer affairs that the
Company agreed to treat as confidential.
The term "Confidential Information" does not include information that has become
generally available to the public by the act of one who has the right to
disclose such information without violating any right of the Company or the
client to which such information pertains.
(b) The covenant contained in this Section 9 shall survive the
termination of Employee's employment with the Company for any reason for a
period of two (2) years; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Employee's obligations of confidentiality and non-disclosure as set forth in
this Section 9 shall continue to survive after said two (2) year period to the
greatest extent permitted by applicable law. These rights of the Company are in
addition to those rights the Company has under the common law or applicable
statutes for the protection of trade secrets.
10. Non-Competition.
(a) Employee expressly covenants and agrees that during the term
of his employment hereunder and after termination of his employment for any
reason, he will not, directly or indirectly, seek, obtain or accept a
"Competitive Position" in the "Restricted Territory" with a "Competitor" of the
Company (as such terms are hereafter defined). For purposes of this Agreement, a
"Competitor" of the Company means any business, individual, partnership, joint
venture, association, firm, corporation or other entity engaged in a business
that is substantially similar to or competitive with the Company's business of
owning and operating accredited, residential, post-secondary degree-granting
institutions in the following fields: business administration (bachelor's and
master's degrees), interior design, fashion design, commercial art, fashion
merchandising, and video production; a "Competitive Position" means any
employment with any Competitor of the Company whereby Employee will use or is
likely to use any Confidential Information (as that term is defined in Section
9), or whereby Employee has duties for such Competitor that are the same as or
substantially similar to those actually performed by him pursuant to the terms
hereof; and the "Restricted Territory" means the following geographical area:
the States of California and Georgia. Employee acknowledges and agrees that he
has been or will be working within the Restricted Territory as defined above or
has had or will have material contact with actual or prospective students,
alumni, student referral sources, student out-placement sources, educators,
vendors and other parties having business dealings with the Company located
within such areas. The parties agree to review the geographical area included
within the Restricted Territory from time to time at either party's request in
order that the Restricted Territory may be reformed so that its coverage upon
Employee's termination will extend only to the geographical area in which
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<PAGE> 6
the Employee is working at such time, including any area where any operations
performed, supervised or assisted in by the Employee are conducted and any area
where actual or prospective students, alumni, student referral sources, student
out-placement sources, educators, vendors and other parties having business
dealings with the Company are present. Any reformation to be evidenced only by
written amendment to this Agreement. Nothing contained in this Section 10 is
intended to prevent Employee from investing in stock or other securities listed
on a national securities exchange or actively traded on the over the counter
market of any corporation engaged, wholly or partly, in the sale or custom
engineered products; provided, however, that neither the Employee nor his wife
or children shall directly or indirectly, hold more than a total of five percent
(5%) of all issued and outstanding stock or other securities of any such
corporation.
(b) The covenant contained in this Section 10 shall survive the
termination of Employee's employment with the Company for any reason for a
period of eighteen (18) months; provided, however, that if the Employee is
terminated Without Cause, the covenant contained in this Section 10 shall
survive until the earlier of (i) the eighteenth (18th) monthly anniversary of
the date of termination of the Employee's employment, or (ii) the date scheduled
for the final payment of post-employment compensation owing under Section 6(b)
(without regard to any premature termination of the post-employment compensation
resulting from Employee's breach of any post-employment covenants).
11. Non-Solicitation of Employees.
Employee agrees that he will, for so long as he is employed
hereunder and for a period of twenty four (24) months after termination of his
employment, refrain from recruiting or hiring, or attempting to recruit or hire,
directly or by assisting others, any other employee of the Company who is
employed by the Company or any successor or affiliate of the Company.
12. Tolling of Period of Restraint.
Employee hereby expressly acknowledges and agrees that in the
event the enforceability of any of the terms of this Agreement shall be
challenged in court or pursuant to arbitration and Employee is not enjoined from
breaching any of the restraints set forth in Sections 9 through 11, then if a
court of competent jurisdiction or arbitration panel finds that the challenged
restraint is enforceable, the time period of the restraint shall be deemed
tolled upon the filing of the lawsuit challenging the enforceability of the
restraint until the dispute is finally resolved and all periods of appeal have
expired.
13. Acknowledgments.
Employee hereby acknowledges and agrees that the restrictions
contained in Sections 9 through 11 are fair and reasonable and necessary for the
protection of the legitimate business interests of the Company. Employee
acknowledges that in the event Employee's employment with the Company terminates
for any reason, Employee will be able to earn a livelihood without violating the
restrictions contained in Sections 9 through 11 and that Employee's ability to
earn a livelihood without violating such restrictions is a material condition to
Employee's employment and continued employment with the Company.
14. Rights to Materials.
All records, files, memoranda, reports, price lists, student
lists, lists of student out placement sources, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
his employment or upon the prior demand of the Company, he shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company.
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<PAGE> 7
15. Works Made for Hire.
The Company and Employee acknowledge that in the course of
Employee's employment by the Company, Employee may from time to time create for
the Company copyrightable works. Such works may consist of manuals, pamphlets,
instructional materials, computer programs, films, tapes or other copyrightable
material, or portions thereof, and may be created within or without the
Company's facilities and before, during or after normal business hours. All such
works related to or useful in the business of the Company are specifically
intended to be works made for hire and shall be the property of the Company, and
Employee shall cooperate with the Company in the protection of the Company's
copyrights therein and, to the extent deemed desirable by the Company, the
registration of such copyrights.
16. Discoveries.
Employee agrees that any inventions, discoveries or improvements
that Employee may develop or conceive during the course of Employee's employment
shall be the sole property of the Company. Employee agrees to promptly disclose
to the Company in writing all such inventions, discoveries and improvements,
whether directly or indirectly related to the business of the Company or whether
made solely by the Employee or in conjunction with others. At the Company's
request and expense, both during and after Employee's employment, Employee will
promptly execute a specific assignment of title to the Company (or any specified
member thereof) of each invention, discovery or improvement described in the
preceding paragraph, and perform all other acts reasonably necessary to enable
the Company to secure a patent therefor in the United States and in foreign
countries and to maintain, defend and assert such patents. This obligation shall
survive the termination or expiration of this Agreement.
17. Severability
Except as noted below, should any provision of this Agreement be
declared or determined by any court of competent jurisdiction to be
unenforceable or invalid for any reason, the validity of the remaining parts,
terms or provisions of this Agreement shall not be affected thereby and the
invalid or unenforceable part, term or provision shall be deemed not to be a
part of this Agreement. The covenants set forth in this Agreement are to be
reformed pursuant to Section 18 if held to be unreasonable or enforceable, in
whole or in part, and, as written and as reformed, shall be deemed to be part of
this Agreement.
18. Reformation.
If any of the covenants or promises of this Agreement are
determined by any court of law or equity, with jurisdiction over this matter, to
be unreasonable or unenforceable, in whole or in part, as written, Employee
hereby consents to and affirmatively requests that said court reform the
covenant or promise so as to be reasonable and enforceable and that said court
enforce the covenant or promise as so reformed.
19. Injunctive Relief.
Employee understands, acknowledges and agrees that in the event
of a breach or threatened breach of any of the covenants and promises contained
in Sections 9, 10, 11, 14, 15 and 16, the Company will suffer irreparable injury
for which there is no adequate remedy at law and the Company will therefore be
entitled to injunctive relief enjoining said breach or threatened breach.
Employee further acknowledges, however, that the Company shall have the right to
seek a remedy at law as well as or in lieu of equitable relief in the event of
any such breach.
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<PAGE> 8
20. Assignment.
The terms and provisions of this Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns, and
upon Employee and his heirs and personal representatives. The term "Company" as
used in this Agreement shall be deemed to include the successors and assigns of
the original or any subsequent entity constituting the Company as well as any
and all divisions, subsidiaries, or affiliates thereof.
21. Waiver.
The waiver by any party to this Agreement of a breach of any of
the provisions of this Agreement shall not operate or be construed as a waiver
of any subsequent or simultaneous breach.
22. Applicable Law and Mutual Submissions.
This Agreement has been entered into in and shall be governed by
and construed under the laws of the State of Georgia.
23. Headings and Captions.
The headings and captions used in this Agreement are for
convenience of reference only, and shall in no way define, limit, expand or
otherwise affect the meaning or construction of any provision of this Agreement.
24. Notice.
Any notice required or permitted to be given pursuant to this
Agreement shall be deemed sufficiently given when delivered in person or when
deposited in the United States mail, first class postage prepaid.
25. Gender.
All pronouns or any variations thereof contained in this
Agreement refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
26. Right to Arbitration.
Any controversy or claim arising out of or relating to
Employee's employment by the Company, or the termination thereof, or this
Agreement, or the breach thereof (including, without limitation, any claim that
any provision of this Agreement or any obligation of Employee is illegal or
otherwise unenforceable or voidable under law, ordinance or ruling or that
Employee's employment by the Company was illegally terminated) shall be settled
by arbitration at the office of the American Arbitration Association in Atlanta,
Georgia, in accordance with the United States Arbitration Act (9 USC, ss. 1 et
seq.) and the rules of the American Arbitration Association. Company and
Employee each consents and submits to the personal jurisdiction and venue of the
trial courts of Fulton County, Georgia, and also to the personal jurisdiction
and venue of the United States District Court for the Northern District of
Georgia for purposes of enforcing this provision. All awards of the arbitration
shall be binding and non-appealable except as otherwise provided in the United
States Arbitration Act. Judgment upon the award of the arbitrator may be entered
in any court having jurisdiction thereof. The arbitration shall take place at a
time noticed by the American Arbitration Association regardless of whether one
of the parties fails or refuses to participate. The arbitrator shall have no
authority to award punitive damages, but will otherwise have the authority to
award any remedy or relief that a court of competent jurisdiction could order or
grant, including, without limitation, specific performance of any obligation
created under this Agreement, the issuance of an injunction or other provisional
relief, or the imposition of sanctions for abuse or frustration of the
arbitration process. The parties shall be entitled to engage in reasonable
discovery, including a request for the production of relevant documents.
/s/ SB
Company's
Initials
/s/ PJM
Employee's
Initials
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<PAGE> 9
Depositions may be ordered by the arbitrator upon a showing of need. The
foregoing provisions shall not preclude the Company from bringing an action in
any court of competent jurisdiction for injunctive relief or a temporary
restraining order as the Company may determine is necessary or appropriate.
27. Entire Agreement.
This Agreement constitutes the entire agreement between the
Company and Employee with respect to the subject matter of this Agreement and
supersedes any prior agreements or understandings between the Company and
Employee with respect to such subject matter. No amendment or waiver of this
Agreement or any provision hereof shall be effective unless in writing signed by
both of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, under seal, as of the day and year first above written.
"COMPANY"
AMERICAN-EUROPEAN CORPORATION
Attest: /s/ Douglas C. Chait By: /s/ S. Bostic
---------------------------- ----------------------------
Title: Secretary Title: Chairman
---------------------------- -------------------------
[CORPORATE SEAL] "EMPLOYEE"
/s/ Phillip Markert (SEAL)
----------------------------
PHILLIP MARKERT
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<PAGE> 1
EXHIBIT 10.9
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made and entered into
as of the 8th day of October, 1996, by and between The Phillip J. Markert
Consulting Group, Inc., a Georgia corporation (the "Consultant") and
American-European Corporation, a Georgia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Consultant desires to be engaged as an independent contractor
to provide certain consulting services to the Company, and the Company desires
to engage Consultant to provide such services, all in accordance with the terms
and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the above premises, the
mutual covenants and agreements hereinafter set forth and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
1. Consulting Services.
(a) Subject to the terms and conditions of this Agreement, the
Company hereby engages Consultant as an independent consultant, and Consultant
hereby accepts said engagement with the Company for the purpose of performing
the following services and duties as and when requested by the Company from time
to time during the term of this Agreement: (i) consultation and opinions as to
operational and procedural matters with respect to the executive management
services business in general and the Company's ongoing operation in particular;
(ii) opinions regarding long-term and strategic planning, and direction for the
Company; and (iii) financial management services.
(b) Consultant's services and duties shall be performed in a
competent and professional manner by one or more persons designated by
Consultant but approved by the Company in its sole discretion (a "Service
Provider"), but the Company shall not direct the Consultant in the manner in
which it performs its services or duties hereunder. Consultant shall render
written or oral reports concerning Consultant's activities and observations in
connection therewith, as and when requested by the Company from time to time.
The chief executive officer of the Company or such other person as the Company
may designate from time to time to Consultant, will have supervisory
responsibility for the Consultant's activities under this Agreement (the
"Project Coordinator"). All of Consultant's communications with the Company in
connection with its activities hereunder shall be through the Project
Coordinator, unless the Company otherwise directs Consultant in writing.
2. Term.
The term of this Agreement shall begin as of the date hereof,
and shall, unless earlier terminated as set forth herein, end on the fifth (5th)
anniversary thereof.
3. Compensation.
(a) Subject to the terms of this Agreement, in consideration
of Consultant's services, the Company shall pay Consultant so long as it shall
be engaged to provide services under this Agreement a base fee of Twenty Eight
Thousand Dollars ($28,000) per annum. Consultant's base fee shall be payable, in
arrears, to Consultant on the last day of each month.
(b) As an independent contractor and not an employee,
Consultant acknowledges, understands and agrees that the Company is not required
to withhold federal or state income taxes from any compensation paid
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Consultant hereunder, or to otherwise comply with any state or federal law
concerning the collection of income taxes at the source of payment of wages.
Consultant expressly releases the Company from any liability arising from its
failure to withhold such taxes, and Consultant shall indemnify and hold the
Company harmless from all liability it may incur as a result of any such
failure. Consultant assumes full responsibility for the payment of all federal,
state and local taxes with respect to Consultant's performance of this
Agreement.
4. Relationship and Authority.
(a) It is agreed between the parties hereto that the
Consultant is retained and engaged by the Company only for the purposes and to
the extent set forth in this Agreement, and during the period it renders
services hereunder, its relation to the Company shall be that of an independent
contractor in the performance of each and every part of this Agreement. Neither
the Consultant nor a Service Provider shall be considered by reason of any of
the provisions of this Agreement or otherwise as having "employee" status or as
being entitled to participate in any plan, arrangements, or distributions by the
Company pertaining to or in connection with any engagement benefits enjoyed by
the Company's regular employees.
(b) Consultant shall have no authority to bind the Company by
any promise or representations, whether written or oral, express or implied,
made by it. Consultant shall not have the right to make or enter into any
contracts or agreements of any nature whatsoever for or on behalf of the
Company, or any corporation of which the Company is the parent, affiliate, or
subsidiary.
(c) Consultant agrees to indemnify and hold the Company
harmless from and against any and all loss, cost and damage to the Company
arising out of or as a direct or indirect result of: (i) any representation or
promise made by Consultant, or anyone in his employ or control, in violation of
the provisions of Section 4(b), and (ii) any contract or agreement entered into
on behalf of the Company without the approval of the Company as provided in
Section 4(b).
(d) The Consultant further agrees to release, indemnify and
hold forever harmless the Company from any and all claims for damage to person
or property and for any and all liability of any other nature arising out of the
negligence or willful misconduct on the part of the Consultant in connection
with the performance of this Agreement.
5. Illness, Incapacity or Death During Engagement.
(a) Subject to Section 5(b) hereof, the engagement of
Consultant under this Agreement may be terminated immediately by the Company in
the event of the Service Provider's Disability (and in the absence of the
Company accepting a replacement Service Provider in the Company's sole
discretion) upon notice of termination served in accordance with Section 24
hereof, such Disability being specified in the notice. The term "Disability" as
used in this Agreement means the inability of the Service Provider to perform
the Consultant's duties under this Agreement in a manner consistent with what
was normally required as a result of Employee suffering from an illness or
physical or mental impairment.
(b) In the event that the Company delivers to Consultant a
notice of termination for Disability, which Disability the Company believes in
good faith will continue beyond the next following three (3) months, such notice
will be effective on the fifteenth (15th) day following delivery thereof unless
prior to the end of such fifteen (15) day period Consultant delivers to the
Company a written opinion of a competent medical doctor that such inability is
not expected to continue for the three-month period following delivery of such
notice. If such opinion is delivered, then the Company may obtain a second
medical opinion (and the Service Provider shall submit to a medical examination
in connection therewith upon request of the Company). If such second medical
opinion states that such inability is expected to so continue, then within
fifteen (15) days following delivery of such second medical opinion, the medical
doctors chosen by Consultant and by the Company shall choose a third medical
doctor who
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shall deliver to the Company a written opinion as to whether such inability is
expected to so continue, which opinion shall be final and conclusive, and shall
be effective on the fifteenth (15th) day following delivery thereof.
(c) In the event of a Service Provider's death, all
obligations of the Company under this Agreement shall terminate (in the absence
of the Company accepting a replacement Service Provider in the Company's sole
discretion) other than Consultant's rights with respect to the payment of that
portion of the base fee earned by Consultant to the date of such death.
6. Termination of Engagement.
(a) If during the term of this Agreement Company terminates
Consultant's engagement hereunder With Cause (as hereinafter defined) or
pursuant to Section 5, all obligations of Company to provide compensation and
benefits under this Agreement shall cease, and Consultant shall have no claim
against the Company for damages or otherwise by reason of such termination.
Company's election to terminate Consultant's engagement With Cause shall be
without prejudice to any remedy the Company may have against Consultant for the
breach or non-performance of any of the provisions of this Agreement.
(b) If during the term of this Agreement Company terminates
Consultant's engagement hereunder Without Cause (as hereinafter defined), then
Consultant will be entitled to continue to receive Consultant's base fee for
twenty-four (24) months after the date of termination; provided, however, that
post-engagement compensation shall cease to accrue and Consultant shall have no
further entitlement to the same from and after the earlier of (i) a Service
Provider's death, or (ii) the date Consultant or any of the Service Providers
breach any of the post-engagement covenants set forth in this Agreement.
(c) "With Cause" means the termination of engagement resulting
from:
(i) any act or omission which constitutes a material
breach by Consultant of its obligations under this Agreement,
which act or omission, if subject to cure, shall not be cured
within five (5) days after notice thereof is provided by
Company to the Consultant;
(ii) the commission by a Service Provider of a felony or
any crime involving moral turpitude, fraud or dishonesty;
(iii) the perpetration by Consultant or a Service Provider
of any material act of dishonest relating to the Company or
the Company's employees;
(iv) the use of illegal drugs by a Service Provider after
the date hereof, or drunkenness or substance abuse by a
Service Provider which results in the Consultant being unable
to perform its duties hereunder in a manner consistent with
the efficient and competent manner in which the parties hereto
contemplate that such duties will be performed;
(v) gross negligence on the part of Consultant in the
performance of its duties hereunder; or
(vi) the issuance of a final consent decree, cease and
desist or similar order against the Company or a Service
Provider by a regulatory agency relating to violations or
alleged violations of any federal or state law or regulation
governing the conduct of the business of the Company.
(d) "Without Cause" means the termination of engagement
resulting from any reason other than those enumerated in subsection (c) above or
Section 5 of this Agreement.
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7. Consultant's Obligations upon Termination of Engagement.
Upon the termination of its engagement hereunder for whatever
reason Consultant shall not represent itself still to be connected with the
Company or its subsidiaries or affiliates.
8. Effect of Termination.
The provisions of this Agreement shall survive the termination
of this Agreement and the termination of Consultant's engagement with the
Company to the extent required to give full effect to the covenants and
agreements contained herein.
9. Confidentiality.
(a) Consultant agrees that, both during the term of its
engagement and after the termination of its engagement for any reason,
Consultant will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose, except as authorized by the
Company in connection with the performance of Consultant's duties, any
Confidential Information, as defined hereinafter, that Consultant may have or
acquire (whether or not developed or compiled by Consultant and whether or not
Consultant has been authorized to have access to such Confidential Information)
during the term of this Agreement. The term "Confidential Information" as used
in this Agreement shall mean and include any information, data and know-how
relating to the business of the Company that is disclosed to Consultant by the
Company or known by his as a result of his relationship with the Company and not
generally within the public domain (whether constituting a trade secret or not),
including without limitation, the following information:
(i) financial information, such as Company's earnings,
assets, debts, prices, fee structure, volumes of purchases or
sales or other financial data, whether relating to Company
generally, or to particular products, services, geographic
areas, or time periods;
(ii) supply and service information, such as information
concerning the goods and services utilized or purchased by the
Company, the names or addresses of suppliers, terms of supply
or service contracts, or of particular transactions, or
related information about potential suppliers, to the extent
that such information is not generally known to the public,
and to the extent that the combination of suppliers or use of
a particular supplier, though generally known or available,
yields advantages to Company the details of which are not
generally known;
(iii) marketing information, such as details about ongoing
or proposed marketing programs or agreements by or on behalf
of Company, marketing forecasts or results of marketing
efforts or information about impending transactions;
(iv) intellectual property information, such as formulas,
design details or parameters, software source code,
proprietary programs, devises, techniques and processes,
ongoing or planned activities in intellectual property
development, ongoing or planned joint venture activities, and
licensing terms or conditions;
(v) personnel information, such as Consultants' personal
or medical histories, compensation or other terms of
engagement, actual or proposed promotions, hiring,
resignations, disciplinary actions, terminations or reasons
therefor, training methods, performance, or other employee
information;
(vi) customer information, such as any compilation of
past, existing or prospective customers, customer proposals or
agreements between customers and Company, status of customer
accounts or credit, or related information about actual or
prospective customers; and
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(vii) information with respect to any customer affairs that
the Company agreed to treat as confidential.
The term "Confidential Information" does not include information that has become
generally available to the public by the act of one who has the right to
disclose such information without violating any right of the Company or the
client to which such information pertains.
(b) The covenant contained in this Section 9 shall survive the
termination of Consultant's engagement with the Company for any reason for a
period of two (2) years; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Consultant's obligations of confidentiality and non-disclosure as set forth in
this Section 9 shall continue to survive after said two (2) year period to the
greatest extent permitted by applicable law. These rights of the Company are in
addition to those rights the Company has under the common law or applicable
statutes for the protection of trade secrets.
10. Non-Competition.
(a) Consultant expressly covenants and agrees that during the
term of its engagement hereunder and after termination of its engagement for any
reason, it will not, directly or indirectly, seek, obtain or accept a
"Competitive Position" in the "Restricted Territory" with a "Competitor" of the
Company (as such terms are hereafter defined). For purposes of this Agreement, a
"Competitor" of the Company means any business, individual, partnership, joint
venture, association, firm, corporation or other entity engaged in a business
that is substantially similar to or competitive with the Company's business of
owning and operating accredited, residential, post-secondary degree-granting
institutions in the following fields: business administration (bachelor's and
master's degrees), interior design, fashion design, commercial art, fashion
merchandising, and video production; a "Competitive Position" means any
engagement with any Competitor of the Company whereby Consultant will use or is
likely to use any Confidential Information (as that term is defined in Section
9), or whereby Consultant has duties for such Competitor that are the same as or
substantially similar to those actually performed by it pursuant to the terms
hereof; and the "Restricted Territory" means the following geographical area:
the States of California and Georgia. Consultant acknowledges and agrees that it
has been or will be working within the Restricted Territory as defined above or
has had or will have material contact with actual or prospective students,
alumni, student referral sources, student out-placement sources, educators,
vendors and other parties having business dealings with the Company located
within such areas. The parties agree to review the geographical area included
within the Restricted Territory from time to time at either party's request in
order that the Restricted Territory may be reformed so that its coverage upon
Consultant's termination will extend only to the geographical area in which the
Consultant is working at such time, including any area where actual or
prospective students, alumni, student referral sources, student out-placement
sources, educators, vendors and other parties having business dealings with the
Company are present. Any reformation to be evidenced only by written amendment
to this Agreement. Nothing contained in this Section 10 is intended to prevent
Consultant from investing in stock or other securities listed on a national
securities exchange or actively traded on the over the counter market of any
corporation engaged, wholly or partly, in the sale or custom engineered
products; provided, however, neither the Consultant nor the Service Provider or
the wife or children of the Service Provider shall, directly or indirectly, hold
more than a total of five percent (5%) of all issued and outstanding stock or
other securities of any such corporation.
(b) The covenant contained in this Section 10 shall survive
the termination of Consultant's engagement with the Company for any reason for a
period of eighteen (18) months; provided, however, that if the Consultant is
terminated Without Cause, the covenant contained in this Section 10 shall
survive until the earlier of (i) the eighteenth (18th) monthly anniversary of
the date of termination of the Consultant's engagement, or (ii) the date
scheduled for the final payment of post-engagement compensation owing under
Section 6(b) (without regard to any premature termination of the post-engagement
compensation resulting from Consultant's breach of any post-engagement
covenants).
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11. Non-Solicitation of Employees.
Consultant agrees that it will, for so long as it is engaged
hereunder and for a period of twenty four (24) months after termination of its
engagement, refrain from recruiting or hiring, or attempting to recruit or hire,
directly or by assisting others, any other employee of the Company who is
employed by the Company or any successor or affiliate of the Company.
12. Tolling of Period of Restraint.
Consultant hereby expressly acknowledges and agrees that in
the event the enforceability of any of the terms of this Agreement shall be
challenged in court or pursuant to arbitration and Consultant is not enjoined
from breaching any of the restraints set forth in Sections 9 through 11, then if
a court of competent jurisdiction or arbitration panel finds that the challenged
restraint is enforceable, the time period of the restraint shall be deemed
tolled upon the filing of the lawsuit challenging the enforceability of the
restraint until the dispute is finally resolved and all periods of appeal have
expired.
13. Acknowledgments.
Consultant hereby acknowledges and agrees that the
restrictions contained in Sections 9 through 12 are fair and reasonable and
necessary for the protection of the legitimate business interests of the
Company. Consultant hereby further acknowledges and agrees that it will
contractually require each Service Provider to adhere to the covenants and
promises contained in Sections 9, 10, 11, 14, 15, 16 and 26, that the Company
will be a third party beneficiary with respect to all of such contractual
obligations and shall be entitled to enforce the same against the Service
Provider to the same extent as the Consultant, and that any breach of any of the
foregoing covenants and promises by a Service Provider shall be deemed a breach
by the Consultant, and that the Consultant will indemnify and hold the Company
harmless from and against any loss, liability, cost or expense (including
reasonable attorneys' fees) incurred as a consequence of any of such breach.
14. Rights to Materials.
All records, files, memoranda, reports, price lists, student
lists, lists of student out placement sources, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Consultant shall use or prepare or come in
contact with in the course of, or as a result of, its engagement shall, as
between the parties hereto, remain the sole property of the Company. Upon the
termination of its engagement or upon the prior demand of the Company,
Consultant shall immediately return all such materials and shall not thereafter
cause removal thereof from the premises of the Company.
15. Works Made for Hire.
The Company and Consultant acknowledge that in the course of
Consultant's engagement by the Company, Consultant may from time to time create
for the Company copyrightable works. Such works may consist of manuals,
pamphlets, instructional materials, computer programs, films, tapes or other
copyrightable material, or portions thereof, and may be created within or
without the Company's facilities and before, during or after normal business
hours. All such works related to or useful in the business of the Company are
specifically intended to be works made for hire and shall be the property of the
Company, and Consultant shall cooperate with the Company in the protection of
the Company's copyrights therein and, to the extent deemed desirable by the
Company, the registration of such copyrights.
16. Discoveries.
Consultant agrees that any inventions, discoveries or
improvements that Consultant may develop or conceive during the course of
Consultant's engagement shall be the sole property of the Company. Consultant
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agrees to promptly disclose to the Company in writing all such inventions,
discoveries and improvements, whether directly or indirectly related to the
business of the Company or whether made solely by the Consultant or in
conjunction with others. At the Company's request and expense, both during and
after Consultant's engagement, Consultant will promptly execute a specific
assignment of title to the Company (or any specified member thereof) of each
invention, discovery or improvement described in the preceding paragraph, and
perform all other acts reasonably necessary to enable the Company to secure a
patent therefor in the United States and in foreign countries and to maintain,
defend and assert such patents. This obligation shall survive the termination or
expiration of this Agreement.
17. Severability
Except as noted below, should any provision of this Agreement
be declared or determined by any court of competent jurisdiction to be
unenforceable or invalid for any reason, the validity of the remaining parts,
terms or provisions of this Agreement shall not be affected thereby and the
invalid or unenforceable part, term or provision shall be deemed not to be a
part of this Agreement. The covenants set forth in this Agreement are to be
reformed pursuant to Section 18 if held to be unreasonable or enforceable, in
whole or in part, and, as written and as reformed, shall be deemed to be part of
this Agreement.
18. Reformation.
If any of the covenants or promises of this Agreement are
determined by any court of law or equity, with jurisdiction over this matter, to
be unreasonable or unenforceable, in whole or in part, as written, Consultant
hereby consents to and affirmatively requests that said court reform the
covenant or promise so as to be reasonable and enforceable and that said court
enforce the covenant or promise as so reformed.
19. Injunctive Relief.
Consultant understands, acknowledges and agrees that in the
event of a breach or threatened breach of any of the covenants and promises
contained in Sections 9, 10, 11, 14, 15 and 16 the Company will suffer
irreparable injury for which there is no adequate remedy at law and the Company
will therefore be entitled to injunctive relief enjoining said breach or
threatened breach. Consultant further acknowledges, however, that the Company
shall have the right to seek a remedy at law as well as or in lieu of equitable
relief in the event of any such breach.
20. Assignment.
The terms and provisions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. The term "Company" as used in this Agreement shall be
deemed to include the successors and assigns of the original or any subsequent
entity constituting the Company as well as any and all divisions, subsidiaries,
or affiliates thereof.
21. Waiver.
The waiver by any party to this Agreement of a breach of any
of the provisions of this Agreement shall not operate or be construed as a
waiver of any subsequent or simultaneous breach.
22. Applicable Law and Mutual Submissions.
This Agreement has been entered into in and shall be governed
by and construed under the laws of the State of Georgia.
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23. Headings and Captions.
The headings and captions used in this Agreement are for
convenience of reference only, and shall in no way define, limit, expand or
otherwise affect the meaning or construction of any provision of this Agreement.
24. Notice.
Any notice required or permitted to be given pursuant to this
Agreement shall be deemed sufficiently given when delivered in person or when
deposited in the United States mail, first class postage prepaid.
25. Gender.
All pronouns or any variations thereof contained in this
Agreement refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
26. Right to Arbitration.
Any controversy or claim arising out of or relating to
Consultant's engagement by the Company, or the termination thereof, or this
Agreement, or the breach thereof (including, without limitation, any claim that
any provision of this Agreement or any obligation of Consultant is illegal or
otherwise unenforceable or voidable under law, ordinance or ruling or that
Consultant's engagement by the Company was illegally terminated) shall be
settled by arbitration at the office of the American Arbitration Association in
Atlanta, Georgia, in accordance with the United States Arbitration Act (9 USC,
Section 1 et seq.) and the rules of the American Arbitration Association.
Company and Consultant each consents and submits to the personal jurisdiction
and venue of the trial courts of Fulton County, Georgia, and also to the
personal jurisdiction and venue of the United States District Court for the
Northern District of Georgia for purposes of enforcing this provision. All
awards of the arbitration shall be binding and non-appealable except as
otherwise provided in the United States Arbitration Act. Judgment upon the award
of the arbitrator may be entered in any court having jurisdiction thereof. The
arbitration shall take place at a time noticed by the American Arbitration
Association regardless of whether one of the parties fails or refuses to
participate. The arbitrator shall have no authority to award punitive damages,
but will otherwise have the authority to award any remedy or relief that a court
of competent jurisdiction could order or grant, including, without limitation,
specific performance of any obligation created under this Agreement, the
issuance of an injunction or other provisional relief, or the imposition of
sanctions for abuse or frustration of the arbitration process. The parties shall
be entitled to engage in reasonable discovery, including a request for the
production of relevant documents. Depositions may be ordered by the arbitrator
upon a showing of need. The foregoing provision shall not preclude the Company
from bringing an action in any court of competent jurisdiction for injunctive
relief or a temporary restraining order as the Company may determine is
necessary or appropriate.
/s/ SB
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Company's Initials
/s/ PJM
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Consultant's
Initials
27. Entire Agreement.
This Agreement constitutes the entire agreement between the
Company and Consultant with respect to the subject matter of this Agreement and
supersedes any prior agreements or understandings between the Company and
Consultant with respect to such subject matter. No amendment or waiver of this
Agreement or any provision hereof shall be effective unless in writing signed by
both of the parties.
[SIGNATURES BEGIN ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, under seal, as of the day and year first above written.
"COMPANY"
AMERICAN-EUROPEAN CORPORATION
Attest: /s/ Doug Chait By: /s/ S. Bostic
----------------------------- -------------------------------------
Title: Secretary Title: Chairman
------------------------------ ----------------------------------
[CORPORATE SEAL]
"CONSULTANT"
THE PHILLIP J. MARKERT CONSULTING GROUP,
INC.
Attest: By: /s/ Phillip J. Markert
----------------------------- -------------------------------------
Title: Title: President
------------------------------ ----------------------------------
[CORPORATE SEAL]
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EXHIBIT 10.10
AGREEMENT
This agreement is made and entered into this 1st day of October, 1995 between
AMERICAN EUROPEAN MIDDLE EAST CORPORATION, LLC (hereinafter referred to as
"AEMEC"), a limited liability company of the State of Georgia, United States of
America, headquartered in Dubai, United Arab Emirates and MIDDLE EAST COLLEGES,
LTD. (hereinafter referred to as "MEC"), a B.V.I. company headquartered in
Dubai, United Arab Emirates.
WITNESSETH:
WHEREAS, AEMEC is a subsidiary of American European Corporation, a corporation
of the State of Georgia, United States of America, which owns and operates
degree granting institutions in Atlanta, Los Angeles and London known as The
American College (hereinafter referred to as "TAC"),offering courses of study in
business administration, commercial art, fashion design, fashion merchandising,
video production and interior design, which institutions are accredited by the
Commission of Colleges ("COC"), Southern Association of Colleges and Schools
("SACS"); and
WHEREAS, AEMEC desires to establish a branch institution of higher education in
the Emirate of Dubai, United Arab Emirates to be known as The American
University in Dubai (hereinafter referred to as "AUD"), offering an accredited
program of courses in the same areas of study as those offered by TAC and such
other programs as may be agreed upon; and MEC desires to support and cooperate
in this initiative and;
WHEREAS, This Agreement has been drafted with the intention to comply with the
requirements of COC and SACS, as contained in the Criteria For Accreditation and
the Guidelines, and reflects the concept that AEMEC, will control, manage,
operate all aspects of AUD by virtue of its expertise, experience, curriculum,
policies, procedures and administrative and educational acumen, and MEC will
provide the physical facilities, equipment, materials and remaining services
necessary to operate AUD, for which MEC will be reimbursed or compensated as
herein set forth. In the event that it is determined that this Agreement does
not comply with or meet the COC/SACS requirements, both parties agree to modify
this Agreement or enter into such new agreement as may be necessary to qualify
for and maintain SACS accreditation.
NOW THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and other
good and valuable consideration the parties agree:
1 Effective Date. The effective date of this Agreement is February 1,
1995. This Agreement is intended to represent what has been the working
relationship of the parties; however, to the extent any of the procedures of the
parties have not been in accord with the provisions of the Agreement, such
procedures shall be modified retroactive to February 1, 1995; and this Agreement
supersedes all prior agreements whether written or oral heretofore governing the
business relationship of AEMEC and MEC.
2 Duties and Responsibilities. MEC will provide the cash capital
contributions for the physical premises and other items necessary for the
establishment of the University, including classrooms, administrative offices,
laboratories, studios, library, dormitories, student lounges
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and all related furniture, fixtures, equipment, supplies, textbooks, library
books, computers, sewing machines, video equipment and other learning resources
and related improvements and materials, in a "turn-key" condition, as specified
in the "Capital and Start-up Budget" attached hereto as Exhibit "A", and the
replacement (except for items the replacement of which shall be paid by
insurance proceeds), refurbishment and other items of a capital nature necessary
to maintain all of the foregoing to a high standard consistent with the Atlanta,
London and Los Angeles campuses of TAC and the accreditation requirements of
COC/SACS. Except as otherwise provided herein, all of the foregoing items of
property shall be considered MEC's property at all times. In addition to the
foregoing, MEC will arrange for all required government licenses and approvals,
at its sole cost and expense, and at all times provide adequate funds to operate
and maintain AUD as required by the annual Operating Budgets referred to in the
Financial Operations Agreement between the parties of even date herewith (the
"Operations Agreement") and to meet all physical standards required to meet and
maintain COC/SACS Criteria, as determined by AEMEC and as otherwise more
particularly set forth in this Agreement, and to fund expansion costs needed to
accommodate enrolment growth. MEC further acknowledges that all funds collected
from students in advance of their being earned will be deposited in a special
account designated as "Advance Tuition Account". Funds may only be withdrawn
from this account and used for school operating expenses as the tuition to which
they apply is earned on a weekly basis.
MEC will secure for the benefit of AUD a leasehold in the physical
premises and facility, the location and specifications of which shall be
approved by AEMEC, on an arm's-length basis, and shall make available said
premises and facility to AEMEC for the use and operation of AUD "at cost" to
MEC, and such lease payments shall be considered an operating expense for the
purpose of determining Distributable Cash Flow, as defined in Exhibit "B"
attached hereto. In the event MEC elects to purchase rather than lease the
premises, AEMEC shall have the right to acquire a thirty five percent (35%)
interest in such property on the same basis as MEC.
MEC shall be entitled to reimbursement of one hundred percent (100%) of
all payments made by MEC on behalf of AUD during the first academic term (ie.,
the period beginning October 1, 1995 and ending December 31, 1995), which are
considered "operating expenses," including without limitation, relocation costs
and airfare of all employees, rent charges paid in advance for the University
premises or housing facilities and Vice President and Director of Admissions
salary for the recruiting effort from May 15, 1995 to September 15, 1995.
AEMEC shall have exclusive control of the operations and management of
AUD's business and the administration of its academic programs, as set forth
more specifically in this Agreement and the Financial Operations Agreement, and
without limiting the generality of the foregoing shall provide the following
services:
(a) The establishment of academic programs including the development of
study curricula, establishing faculty requirements and implementation of
educational programs.
(b) The determination of administrative needs and the hiring of
administration staff, including the college President.
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(c) The establishment of student qualification criteria including the
establishment of standards for the transfer of students to other TAC campuses.
(d) The preparation and establishment of annual Operating Budgets for
AUD.
(e) All other customary activities necessary to the operation of an
institution of higher learning.
(f) Notification to the Commission on Colleges, Southern Association of
Colleges and Schools of the developments relative to the establishment of AUD.
(g) Exercise its best efforts to take all appropriate steps to meet on
a continuous basis all standards and criteria established from time to time by
the Commission on Colleges of the Southern Association of Colleges and Schools.
Any out-of-pocket expenses incurred by AEMEC for accreditation visits
will be an expense of AUD, including all travel, per diem and housing expenses
of the SACS visit team and travel, per diem and housing expenses of personnel of
AEMEC or any of its affiliates which might be required as a part of the
accreditation visits. Travel, per diem and housing expenses of personnel of
AEMEC or any of its affiliates at all other times will be handled in a manner
consistent with the normal accounting procedures of TAC. It is expressly
understood that all cost of personnel salaries of AEMEC and its affiliates
participating in accreditation activities are to be borne entirely by AEMEC,
unless such personnel are employed substantially full-time on behalf of AUD.
MEC will be responsible for all working capital needs of AUD in
connection with compliance with the accreditation standards and criteria as set
forth by SACS.
AEMEC shall assist in the marketing of AUD's programs and the
recruitment of students, including the preparation and production of catalogs
and related promotional materials. It is understood by the parties any costs
associated with the international advertising or promotion of AUD shall not be
charged to AUD unless such costs are specifically related to AUD and are
independent of other TAC campuses.
It is agreed that, the initial administrative officers of AUD will be
Mark A Barnette, President, and Elias Bou-Saab, Executive Vice President and
Director of Admissions. It is further agreed that at all times MEC shall have
the right to appoint a successor to Elias Bou-Saab acceptable to AEMEC to
facilitate the execution of MEC's responsibilities to AUD; whose duties and
compensation shall be commensurate with those of the present MEC representative.
3 Term. The term of this Agreement shall commence the 1st day of
February, 1995, and shall end twenty (20) years following the
commencement date of the first academic term of AUD, and shall renew for
successive terms of five (5) years each thereafter unless terminated by either
party at the end of any applicable academic year upon not less than one hundred
eighty (180) days written notice. Anything to the contrary in the preceding
sentence notwithstanding, this Agreement may be terminated at any time by
either party "for cause" upon ninety (90) days written notice to the other
party. "For cause" shall include, among other things, the following events:
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(a) The failure of either party to perform its material duties and
obligations or otherwise observe the conditions of the Agreement after receipt
of thirty (30) days written notice of such a failure;
(b) The mutual agreement of the parties to terminate this Agreement;
(c) The adjudications of either party, or any of its principals, as
bankrupt or insolvent by any lawful authority having power to render such a
decision;
(d) The involuntary cessation of business of AUD;
(e) The failure to maintain sponsorship in the United Arab Emirates by
an approved sponsor;
(f) The loss of accreditation by SACS with a failure to obtain
accreditation by another regional accrediting agency acceptable to both parties
within one year from the date of the loss of the original accreditation.
Upon termination of this Agreement, AEMEC shall render an accounting to
MEC, and after payment of all expenses and satisfaction of all liabilities, and
the establishment of reasonable reserves therefor, AEMEC shall distribute to MEC
any amounts to which it may be entitled, pursuant to this Agreement, subject to
set-off for any liability or amounts owed by MEC to AEMEC. Thereafter, neither
party shall have rights, duties or obligations hereunder except as otherwise
provided in Sections 6, 7, 8, 9 and 10, which provisions, shall survive any
termination of the Agreement.
4 Fees and Compensation. In consideration of and in return for the
services to be rendered by AEMEC, MEC has paid to AEMEC professional services
fee of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00), the receipt
of which is hereby acknowledged by AEMEC. In consideration of the services to be
provided by MEC and AEMEC, respectively, annual Distributable Cash Flow as
defined in Exhibit "B" attached hereto shall be distributed sixty-five percent
(65%) to MEC and thirty-five percent (35%) to AEMEC pursuant to the Operations
Agreement:
It is further understood that funds paid to MEC as its 65% of
Distributable Cash Flow and any shortfall contributions returned to MEC as
provided above will constitute full compensation to MEC for services and
contributions rendered by MEC hereunder. MEC shall not be entitled to interest
on its capital contributions or funds paid by it pursuant to this Agreement, or
to the return of such capital contributions or funds, except as otherwise
specifically provided for herein.
5 Trademarks. All trademark, trade names, emblems, logos, designs,
service marks and copyrights relating to AUD and the educational services
offered in connection therewith, including the name or mark "The American
University in Dubai, a branch campus of The American College", shall be vested
in AEMEC; and MEC acknowledges the above and shall not acquire any right, title
or interest therein, and shall not register or use any mark or name which is the
same as or similar to any marks or names which may from time to time be
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adopted or used by AEMEC or its affiliates. This provision shall survive
termination of this Agreement.
6 Non-Disclosure Agreement. MEC covenants and agrees for itself and its
affiliates, and their respective officers, directors, shareholders, beneficial
owners, agents, employees and representatives, that it shall, during the term of
this agreement and at all times thereafter, hold any Confidential Information in
the strictest confidence, use such Confidential Information only in connection
with the operation of the American University in Dubai, and protect such
Confidential Information from disclosure, and not duplicate, reproduce,
distribute, disclose or otherwise disseminate the same or any portion thereof,
except in the proper performance of its duties and responsibilities hereunder,
or with the express written consent of AEMEC. MEC acknowledges and agrees that
all Confidential Information is confidential to and shall be an remain the sole
and exclusive property of AEMEC. Confidential Information includes, without
limitation the following:
Marketing Plans and Promotional Initiatives (including
advertising schedules)
Business Plans (including plans for expansion)
Recruiting Strategies
Institutional Self Study Reports
Salaries and Compensation Reports
Personnel Policies and Procedures Manual
Corporate Minutes
Governing Board Minutes
Accreditation Reports and all Communications with Accrediting
Agencies
Accounting and Financial Reports and Records (including
budgets)
Personnel and Student Files
As used herein, the term "Confidential Information" means information
related to the business of AEMEC which derives economic value, actual or
potential from not being generally known to other persons who can obtain
economic value from its disclosure or use, the subject of efforts by AEMEC that
are reasonable under the circumstances to maintain its secrecy, including
without limitation (i) with respect to information which has been reduced to
tangible form, marking such information clearly and conspicuously with a legend
identifying its confidential or propriety nature; (ii) with respect to any oral
presentation or communication, denominating such information as confidential
immediately before, during or after such oral presentation or communication;
(iii) otherwise treating such information as confidential.
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If MEC should breach or threaten to breach any of the provisions to
this confidentiality agreement, AEMEC in addition to any other remedies it may
have at law or in equity, will be entitled to a restraining order, injunction or
other similar order to specifically enforce the provisions of this
confidentiality agreement. MEC specifically acknowledges that money damages
alone would be inadequate remedy for the injuries and damage which would be
suffered and incurred by AEMEC as a result of a breach of any of the provisions
of this confidentiality agreement. In the event that AEMEC should seek an
injunction hereunder, MEC hereby waives any requirement that AEMEC post a bond
or any other security.
7 Covenant Not to Compete. During the term of this Agreement, neither
AEMEC or MEC (or any of the parties constituting AEMEC or MEC, or any of their
respective affiliates, and their respective officers, directors, shareholders,
beneficial owners, agents, employees and representatives) shall own, operate,
manage or consult with any post-secondary school, technical training school,
college or other educational facility, in any capacity, whether as a proprietor,
partner, joint venturer, employer, agent, consultant, officer, beneficial owner,
or investor, directly or indirectly, in the territory presently consisting of
Lebanon, Syria, Israel, Jordan, Iraq, Egypt or the United Arab Emirates and the
other Arabian Gulf States, except in a relationship between AEMEC and MEC upon
terms and conditions as shall be mutually acceptable to the parties. In the
event this Agreement is terminated as a result of the default of a party, the
defaulting party shall not compete (as described in the foregoing sentence) with
the non-defaulting party in territory described herein for a period of five (5)
years from termination, unless otherwise agreed to in writing by the parties.
The covenants on the part of each party contained herein shall be
construed as an agreement independent of any other provision in this Agreement.
The existence of any claim or cause of action of either party against the other,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the other party of these covenants. It is agreed
by the parties hereto that if any portion of these covenants are held to be
unreasonable, arbitrary or against public policy, the covenants herein shall be
considered divisible both as to time and geographical area and each month of the
specified period shall be deemed a separate period of time, and each square mile
within the restricted territory described above shall be deemed a geographical
area so that the lesser period of time or geographical area shall remain
effective so long as the same is not unreasonable, arbitrary or against public
policy. The parties hereto agree that, in the event any court or other properly
constituted forum determines the specified time period or the specified
geographical area to be unreasonable, arbitrary or against public policy, a
lesser time period or geographical area which is determined to be reasonable,
non-arbitrary and not against public policy may be enforced against it.
Is it further agreed by the parties that since it would be difficult to
fully compensate each of them for damages in the event of a breach or violation
by either of them of the provision of these covenants, the party enforcing the
covenant shall be entitled to an injunction restraining the other party from
directly or indirectly engaging in business and competition with it and in
breach of the covenant not to compete. Nothing herein shall be construed as
prohibiting either party from pursuing any other remedies available to it or
them by law or by this Agreement for breach, violation or threatened breach or
violation of the provisions of this paragraph, including by way of illustration
and not by way of limitation, the recovery of damages from the party in breach
or from any other person, firm, corporation or entity.
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8 Non-exclusive Rights. AEMEC and its affiliates own and operate
educational facilities in the USA and the UK and intends to expand its
business operations to other parts of the world; and MEC acknowledges the
foregoing and that, except as otherwise provided herein, this Agreement does
not confer upon MEC any exclusive rights with respect to the ownership and
operation of educational facilities in any relationship with AEMEC or its
affiliates.
9 Remedies. In the event MEC fails to perform any of its duties and
obligations, AEMEC may, at its option, after thirty (30) days written notice to
MEC specifying the nature of said default and a method of curing the same
acceptable to AEMEC, and the failure of MEC to cure said default, elect to: (i)
terminate this agreement upon a date specified by AEMEC within ninety (90) days
of such notice, or (ii) rent all facilities constituting AUD and all
furnishings, fixtures, equipment, supplies and other personal property owned or
used in connection with the business of AUD for a period of not less than two
(2) years at a rate to be determined by the arbitrators based on fair market
value, and all funds, cash distributions or other interest of MEC arising under
this agreement, upon payment to MEC of its unreturned cash capital contributions
(excluding the U.S. $150,000.00 professional services fee and "start-up"
expenses paid to AEMEC), together with simple interest on said amount at the
rate of nine percent (9%) per annum for the period of time said amount, or any
portion thereof, shall have been outstanding, reduced by any amounts
distributed to MEC pursuant to Paragraph 4 hereof, and MEC shall execute and
deliver such instruments as may be appropriate to effect such transfer and
assignment. The foregoing transfer and assignment shall take place upon a date
specified by AEMEC within ninety (90) days of such notice and this Agreement
shall thereupon terminate. In the event AEMEC fails to perform any of its duties
and obligations, MEC may, at its option, after thirty (30) days notice to AEMEC
specifying the nature of said default and a method of curing the same acceptable
to MEC, and the failure of AEMEC to cure said default, terminate this agreement
on a date specified by MEC, within ninety (90) days of such notice. Both parties
acknowledge that any liability arising hereunder shall be imposed only upon the
contracting parties, and that their respective shareholders, officers, directors
and affiliates shall be exculpated from any such liability whether direct,
secondary, derivative or vicarious, except that said parties may be subject to
injunction or other equitable relief for breach of the covenants contained in
paragraphs 5, 6 and 7 hereof. The remedies set forth herein are in addition to
and not in lieu of remedies available at law or in equity available to the
parties as a result of the breach of this agreement.
10 Restrictions on Assignability. Neither party shall sell, assign or
otherwise transfer any of its interest as specified in this Agreement, without
the prior written consent of the other party, except that AEMEC may assign or
transfer its interest in AUD in connection with a merger or sale of its capital
stock or substantially all of its assets.
11 Law and Arbitration. Any dispute, controversy, difference or claim in
relation to the interpretation, application performance, nonperformance, breach
of, or any matter relating to this Agreement or arising therefrom, including
without limitation, any dispute or question regarding the existence, validity or
termination of this Agreement will be settled by arbitration in accordance with
UNCITRAL ("United Nations Commission on International Trade Law") Arbitration
Rules as presently in force. The appointing authority will be the International
Chamber of Commerce (or the Law Court of International Arbitration). The law
governing this Agreement will be the commercial laws of the United Kingdom. The
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arbitrators will decide the dispute in accordance with such laws and commercial
customs and usage. The place of arbitration will be London, England. the
language of arbitration will be English.
12 Annual Review. This Agreement shall be reviewed by the parties from
time to time at the request of either party, but not more often than annually,
and the parties shall modify this Agreement in writing in such a manner as they
shall mutually agree.
13 General Provisions.
(a) No change, modification or waiver of this Agreement or any term or
condition hereunder shall be valid or binding upon the parties hereto unless
such change, modification or waiver shall be in writing and signed by the
parties hereto.
(b) Except as otherwise provided herein, this Agreement shall inure to
the benefit of and shall be binding upon the parties hereto, their legal
representatives, transferees, successors and assigns.
(c) This Agreement and the Financial Operations Agreement incorporated
herein by reference are intended by the parties hereto to be the final
expression of their agreement and are the complete and exclusive statement of
the terms hereof, notwithstanding any representation or statement to the
contrary heretofore made.
14 Notices. Any Notice or any other communication required by this
Agreement (i) will be in writing; (ii) will be addressed to the parties as
indicated below unless notified in writing of a change in address, and (iii)
will deemed to be duly given if sent by registered mail with acknowledgement
receipt requested, by air courier service, or by telecopy. Notices delivered by
mail shall be effective five (5) days after depositing the same in an official
post office. Notices delivered other than by mail shall be effective when
received as evidenced by proper confirmation of receipt. The address of the
parties are as follows:
American European Middle East Corporation, LLC
521 Village Trace, International House 10
Marietta, Georgia 30067
Telefax # (404) 956-1531
Attn: Mr Thomas J Barnette
Middle East Colleges, Ltd
PO Box 28282
Dubai
United Arab Emirates
Telefax # 971 4 338899
Attn: Mr. Elias Bou-Saab
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IN WITNESS WHEREOF, each of the parties have duly executed and delivered this
Memorandum pursuant to proper authority the day and year first above written.
AMERICAN EUROPEAN MIDDLE EAST
CORPORATION, LLC
By: /s/ Mark Barnette (SEAL)
-------------------------------
Mark Barnette
Its: President
MIDDLE EAST COLLEGES, LTD
By: /s/ Elias Bou Saab (SEAL)
-------------------------------
Elias Bou Saab
Its: Director
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EXHIBIT 10.11
FINANCIAL OPERATIONS AGREEMENT
This Financial Operations Agreement is made and entered into this 1st day of
October, 1995, between AMERICAN EUROPEAN MIDDLE EAST CORPORATION, LLC
(hereinafter referred to as "AEMEC"), a limited liability company of the State
of Georgia, United States of America, headquartered in Dubai, United Arab
Emirates, and MIDDLE EAST COLLEGES, LTD (hereinafter referred to as "MEC"), a
B.V.I. company headquartered in Dubai, United Arab Emirates.
WITNESSETH:
WHEREAS, AEMEC is a subsidiary of the American European Corporation, a
corporation of the State of Georgia, United States of America, which owns and
operates a degree granting institution of higher education in Atlanta known as
The American College (hereinafter referred to as "TAC") with branch campuses in
Los Angeles and London; and
WHEREAS, AEMEC desires to establish an institution of higher education in Dubai,
UAE, known as The American University in Dubai (hereinafter referred to as
"AUD"); and
WHEREAS, AEMEC and MEC have established a contractual relationship for the
purpose of establishing and mutually supporting AUD as specified in the
Agreement of the parties of even date herewith (hereinafter referred to as the
"Agreement", the Agreement being appropriately incorporated herein by reference
and this document being specifically established in part to facilitate the
implementation of the Agreement; and
WHEREAS, the geographical and time differences involved in the regular
operations of AUD as an institution of higher education in Dubai, UAE, may
occasionally make it difficult to confer and consult with all appropriate
parties concerning various issues and concerns, and it is deemed advisable to
agree to and establish certain specific operational guidelines, principles and
concepts for the financial operation of AUD; and
WHEREAS, the representatives and personnel of AEMEC, AUD, and MEC represent
differing corporate entities, professional interests, and nationalities, all of
whom also represent a variety of cultural environments and professional
backgrounds, and will of necessity on occasion function in one or more national
states with differing legal, governmental and corporate systems with differing
business climates, customs and operational understandings; therefore, it is to
the mutual advantage of all parties and their respective officers,
representatives and employees to adopt the herein identified and agreed to
operational concepts and understandings so as to facilitate the operation of AUD
to the mutual benefit of all concerned.
NOW THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and other
good and valuable consideration, the parties agree:
1 Effective Date. The effective date for this Financial Operations
Agreement is February 1, 1995. This agreement is intended to represent what has
been and will be the working relationship between the parties; however, to the
extent that any of the procedures of the parties have not been in accord with
the provisions of this document, such procedures
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shall be modified retroactive to February 1, 1995; and this agreement supersedes
all prior agreements, whether written or oral, heretofore governing the
relationship of the parties relative to the subject matter of this document.
2 Accreditation. This agreement is drafted in part with the intention to
ensure compliance with the applicable Criteria and Guidelines of the Commission
on Colleges, Southern Association of Colleges and Schools, the appropriate
American regional accrediting agency with jurisdiction over The American
University in Dubai. In the event that any element of this document is found by
the Commission not to be in compliance with the above identified documents, the
parties agree to effect such modifications or enter into such new agreements as
may be necessary to remedy the non-compliance provision so as to operate in
compliance with applicable accreditation standards.
3 Bank Accounts. AEMEC and MEC shall establish a bank account or accounts
in the name of AUD for its operations and fiscal affairs in a bank or banks
approved by AEMEC and MEC. All revenues, receipts and advances received and
deposited in such accounts shall be used solely for AUD and shall be disbursed
in accordance with the provisions of this document or as otherwise specified in
the Agreement.
4 Signature Authority for the Bank Accounts. The appropriate
institutional officers possessing signature authority for AUD will be the
President, Mark A Barnette, or a successor appointed by AEMEC; Elias Bou-Saab,
Vice President, or an appropriate successor appointed by MEC and approved by
AEMEC; both of these identified AUD officers having been appropriately appointed
as specified in the Agreement and approved by the Governing Board of TAC. In all
cases, the above parties shall possess joint signature authority with respect to
operating accounts and all withdrawals therefrom shall be in accordance with the
terms of this document of the Agreement. All checks written on an operating
account in excess of five hundred dollars ($500.00 - US) or the equivalent in
UAE currency must bear both signatures of the current occupants of the above
identified institutional positions.
5 Excess Funds. In the event the bank account or accounts established
pursuant to the above provision contain funds exceeding the immediate cash needs
for the operation of AUD, subject to joint agreement of the parties, such excess
funds or a portion thereof may be invested in savings accounts, certificates of
deposit, government obligations, commercial paper "money market" funds or the
like, provided however that the form of any such investment shall be consistent
with the need to liquidate any such investment so as to meet the cash needs for
the operation of AUD.
6 Advance Tuition Account. The parties acknowledge that tuition funds and
other appropriate fees collected from students will often be collected in
advance of their being earned by AUD. Such funds will be deposited in a special
account designated as "Advance Tuition Account" and may only be withdrawn and
used for AUD operating expenses as the tuition to which they apply is earned by
AUD on a weekly basis.
7 Accounting and Financial Records. AEMEC and AUD shall maintain books of
accounts for AUD in accordance with generally accepted accounting principles
consistently applies. Such books shall be maintained on a monthly basis and
shall be kept in UAE currency (Dirhams) and converted to U.S. Dollars ($) at
month end using the rate of exchange
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in effect on the last day of the month. The books shall be maintained on a
fiscal year beginning October 1 and ending on September 30 of the following
year.
8 Audits and Reporting. AEMEC shall cause to be prepared and furnish to
appropriate parties, including MEC, unaudited financial statements on a monthly
basis. Within One Hundred Twenty (120) days of the end of the fiscal year,
financial statements shall be prepared by a firm of Certified Public or
Chartered Accountants selected by AEMEC and approved by MEC, such approval not
to be unreasonably withheld. MEC shall have the right at all reasonable times to
audit, examine and make copies of or extract information from the books of
account maintained by AEMEC for AUD.
9 Cash Flow Management. In accordance with their respective interests,
AEMEC and MEC may receive such cash distributions as prescribed in the terms of
the Agreement in monthly installments based on the projected cash flow for the
current year and as more particularly defined in Exhibit "B" of the Agreement.
Available cash flow shall take into account reserves for operating shortfalls,
as shall be agreed by AEMEC and MEC during the term of the Agreement. It is
understood by all parties that no distribution will be made at any time during
the first year of operations of AUD. If AEMEC and MEC are unable to agree on the
monthly cash distribution arrangement for any fiscal year, such distributions
shall be based on the distribution of the previous year until the parties
mutually agree otherwise. In the event of under-payment or over-payment, such
payments will be adjusted by proper remittance on or before One Hundred Twenty
(120) days after the end of each fiscal period during the term hereof.
Distributions earned for all periods consisting of less than a calendar year
shall be prorated on a daily basis. In continuing consideration of and in return
for services rendered, the parties shall retain their respective percentages in
any undistributed revenues and cash flow.
10 Reimbursement. AEMEC shall be entitled to reimbursement of one hundred
percent (100%) of the direct, incremental costs incurred by AEMEC or any of its
affiliates on behalf of AUD, including President Mark Barnette's relocation
costs and his salary from August 1, 1995 to October 1, 1995 and previously
approved by MEC.
11 Ownership of Student Contracts. All student contracts shall be owned by
AEMEC, and all tuition and other fees shall be collected and disbursed by AUD
for the payment of all operating expenses and distributions to AEMEC and MEC as
provided herein or the Agreement.
12 Contribution of Additional Funds. MEC shall have the exclusive
obligation to contribute additional funds, from time to time, during the period
ending the earlier of five (5) years following the commencement of the first
academic term or the end of the fiscal year in which AUD realizes an operating
profit as determined by AUD's auditors (selected as agreed to by the parties)
for operating shortfalls, to the extent any exist after application of any
reserves establishes for such purpose. Following the period of time during which
MEC is exclusively obligated to contribute additional funds for operating
shortfalls, AEMEC and MEC shall each contribute additional funds for operating
shortfalls, to the extent any exist after the application of reserves
established for such purpose; on a 35/65 basis; provided, however, that AEMEC
shall not be required to contribute any amounts pursuant to this sentence in
excess of the cash distributions previously paid to AEMEC pursuant to this
paragraph and paragraph 5 of the Agreement. At such time as AEMEC is no longer
required
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to contribute additional funds for operating shortfalls pursuant to the
preceding sentence, MEC shall contribute one hundred percent (100%) of the
additional funds needed for operating shortfalls. All shortfall contributions
made exclusively by MEC during those periods of time when AEMEC is not required
to make shortfall contributions, will be returned to MEC by distributing
twenty-five percent (25%) of the Cash Flow to MEC to the extent there is Cash
Flow available for such distribution in any fiscal year, and provided that the
Cash Flow to AEMEC for such fiscal year is not less than U.S. $100,000.00.
13 Reserves. Reserves equal to ten percent (10%) of the net cash flow
shall be maintained to cover operating shortfalls and may be distributed to the
parties at such time and in such amounts as the parties shall agree.
14 Operating Budgets. AEMEC and MEC will prepare and submit to the
Governing Board of TAC, on the time frame established by TAC or such other
compatible time frame as may be necessary to meet the needs of AUD, an annual
operating budget for AUD. In the development of this operating budget, the
following understandings and stipulations will be observed:
(a) All academic department chairs and major administrative unit heads,
identified on an annual basis by the President of AUD, shall prepare and submit
to the President of AUD, on an internal time frame established by the President
of AUD, suggested annual operating budgets for the next fiscal year following
such budgetary guidelines as may be established for AUD and are compatible with
the policies and procedures of TAC.
(b) As components of this budget, funds allocated for salaries for
teaching and administrative personnel and operational accounts shall be
comparable to those paid for similar positions or allocated for similar
functions at the other TAC campuses prior to adjustments for relocation or local
living expenses or warranted by unusual local conditions or circumstances.
(c) For budget preparation purposes, the time frame to be used for
budget planning will be the fiscal year for AUD of June 1 through May 31, even
though for comparability and other reporting purposes reports and other
documents may be prepared on an academic year basis of October 1 through
September 30.
(d) The final proposed budget for AUD will be prepared for and
submitted to the Governing Board of TAC, as is the case for all TAC campuses;
the action of the Governing Board will be final with respect to the
establishment of the annual Operating Budget of AUD. In the event elements of
the Operating Budget are not approved by the Governing Board, they will be
modified appropriately.
(e) Prior to submission to the Governing Board, institutional officials
will consult and share budgetary information with an identified MEC
representative. The submission of this budget information will occur no later
than seventy-five (75) days prior to the required date for submission of the
budget to the Governing Board or the start of the current forthcoming fiscal
year, whichever first occurs. Subsequent to this submission, MEC shall have
thirty (30) days within which to comment on, approve, or otherwise propose
adjustments to such budgeting information. In the event that MEC fails to
approve the proposed budget allocations, the Operating Budget for the current
fiscal year increased by five percent (5%) for
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each year said budget is in effect shall govern the expenditures for AUD for the
fiscal year in question until such time as the issues involved are resolved, MEC
has approved the Operating Budget for the year in question and the Governing
Board has approved the Operating Budget.
(f) The annual operating budget submitted to and approved by the TAC
Governing Board shall be referred to as the "Operating Budget" for AUD.
(g) Subject to institutional financial policies and procedures, the
expenditures reflected in the Operating Budget may be made on behalf of AUD, and
may, subject to institutional and AEMEC approval, exceed the aggregate amount of
the Operating Budget for contingencies and unforeseen expenses by an amount not
to exceed ten percent (10%) of the budget category for that particular
expenditure unless otherwise agreed to by the parties.
(h) Except as otherwise provided herein, neither party nor its
officers, employees, agents or representatives shall be authorized to incur
financial obligations for AUD without the consent of the other party.
(i) Appropriate parties and institutional administrators shall receive
such budgetary information as may be appropriate for their sphere of
responsibility as to exercise fiscal responsibility and accountability. Should
any modifications or reductions be made in the various budget categories, the
appropriate parties shall receive such notification as is necessary to comply
with accreditation guidelines.
15 Institutional Operational Policies and Procedures. It is acknowledged
by the parties that AEMEC has established, and will establish in the future,
certain operational policies and procedures for the operation of its educational
programs, student services, administration, personnel development, alumni
relations, institutional research and planning, institutional effectiveness,
recruitment and institutional promotion, library facilities and collections,
educational resources and equipment, and maintenance and expansion of physical
facilities. It is further acknowledged and agreed that, except as otherwise
provided in this document or the Agreement, AUD personnel shall be instructed
and encouraged to extend their reasonable efforts to adhere to and follow such
policies and procedures as have been and may be promulgated through appropriate
procedures and published in the policies and procedures manuals, administrative
memoranda, joint documents generated by AEMEC personnel in the annual meetings,
or as otherwise approved and distributed by the Governing Board. Inherent in
this provision is the understanding that AUD personnel shall have every
opportunity to represent the points of view of AUD and participate appropriately
in the establishment of such institutional operational policies and procedures.
16 Annual Review. This Agreement shall be reviewed by the parties from
time to time at the request of either party, but not more often than annually,
and the parties shall modify this Agreement in writing in such a manner as they
shall mutually agree.
5
<PAGE> 6
IN WITNESS WHEREOF, each of the parties have duly executed and delivered this
Memorandum pursuant to proper authority the day and year first above written.
AMERICAN EUROPEAN MIDDLE EAST
CORPORATION, LLC
By: /s/ Mark Barnette (SEAL)
---------------------------------
Mark Barnette
Its: President
MIDDLE EAST COLLEGES, LTD
By: /s/ Elias Bou Saab (SEAL)
---------------------------------
Elias Bou Saab
Its: Director
6
<PAGE> 7
EXHIBIT A
[Sets forth AUD first year capital requirements]
EXHIBIT B
DEFINITIONS
CASH FLOW
Cash distributions may be made to the parties each month as mutually
agreed to by the parties from available cash flow. Available cash flow shall be
defined as follows:
Monthly-
In no event may cash distributions be made to the
parties in excess of the following amounts within
thirty (30) days following the end of each month of
operations:
1. Ninety percent (90%) of the monthly net
income (as defined below) from operations
of the school.
2. One twelfth (1/12th) of ninety percent
(90%) of the annual, budgeted net income
of the school.
3. An amount as determined in 1. and 2.
above when reduced by a specific reserve
for an expenditure which is expected to
occur within the next ninety (90) day
period and will require funding from
current operations.
Annually-
No sooner than one hundred and twenty (120) days
after the end of each fiscal year; the excess funds
generated from operations of the school shall be
distributed to the parties of this agreement in the
amounts determined as follows:
1. Net income of the school as shown on the annual
audited financial statements by the University's
independent outside accountants and reduced by the
following:
A. Amounts distributed to the parties during
the fiscal year.
B. A reserve for growth of operation for the
next fiscal year, which amount be no less
than ten percent (10%) of the budgeted
net income of the next year.
NET INCOME
Net Income shall be determined in accordance with generally accepted
accounting principles except that there shall be no provision for depreciation
in the determination of net income and there shall be no deduction for capital
expenditures including the acquisition of textbooks. Expenses considered in the
determination of Net Income shall not include any rental or lease of capital
items set forth in the "Capital Budget which is attached to this contract as
Exhibit A.
<PAGE> 1
EXHIBIT 10.12
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding, which is entered into the 24 day of January,
1996, is intended to provide a definition of terms which were used in the
agreements as set forth below, which definitions shall be binding in
interpreting the agreements:
AMERICAN MIDDLE EAST CORPORATION, LLC (hereinafter referred to as AEMEC) a
limited liability company of the State of Georgia, United States of America,
headquartered in Dubai, United Arab Emirates, and MIDDLE EAST COLLEGES, LTD
(hereinafter referred to as MEC), a B.V.I. company headquartered in Dubai,
United Arab Emirates, have entered into agreements to establish and
operated the American University in Dubai, and have contemporaneously herewith
executed the Agreement and the Financial Operations Agreement governing the
relationship between AEMEC and MEC with respect to AUD; and
The parties hereto desire to clarify their relationship and the language of the
Financial Operations Agreements so as to more fully provide the parties with
appropriate opportunities to mutually consider and agree upon the development of
the Operation Budget as described in that document.
Now, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00
U.S.) and other good and valuable consideration, the parties agree as follows:
1 Definition of Terms: As specified in paragraph 14, especially
14(e), the interest of MEC as it relates to the development of the AUD Operating
Budget, shall not be construed to be limiting terminology, but shall be
construed and interpreted as all inclusive, thereby granting MEC and its
representative the right and obligation to consult with respect to, provide
input into, and otherwise to approve or to disapprove the Operation Budget of
AUD in its totality or any part or particular thereof as an element of its final
preparation at the AUD level prior to submission to the Governing Board which
submission shall not be made without MEC's approval.
2 The Agreement, the Financial Operations Agreement and this
Memorandum of Understanding are to be read and construed as one document and
share the same force and validity. The Agreement and the Financial Operations
Agreement, to which both parties of this agreement are also parties, are hereby
ratified and affirmed and shall remain in full force effect.
3 Relationship between the Parties. Notwithstanding anything to
the contrary in the Agreement or the Financial Operations Agreement, the
relationship between AEMEC and MEC is of a joint venture and all terms and
conditions contained in those two Agreements shall be construed to this effect.
1
<PAGE> 2
IN WITNESS WHEREOF, each of the parties have duly executed and delivered this
Memorandum pursuant to proper authority the day and year first above written.
AMERICAN EUROPEAN MIDDLE EAST
CORPORATION LLC
By: /s/ Mark Barnette (SEAL
---------------------------------
Mark Barnette
Its: President
MIDDLE EAST COLLEGES, LTD
By: /s/ Elias Bou Saab (SEAL)
---------------------------------
Elias Bou Saab
Its: Director
2
<PAGE> 1
EXHIBIT 10.13
REGISTRATION AND ANTI-DILUTION RIGHTS AGREEMENT
This Agreement is made and entered into this 8th day of October, 1996, by
and between E HOLDINGS, INC. a Georgia corporation (hereinafter called the
"Company"), and THE ROBINSON HUMPHREY COMPANY, INC. (hereinafter called "RH"),
and its successors and assigns.
WHEREAS, concurrently with the execution of this Agreement the Company
has issued to RH 50,000 shares (the "Shares") of the Class A Common Stock of the
Company at the price and upon the terms and conditions specified therein; and
WHEREAS, said Shares have been issued to the RH without registration
under the Securities Act of 1933, as amended and the Company and the RH desire
to provide hereunder for compliance therewith and for the registration of the
Shares; and
WHEREAS, RH desires certain anti-dilution rights with respect to the
Shares, all upon the terms and conditions more fully set out below; and
WHEREAS, the Board of Directors of the Company has approved the issuance
of the Shares and this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Other Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Appraisal Procedure" means the following procedure for determining the
Market Value of the Common Stock: (a) upon the need to determine the Market
Value for purposes of Section 4 of this Agreement, the Company and RH shall
attempt to agree on a mutually acceptable Qualified Appraiser to value the
Common Stock, and if such parties agree on a Qualified Appraiser within ten (10)
days following the receipt of a demand to determine the Market Value, such
Qualified Appraiser shall, on or before twenty (20) days following the date it
is appointed, determine the Market Value of the Common Stock, and such
determination shall be binding upon the Company and RH; (b) in the event the
Company and RH are unable to agree upon a mutually acceptable Qualified
Appraiser within ten (10) days following receipt of a demand to determine the
Market Value, on the expiration of such ten (10) day period, the Company and RH
shall each appoint a Qualified Appraiser to value the Common Stock. Within
twenty (20) days following the date they are appointed, the Qualified appraisers
appointed by the Company and RH shall determine the Market Value of the Common
Stock. In the event the values determined by the Company's Qualified Appraiser
and RH's Qualified Appraiser are within five percent (5%) of each other, the
Market Value for purposes of this Agreement shall be the average of the values
determined by such appraisers and such determination shall be binding upon the
Company and RH. In the event such values differ by five percent (5%) or more,
such appraisers shall in turn promptly appoint a third Qualified Appraiser who
shall, with twenty (20) days following the date it is appointed, determine the
Market Value of the Common Stock. The value which is the average of the lowest
and the highest of the values determined by the three Qualified Appraisers shall
be the Market Value of the Common Stock for purposes of this Agreement and shall
be binding upon the Company and RH. In the event either the Company or RH fails
to timely appoint a Qualified Appraiser, such failing party will be deemed to
have waived its rights to appoint a Qualified Appraiser, and the Qualified
Appraiser appointed by the other party shall determine the Market Value for
purposes of this Agreement which determination shall be binding upon RH and the
Company. The costs of any mutually agreeable Qualified Appraiser referred
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<PAGE> 2
to in (a) above and of the third Qualified Appraiser referred to in (b) above
shall be paid equally by the Company and RH. RH shall pay all costs of the
Qualified Appraiser appointed by RH pursuant to (b) above and the Company shall
pay all costs of the Qualified Appraiser so appointed by it.
"Bostic" means R. Steven Bostic, Alice Jane Bostic, Bostic Family Limited
Partnership, any Person acquiring any shares held by any one or more of the
foregoing pursuant to Section 3.05 of the Shareholders' Agreement, or any one or
more of any of the foregoing Persons.
"Commission" means the Securities and Exchange Commission and any entity
succeeding to any or all of its functions under the Securities Act or the
Exchange Act.
"Common Stock" means the Company's Class A Common Stock, without par
value and Class B Common Stock, without par value.
"Employee Options" means options to acquire, up to, but in no event in
excess of 59,242 shares of Common Stock pursuant to the Company's stock option
plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute.
"Fully Diluted Basis" means, with reference to outstanding Common Stock,
the shares of Common Stock that would be outstanding assuming that all
outstanding options, warrants and other rights to acquire common stock had been
exercised (regardless of whether such rights are then exercisable) and all
securities of the Company convertible into Common Stock had then been converted
(regardless of whether such securities are then convertible) had been issued.
Any reference in this Agreement to "holder(s) of outstanding Common Stock on a
Fully Diluted Basis" or words of similar import shall be deemed to include
holder(s) of outstanding options, warrants or similar rights to acquire Common
Stock or securities convertible into Common Stock.
"Holder" with respect to any security of a Person, shall mean the record
or beneficial owner of such security.
"Junior Lender" means Stratford Capital Partners, L.P., a Texas limited
partnership which is licensed as a Small Business Investment Company under the
Small Business Investment Act of 1954 (as amended), and its successors and
assigns.
"Junior Lender Warrants" means those warrants to purchase Common Stock
issued to the Junior Lender pursuant to the Subordinate Loan and Warrant
Agreement, dated as of the date hereof, between the Company and the Junior
Lender.
"Market Value" means, with respect to a share of Common Stock on any date
herein specified, the fair market value of such share of Common Stock determined
as of the last day of the month most recently ended prior to such date without
giving effect to any discount for (a) a minority interest, (b) a lack of
liquidity of such Common Stock, (c) the fact that such Common Stock is subject
to this Agreement or the Shareholders' Agreement, or (d) the fact that such
Common Stock is Class A Common Stock or Class B Common Stock. The Market Value
shall be determined pursuant to the Appraisal Procedure.
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<PAGE> 3
"Other Securities" means the Registrable Securities which are not
Restricted Securities.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof and shall also
mean the Company.
"Qualified Appraiser" shall mean an investment banking firm of recognized
national or regional standing other than RH.
"Registrable Securities" means all Common Stock now or at any time
hereafter owned by RH, the Shares, and any Common Stock issued with respect to
the Shares by way of stock dividend or stock split or in connection with a
merger, recapitalization, combination of Shares, consolidation or other
reorganization.
"Restricted Securities" means the Shares and any securities issued with
respect to the Shares by way of stock dividend or stock split or in connection
with a merger, recapitalization, combination of Shares, consolidation or other
reorganization.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute.
"Senior Lender" means NationsBank, N.A. (South) and its successors and
assigns.
"Senior Lender Warrants" means those warrants to purchase Common Stock
issued to the Senior Lender pursuant to the Warrant Agreement, dated as of the
date hereof, between the Company and the Senior Lender.
"Shareholders' Agreement" means that certain Shareholders' Agreement
dated October 8, 1996, by and among the Company and its shareholders including
Bostic and RH, as the same may be amended from time to time.
2. Restrictions on Transfer. RH represents to the Company that it is
acquiring the Shares for its own investment account and without a view to the
subsequent public distribution of the Shares otherwise than pursuant to an
effective registration statement under the Securities Act or an exemption
therefrom. Each certificate for Shares issued to the RH and any subsequent
Holder which have not been sold to the public pursuant to an effective
registration statement under the Securities Act or as to which the restrictions
on transfer have not been removed as hereinafter provided, shall bear a
restrictive legend reciting that the same have not been registered pursuant to
the Securities Act and may not be transferred in the absence of an effective
registration statement as to such Shares or an exemption in fact from the
registration requirements thereof. Prior to any proposed transfer of any
Registrable Securities, except pursuant to an effective registration statement
under the Securities Act, the Holder thereof shall give written notice to the
Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and shall be accompanied by an
opinion of counsel experienced in federal securities laws matters and reasonably
acceptable to the Company and its counsel to the effect that the proposed
transfer may be effected without registration under the Securities Act,
whereupon the Holder of such Registrable Securities shall be entitled to
transfer such securities in accordance with the terms of its notice and such
opinion. Restrictions imposed under this Section 2 upon the transferability of
the Shares shall cease when
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<PAGE> 4
(a) a registration statement covering such Shares becomes
effective under the Securities Act, or
(b) the Company receives from the Holder thereof an opinion
of counsel experienced in federal securities laws matters, which counsel shall
be reasonably acceptable to the Company, that such restrictions are no longer
required in order to insure compliance with the Securities Act.
When such restrictions terminate, the Company shall issue new securities in the
name of the Holder not bearing the legends required by this Section 2.
3. Registration under Securities Act
3.1 Demand Registration.
(a) Subject to the limitations provided herein, at any time
after the effective date of the Company's first registration statement under the
Securities Act, upon the written request (specifying that it is being made
pursuant to this Section 3.1) of one or more Holders of Restricted Securities
representing 51% or more of the Restricted Securities at the time outstanding,
requesting that the Company effect the registration under the Securities Act of
all or part of such Holders' Registrable Securities, and specifying (x) the
intended method of disposition thereof, (y) whether or not such requested
registration is to be an underwritten offering, and (z) the price range (net of
underwriting discount and commissions) acceptable to such Holder or Holders to
be received for such Registrable Securities, the Company will within ten (10)
business days after the Company receives such written request give written
notice of such requested registration to all other Holders of Registrable
Securities and thereupon the Company will use reasonable efforts to effect an
effective registration under the Securities Act of:
(i) the Registrable Securities which the Company
has been so requested to register by such Holders; and
(ii) all other Registrable Securities which the
Company has been requested to register by the other Holders thereof by written
request given to the Company within 30 days after the giving of such written
notice by the Company (which request shall specify the same information called
for by the original request to effect registration described above), all to the
extent requisite to permit the disposition (in accordance with Section 3.1(b)
hereof) of the Registrable Securities so to be registered.
If the Company is required to effect a registration pursuant to this Section 3.1
and the Company furnishes to the Holders of Registrable Securities requesting
such registration a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be filed on or before the date such filing would
otherwise be required hereunder and it is therefore necessary to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than ninety (90) days after receipt of the
request for such registration from the Holder or Holders of Registrable
Securities requesting such registration; provided that during such time the
Company may not file a registration statement for securities to be issued and
sold for its own account or that of anyone other than the Holder or Holders of
Registrable Securities requesting such registration.
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<PAGE> 5
(b) The Holders of a majority of the Registrable Securities
to be included in such registration statement shall determine the method of
distribution of the Registrable Securities so included; provided, however, that
if no agreement of Holders of a majority of the Registrable Securities to be
included in such registration statement is obtained, then if Holders of thirty
percent (30%) of the Registrable Securities to be included in such registration
statement request an underwritten public offering, an underwritten public
offering shall be the method of distribution with other methods permitted to the
extent the managing underwriter for such offering, in its sole discretion,
agrees to other methods of distribution being covered by such registration
statement.
(c) Whenever the Company shall effect a registration
pursuant to this Section 3.1 in connection with an underwritten offering, no
securities other than Registrable Securities shall be included among the
securities covered by such registration unless (i) the managing underwriter of
such offering shall have advised each Holder of Registrable Securities to be
covered by such registration in writing that the inclusion of such other
securities would not adversely affect such offering or (ii) the Holders of a
majority or more of all Registrable Securities to be covered by such
registration shall have consented in writing to the inclusion of such other
securities.
(d) Registrations under this Section 3.1 shall be on such
appropriate registration form of the Commission (i) as shall be selected by the
Company and as shall be reasonably acceptable to the Holders of a majority or
more of the Registrable Securities to be registered, and (ii) as shall permit
the disposition of such Registrable Securities in accordance with the method or
methods of disposition selected pursuant to Section 3.l(b).
(e) Except as otherwise provided in this Section 3.1 or in
Section 3.2, all expenses incurred in connection with an effective registration
pursuant to Section 3.1 and each registration pursuant to Section 3.2 (excluding
in each case underwriter's discounts and commissions applicable to Registrable
Securities), including, without limitation, in each case, all registration,
filing and National Association of Securities Dealer fees; all fees and expenses
of complying with securities or blue sky laws; all word processing, duplicating
and printing expenses, messenger, delivery and shipping expenses; fees and
disbursements of the accountants and counsel for the Company including the
expenses of any special audits or "cold comfort" letters or opinions required by
or incident to such registrations; and the reasonable fees and disbursements of
one firm of counsel retained by the Holders of such Registrable Securities,
premiums and other costs of policies of insurance against liabilities arising
out of the public offering of the Registrable Securities, any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions, if any, shall
be borne by the Company. In all cases, each Holder of Registrable Securities
shall pay the underwriter's discounts and commissions applicable to the
securities sold by such Holder.
(f) A registration requested pursuant to this Section 3.1
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective (unless a substantial cause of the
failure of such registration statement to become effective shall be attributable
to one or more Holders of Registrable Securities whose Restricted Securities
were to have been included in such registration statement), (ii) if after it has
become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason, resulting in a failure to consummate the
offering of Registrable Securities offered thereby, (iii) if after a
registration statement with respect thereto has become effective, the offering
of Registrable Securities offered thereby is not consummated due to factors
beyond the control of the
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<PAGE> 6
Holders of such Registrable Securities, including without limitation in the
context of a proposed firm commitment underwriting, the fact that the
underwriters have advised the Holders of such Registrable Securities that such
Registrable Securities cannot be sold at a net price equal to or above the net
price anticipated at the time of filing of the preliminary prospectus or (iv) if
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
(unless a substantial cause of such conditions to closing not being satisfied
shall be attributable to one or more Holders of Registrable Securities whose
Registrable Securities were included in such registration statement).
(g) If a requested registration pursuant to this Section 3.1
involves an underwritten offering, the underwriter or underwriters thereof shall
be selected by the Company with the approval of the Holders of a majority or
more of the Registrable Securities to be so registered.
(h) If a requested registration pursuant to this Section 3.1
involves an underwritten offering, and the managing underwriter shall advise the
Company in writing (with a copy to each Person requesting registration) that, in
its opinion, the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering within a
price range acceptable to the Holders of a majority or more of the Registrable
Securities requested to be included in such registration, then the Registrable
Securities requested to be registered pursuant to this Section 3.1 shall be
reduced to the number of Registrable Securities which the Company is so advised
can be sold in (or during the time of) such offering by first decreasing any
securities to be registered on behalf of any other Person other than the Holder
requesting such registration and second, but only if the number of securities to
be registered by all such other Persons shall have been reduced to zero, by
decreasing the Other Securities requested to be registered (pro rata among the
Persons requesting such registration on the basis of the percentage of Other
Securities held by such Person immediately prior to the filing of the
registration statement with respect to such registration) and then, to the
extent necessary, by decreasing the Registrable Securities (other than the Other
Securities) requested to be registered (pro rata among the Persons requesting
such registration on the basis of the percentage of Registrable Securities
(other than Other Securities) held by such Person immediately prior to the
filing of the registration statement with respect to such registration). In
connection with any registration as to which the provisions of this clause (h)
apply, no securities other than Registrable Securities shall be covered by such
registration.
(i) Notwithstanding the other provisions of this Section 3.
1, the Company shall not be required by this Section 3.1 to effect more than one
effective registration statement; provided, however, the Company shall be
required by this Section 3.1 to effect, at the sole expense of the holders of
Registrable Securities requesting registration (unless such registration is a
demand registration exercised pursuant to the other provisions of this Section
3.1 in which case the Company will bear the expenses of such registration in
accordance with Section 3.1(e)), an unlimited number of registrations on Form
S-3 (or any successor similar form), provided that the Registrable Securities to
be registered thereon are expected to have an aggregate disposition price
(before deductions for underwriting discounts and commissions) of at least
$500,000.
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<PAGE> 7
3.2 Piggyback Registration.
(a) If the Company at any time proposes to register any of
its securities under the Securities Act (other than by a registration on Form
S-8, S-4 or any successor similar forms or any other form not available for
registering the Registrable Securities) for sale to the public and other than
pursuant to Section 3.1, whether or not for sale for its own account, it will
each such time, at least 30 days prior to filing the registration statement,
give written notice to all Holders of Registrable Securities of its intention to
do so. Upon the written request of any such Holder made within 15 days after the
receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use reasonable efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the Holders of such Registrable
Securities, to the extent requisite to permit the disposition (determined
pursuant to the provisions of Section 3.1 (b) of the Registrable Securities so
to be registered, provided that if, at any time after giving written notice of
its intention to register any securities 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 Securities and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 3.1(e)),
without prejudice, however, to the rights of any Holder or Holders of
Registrable Securities entitled to do so to request that such registration be
effected as a registration under Section 3.1, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities being registered pursuant to this Section 3.2, for the
same period as the delay in registering such other securities. No registration
effected under this Section 3.2 shall relieve the Company of its obligation to
effect any registration upon request under Section 3.1.
(b) If (i) a registration pursuant to this Section 3.2
involves an underwritten offering of the securities so being registered, whether
or not for sale for the account of the Company, to be distributed (on a firm
commitment basis) by or through one or more underwriters of recognized standing,
whether or not the Registrable Securities so requested to be registered for sale
for the account of Holders of Registrable Securities are also to be included in
such underwritten offering, and (ii) the managing underwriter of such
underwritten offering shall inform the Company and the Holders of the
Registrable Securities requesting such registration by letter of its belief that
the number of securities requested to be included in such registration exceeds
the number which can be sold in (or during the time of) such offering, then the
Company will include in such offering, first, all securities proposed by the
Company to be sold for its own account, second, all securities of the Company
owned by the Senior Lender or the Junior Lender, but only to the extent that
registration is requested hereunder in connection with a registration required
because of an exercise of demand registration rights under Section 14.1 of the
Warrant Agreement, dated as of the date hereof, between the Company and the
Senior Lender or under Section 10.1 of the Subordinate Loan and Warrant Purchase
Agreement, dated as of the date hereof, between the Company and the Junior
Lender, third, the number of Registrable Securities and other securities of the
Company owned by the Senior Lender and the Junior Lender requested hereunder to
be included in such registration by decreasing the number of Registrable
Securities and other securities of the Company (pro rata on the basis of the
number of shares of such securities held by such Person immediately prior to the
filing of the registration statement with respect to such registration) to the
extent necessary to reduce the number of securities to be included in that
registration to the level recommended
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<PAGE> 8
by the managing underwriter, and fourth, all other securities of the Company
requested to be included in such registration.
3.3 Registration Procedures. If and whenever the Company is
required to use reasonable efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 3.1 and 3.2, the
Company will, subject to the limitations provided herein, as expeditiously as
possible:
(a) 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 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 reasonable
efforts to cause such registration statement to become effective, provided that
the Company may discontinue any registration of its securities which are not
Registrable Securities (and, under the circumstances specified in Section
3.1(f)(iii) its securities which are Registrable Securities) at any time prior
to the effective date of the registration statement relating thereto;
(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 and
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement until 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; provided, however, that the Company shall not in
any event be required to keep the registration statement effective for a period
of more than nine months after such registration statement becomes effective;
(c) furnish to each seller of Registrable Securities covered
by such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), 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 under
the Securities Act, and such other documents, as such seller may reasonably
request;
(d) use its reasonable best efforts to register or qualify
all Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of 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 (provided, however, that the Company shall not in any event be required
to keep such registration or qualification in effect for a period of more than
nine months after such registration or qualification becomes effective), 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 foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
subsection (d) be obligated to be so qualified or to consent to general service
of process in any such jurisdiction;
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<PAGE> 9
(e) use its reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other United States Federal or state governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities;
(f) furnish to each seller of Registrable Securities a copy,
or, upon request, a signed counterpart, addressed to the underwriters, if any,
of:
(i) an opinion of counsel for the Company, 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), and
(ii) 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 audited the
Company's financial statements included in such registration statement, 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 opinions of issuer's counsel and in accountants'
letters delivered to the underwriters in underwritten public offerings of
securities and, in the case of the accountants' letter, such other financial
matters as the underwriters, if any, may reasonably request;
(g) notify each seller of Registrable Securities 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,
prepare and furnish to such seller 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;
(h) otherwise use reasonable 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 earnings statement
covering the period of at least twelve months beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act, and will furnish to each such seller, upon request of such
seller, at least five 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 delivered to the Company an
opinion of counsel 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;
(i) provide and cause to be maintained a transfer agent for
all Registrable Securities covered by such registration statement from and after
a date not later than the effective date of such registration statement;
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<PAGE> 10
(j) use its reasonable best efforts to list all Registrable
Securities covered by such registration statement on any securities exchange on
which any of the Registrable Securities is then listed; and
(k) except with respect to registrations made pursuant to
Section 3.1(i), refrain from making any sale or distribution of any equity
securities of the Company, except pursuant to any employee stock option plan and
any preexisting agreement for the sale of such securities, for at least ninety
(90) days after the closing of the public offering pursuant to such
registration.
It shall be a condition precedent to the obligations of the Company to
take any action with respect to registering a Holder's Registrable Securities
pursuant to this Section 3.3 that such seller of Registrable Securities as to
which any registration is being effected furnish the Company in writing such
information regarding such seller, the Registrable Securities and other
securities of the Company held by such seller, and the distribution of such
securities as the Company may from time to time reasonably request in writing.
If a Holder refuses to provide the Company with any of such information on the
grounds that it is not necessary to include such information in the registration
statement, the Company may exclude such Holder's Registrable Securities from the
registration statement if the Company provides such Holder with an opinion of
counsel to the effect that such information must be included in the registration
statement and such Holder thereafter continues to withhold such information. The
deletion of such Holder's Registrable Securities from a registration statement
shall not affect the registration of the other Registrable Securities to be
included in such registration statement.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3.3(g), such Holder will
forthwith discontinue such Holder's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.3(g) 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 Securities current at the time of receipt of such
notice.
3.4 Underwritten Offerings.
(a) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration requested under
Section 3.1 except Section 3.1 (i), the Company will enter into an underwriting
agreement with such underwriters for such offering, such agreement to be
reasonably satisfactory in substance and form to each Holder of Registrable
Securities being registered, the Company and the underwriters and to contain
such representations and warranties by the Company and each such Holder 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 3.6. Each such Holder of Registrable Securities will cooperate with the
Company in the negotiation of the underwriting agreement and will give
consideration to the reasonable requests of the Company regarding the form
thereof, provided, that nothing herein contained shall diminish the foregoing
obligations of the Company. Any such Holder 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 Securities and other securities of the
Company, such
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<PAGE> 11
Holder's intended method of distribution, and any representations, warranties or
agreements required by law.
(b) If the Company at any time proposes to register any of
its securities under the Securities Act as contemplated by Section 3.2 and such
securities are to be distributed by or through one or more underwriters, the
Company will, if requested by any Holder of Registrable Securities as provided
in Section 3.2 and subject to the provisions of Section 3.2(b), arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such Holder owning the securities to be distributed by such underwriters. In
such event, the Holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters. Any such Holder 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 Securities or other securities of the Company,
such Holder's intended method of distribution and any representations,
warranties or agreements required by law.
3.5 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company will give the Holders
of Registrable Securities registered under such registration statement, their
underwriters, if any, and one counsel or firm of counsel representing all the
Holders of Registrable Securities to be registered under such registration
statement, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent
public accountants who have certified its financial statements as shall be
necessary, in the opinion of such Holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
3.6 Indemnification.
(a) In the event any Registrable Securities are included in
a registration statement under this Section 3 to the extent permitted by law,
the Company will, and hereby does, indemnify and hold harmless the seller of any
Registrable Securities 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 each 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 under 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 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
solely out of
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<PAGE> 12
or is based solely 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 expressly for use in the preparation thereof or
the failure of such seller to furnish such information, 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 Securities or any other
Person, if any, who controls such underwriter 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 or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities 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. The Company may require,
as a condition to including any Registrable Securities in any registration
statement filed pursuant to Section 3.3, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 3.6) each underwriter, each Person who
controls such underwriter within the meaning of the Securities Act, 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 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 thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in strict conformity with written information furnished to
the Company by such seller expressly for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; Provided that such prospective seller shall
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securities or any other Person, if any, who controls such
underwriter 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 or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities 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 any
underwriter, the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such seller. In no event shall
the liability of any selling holder of Registrable Securities under this Section
3.6(b) be greater in amount than the dollar amount of the proceeds received by
such holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(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 3.6,
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,
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<PAGE> 13
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 3.6, 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 and indemnifying parties shall exist in respect of such claim, the
indemnifying parties 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. 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 3.6 (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 Federal or state law or regulation of any governmental
authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required
by this Section 3.6 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.
(f) Contribution. If the indemnification provided for in
this Section 3.6 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such loss, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including any
untrue statement of material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified parties, and the parties' relative intent.
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 3.6(c), any legal or other fees
or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 3.6(f) were 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 immediately preceding paragraph.
Notwithstanding the provisions of this Section 3.6(f), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason on such untrue or
alleged untrue statement
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<PAGE> 14
or omission or alleged omission, and no selling holder shall be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities of such selling holder were offered to the public
exceeds the amount of any damages which such selling holder has otherwise been
required to pay by reason of such untrue statement or omission. 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.
If indemnification is available under this Section 3.6, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Section 3.6(a) through Section 3.6(e) without regard to the relative fault of
said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 3.6(f).
3.7 Reporting Requirements Under Securities Exchange Act of
1934.
(a) When it is first legally required to do so, the Company
shall register its Common Stock under Section 12 of the Exchange Act and shall
keep effective such registration and shall timely file such information,
documents and reports as the Commission may require or prescribe under Section
13 of the Exchange Act. From and after the effective date of the first
registration statement filed by the Company under the Securities Act, the
Company shall (whether or not it shall then be required to do so) timely file
such information, documents and reports which a corporation, partnership or
other entity subject to Section 13 or 15(d) (whichever is applicable) of the
Exchange Act is required to file.
(b) Immediately upon becoming subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange Act, the Company
shall forthwith upon request furnish any Holder of Registrable Securities (i) a
written statement by the Company that it has complied with such reporting
requirements, (ii) a copy or the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents filed by the Company with
the Commission as such Holder may reasonably request in availing itself of an
exemption for the sale of Registrable Securities without registration under the
Securities Act. The Company acknowledges and agrees that the purposes of the
requirements contained in this Section 3.7 are (i) to enable any such Holder to
comply with the current public information requirement contained in Paragraph
(c) of Rule 144 under the Securities Act should such Holder ever wish to dispose
of any of the securities of the Company acquired by it without registration
under the Securities Act in reliance upon Rule 144 (or any other similar
exemptive provision) and (ii) to qualify the Company for the use of registration
statements on Form S-3. In addition, the Company shall take such other measures
and file such other information, documents and reports, as shall hereafter be
required by the Commission as a condition to the availability of Rule 144 under
the Securities Act (or any similar exemptive provision hereafter in effect) and
the use of Form S-3. The Company also covenants to use its best efforts, to the
extent that it is reasonably within its power to do so, to qualify for the use
of Form S-3.
3.8 Shareholder Information. The Company may require each
Holder of Registrable Securities as to which any registration is to be
effected pursuant to this Section 3 to furnish the Company such information in
writing with respect to such Holder and the distribution of such Registrable
Securities as the Company may from time to time reasonably request in writing
and as shall be required by law or by the Commission in connection therewith.
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<PAGE> 15
3.9 Forms. All references in this Agreement to particular forms
of registration statements are intended to include, and shall be deemed to
include, references to all successor forms which are intended to replace, or to
apply to similar transactions as, the forms herein referenced.
4. Anti-Dilution Rights. The number of shares of Common Stock
issued to RH are subject to adjustment from time to time upon the occurrence of
any of the events enumerated in this Section 4.
(a) In the event that the Company shall at any time after
the date of this Agreement (i) issue any shares of Common Stock (other than
shares issuable upon exercise of the Employee Options or the shares issuable
upon exercise of the Junior Lender Warrants or the Senior Lender Warrants)
without consideration or at a price per share less than the Market Value, or
(ii) issue options, rights or warrants to subscribe for or purchase such Common
Stock (or securities convertible into such Common Stock) without consideration
or at a price per share (or having a conversion price per share, if a security
convertible into such Common Stock) less than the Market Value immediately prior
to such issuance, the number of shares of Common Stock issued to RH shall be
adjusted to equal the product obtained by multiplying the number of shares of
Common Stock held by RH immediately prior to the date of such issuance by a
fraction, the numerator shall be the number of shares of Common Stock
outstanding on a Fully Diluted Basis immediately after such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
on a Fully Diluted Basis immediately prior to such issuance plus the number of
shares of such Common Stock which the aggregate offering price of the total
number of shares of such Common Stock so to be issued or to be offered for
subscription or purchase (or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at the Market Value
immediately prior to such issuance, and RH shall pay an additional $10.00 in
total consideration for the issuance of the additional shares required by this
adjustment. In case such subscription price may be paid in a consideration part
or all of which shall be in a form other than cash, the value of such
consideration shall be as determined by a Qualified Appraiser reasonably
acceptable to RH (the cost of the engagement of said investment banking firm to
be borne by the Company). Any shares of such Common Stock owned by or held for
the account of the Company or any Subsidiary thereof shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever the date of such issuance is fixed (which date of
issuance shall be the record date for such issuance if a record date therefor is
fixed); and, in the event that such shares or options, rights or warrants are
not so issued, the number of shares of Common Stock to which RH is entitled
shall again be adjusted to be such number of share of Common Stock to which RH
is entitled if the date of such issuance had not been fixed.
(b) No adjustment in the number of shares of Common Stock
issued to RH shall be required unless such adjustment would require an increase
or decrease of at least one-tenth of one percent (.1%) in such number of Shares;
provided that any adjustments which by reason of this Section 4(b) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 4 shall be made to
the nearest hundredth of one percent.
(c) If any question shall at any time arise with respect to
the adjusted number of Shares, such question shall be determined by the
independent firm of certified public accountants of recognized national standing
selected by the Company and approved by RH.
5. Restriction of Rights Under Shareholders' Agreement;
Reporting Requirements.
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<PAGE> 16
(a) The Company hereby covenants and agrees that it will not
elect to purchase any of its Common Stock from any Bostic pursuant to Section
3.02 of the Shareholders' Agreement, unless, in each instance, the Company (i)
has obtained the prior written approval of RH, or (ii) the Company extends to RH
an offer to purchase a pro rata portion of the Shares held by RH. The pro rata
portion, for purposes of this provision, shall be determined by multiplying the
total Shares held by RH by a fraction the numerator of which shall be the total
number of shares of Common Stock to be purchased by the Company from any Bostic,
and the denominator of which shall be the total number of shares of Common Stock
issued to Bostic, including the shares to be purchased by the Company. This
Section 5 shall be of no further force or effect upon the expiration or
termination of the Shareholders' Agreement.
(b) The Company shall provide RH, in a timely fashion, with
such quarterly and annual financial statements as the Company customarily
generates and provides to its Board of Directors from time to time.
6. 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 a majority of the Shares. Each holder of any Registrable
Securities at the time shall be bound by any consent authorized by this Section
6, whether or not such Registrable Securities shall have been marked to indicate
such consent.
7. Notices. Notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered, or, if
by U.S. mail, when deposited in a regularly maintained receptacle, by Certified
First Class Mail, postage prepaid, addressed
(a) to any holder of Registrable Securities at the address
shown on the stock or warrant transfer books of the Company unless such holder
has advised the Company in writing of a different address as to which notices
shall be sent under this Agreement, and
(b) if to the Company at Suite 1420, 3060 Peachtree Road,
Atlanta, Georgia 30305, to the attention of the Chairman of the Board, or to
such other address or to the attention of such other officer, as the Company
shall have furnished to each holder of Registrable Securities at the time
outstanding.
8. Miscellaneous. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, whether so expressed or not, and, in particular, shall inure
to the benefit of and be enforceable by any Holder or Holders of Registrable
Securities. This Agreement embodies the entire agreement and understanding
between the Company and the other parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof. This
Agreement shall be construed and enforced in accordance with and governed by the
law of the State of Georgia. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. 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.
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<PAGE> 17
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.
E HOLDINGS, INC.
By: /s/ S. Bostic
-----------------------------------------
R. Steven Bostic, Chairman of the Board
Attest:
/s/ Douglas Chait
- -------------------------------
Douglas Chait, Secretary
THE ROBINSON-HUMPHREY COMPANY, INC.
By: /s/ Kenneth Millar
----------------------------------------
Managing Director
Attest:
/s/ Stephanie L. Whitfield
- --------------------------------
Secretary or Assistant Secretary
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<PAGE> 1
EXHIBIT 10.14
ANTI-DILUTION RIGHTS AGREEMENT
This Agreement is made and entered into this 8th day of October, 1996, by
and between E HOLDINGS, INC. a Georgia corporation (hereinafter called the
"Company"), and PHILLIP J. MARKERT (hereinafter called "Markert"), and its
successors and assigns.
WHEREAS, concurrently with the execution of this Agreement the Company
has issued to Markert 30,000 shares (the "Shares") of the Class A Common Stock
of the Company; and
WHEREAS, Markert desires certain anti-dilution rights with respect to the
Shares, all upon the terms and conditions more fully set out below; and
WHEREAS, the Board of Directors of the Company has approved the issuance
of the Shares and this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Other Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Appraisal Procedure" means the following procedure for determining the
Market Value of the Common Stock: (a) upon the need to determine the Market
Value for purposes of Section 3 of this Agreement, the Company and Markert shall
attempt to agree on a mutually acceptable Qualified Appraiser to value the
Common Stock, and if such parties agree on a Qualified Appraiser within ten (10)
days following the receipt of a demand to determine the Market Value, such
Qualified Appraiser shall, on or before twenty (20) days following the date it
is appointed, determine the Market Value of the Common Stock, and such
determination shall be binding upon the Company and Markert; (b) in the event
the Company and Markert are unable to agree upon a mutually acceptable Qualified
Appraiser within ten (10) days following receipt of a demand to determine the
Market Value, on the expiration of such ten (10) day period, the Company and
Markert shall each appoint a Qualified Appraiser to value the Common Stock.
Within twenty (20) days following the date they are appointed, the Qualified
appraisers appointed by the Company and Markert shall determine the Market Value
of the Common Stock. In the event the values determined by the Company's
Qualified Appraiser and Markert's Qualified Appraiser are within five percent
(5%) of each other, the Market Value for purposes of this Agreement shall be the
average of the values determined by such appraisers and such determination shall
be binding upon the Company and Markert. In the event such values differ by five
percent (5%) or more, such appraisers shall in turn promptly appoint a third
Qualified Appraiser who shall, with twenty (20) days following the date it is
appointed, determine the Market Value of the Common Stock. The value which is
the average of the lowest and the highest of the values determined by the three
Qualified Appraisers shall be the Market Value of the Common Stock for purposes
of this Agreement and shall be binding upon the Company and Markert. In the
event either the Company or Markert fails to timely appoint a Qualified
Appraiser, such failing party will be deemed to have waived its rights to
appoint a Qualified Appraiser, and the Qualified Appraiser appointed by the
other party shall determine the Market Value for purposes of this Agreement
which determination shall be binding upon Markert and the Company. The costs of
any mutually agreeable Qualified Appraiser referred to in (a) above and of the
third Qualified Appraiser referred to in (b) above shall be paid equally by the
Company and Markert. Markert shall pay all costs of the Qualified Appraiser
appointed by Markert pursuant to (b) above and the Company shall pay all costs
of the Qualified Appraiser so appointed by it.
<PAGE> 2
"Common Stock" means the Company's Class A Common Stock, without par
value and Class B Common Stock, without par value.
"Employee Options" means options to acquire, up to, but in no event in
excess of 59,242 shares of Common Stock pursuant to the Company's stock option
plan.
"Fully Diluted Basis" means, with reference to outstanding Common Stock,
the shares of Common Stock that would be outstanding assuming that all
outstanding options, warrants and other rights to acquire common stock had been
exercised (regardless of whether such rights are then exercisable) and all
securities of the Company convertible into Common Stock had then been converted
(regardless of whether such securities are then convertible) had been issued.
Any reference in this Agreement to "holder(s) of outstanding Common Stock on a
Fully Diluted Basis" or words of similar import shall be deemed to include
holder(s) of outstanding options, warrants or similar rights to acquire Common
Stock or securities convertible into Common Stock.
"Holder" with respect to any security of a Person, shall mean the record
or beneficial owner of such security.
"Junior Lender" means Stratford Capital Partners, L.P., a Texas limited
partnership which is licensed as a Small Business Investment Company under the
Small Business Investment Act of 1954 (as amended), and its successors and
assigns.
"Junior Lender Warrants" means those warrants to purchase Common Stock
issued to the Junior Lender pursuant to the Subordinate Loan and Warrant
Agreement, dated as of the date hereof, between the Company and the Junior
Lender.
"Market Value" means, with respect to a share of Common Stock on any date
herein specified, the fair market value of such share of Common Stock determined
as of the last day of the month most recently ended prior to such date without
giving effect to any discount for (a) a minority interest, (b) a lack of
liquidity of such Common Stock, (c) the fact that such Common Stock is subject
to this Agreement or the Shareholders' Agreement, or (d) the fact that such
Common Stock is Class A Common Stock or Class B Common Stock. The Market Value
shall be determined pursuant to the Appraisal Procedure.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof and shall also
mean the Company.
"Qualified Appraiser" shall mean an investment banking firm of recognized
national or regional standing other than Markert.
"Senior Lender" means NationsBank, N.A. (South) and its successors and
assigns.
"Senior Lender Warrants" means those warrants to purchase Common Stock
issued to the Senior Lender pursuant to the Warrant Agreement, dated as of the
date hereof, between the Company and the Senior Lender.
-2-
<PAGE> 3
2. Restrictions on Transfer. Markert represents to the Company that he is
acquiring the Shares for its own investment account and without a view to the
subsequent public distribution of the Shares otherwise than pursuant to an
effective registration statement under the Securities Act or an exemption
therefrom. Each certificate for Shares issued to Markert and any subsequent
Holder which have not been sold to the public pursuant to an effective
registration statement under the Securities Act or as to which the restrictions
on transfer have not been removed as hereinafter provided, shall bear a
restrictive legend reciting that the same have not been registered pursuant to
the Securities Act and may not be transferred in the absence of an effective
registration statement as to such Shares or an exemption in fact from the
registration requirements thereof. Prior to any proposed transfer of any
Registrable Securities, except pursuant to an effective registration statement
under the Securities Act, the Holder thereof shall give written notice to the
Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and shall be accompanied by an
opinion of counsel experienced in federal securities laws matters and reasonably
acceptable to the Company and its counsel to the effect that the proposed
transfer may be effected without registration under the Securities Act,
whereupon the Holder of such Registrable Securities shall be entitled to
transfer such securities in accordance with the terms of its notice and such
opinion. Restrictions imposed under this Section 2 upon the transferability of
the Shares shall cease when
(a) a registration statement covering such Shares becomes
effective under the Securities Act, or
(b) the Company receives from the Holder thereof an opinion
of counsel experienced in federal securities laws matters, which counsel shall
be reasonably acceptable to the Company, that such restrictions are no longer
required in order to insure compliance with the Securities Act.
When such restrictions terminate, the Company shall issue new securities in the
name of the Holder not bearing the legends required by this Section 2.
3. Anti-Dilution Rights. The number of shares of Common Stock
issued to Markert are subject to adjustment from time to time upon the
occurrence of any of the events enumerated in this Section 3.
(a) In the event that the Company shall at any time after
the date of this Agreement (i) issue any shares of Common Stock (other than
shares issuable upon exercise of the Employee Options or the shares issuable
upon exercise of the Junior Lender Warrants or the Senior Lender Warrants)
without consideration or at a price per share less than the Market Value, or
(ii) issue options, rights or warrants to subscribe for or purchase such Common
Stock (or securities convertible into such Common Stock) without consideration
or at a price per share (or having a conversion price per share, if a security
convertible into such Common Stock) less than the Market Value immediately prior
to such issuance, the number of shares of Common Stock issued to Markert shall
be adjusted to equal the product obtained by multiplying the number of shares of
Common Stock held by Markert immediately prior to the date of such issuance by a
fraction, the numerator shall be the number of shares of Common Stock
outstanding on a Fully Diluted Basis immediately after such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
on a Fully Diluted Basis immediately prior to such issuance plus the number of
shares of such Common Stock which the aggregate offering price of the total
number of shares of such Common Stock so to be issued or to be offered for
subscription or purchase (or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase
-3-
<PAGE> 4
at the Market Value immediately prior to such issuance, and Markert shall pay an
additional $10.00 in total consideration for the issuance of the additional
shares required by this adjustment. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined by a Qualified Appraiser
reasonably acceptable to Markert (the cost of the engagement of said investment
banking firm to be borne by the Company). Any shares of such Common Stock owned
by or held for the account of the Company or any Subsidiary thereof shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever the date of such issuance is fixed (which
date of issuance shall be the record date for such issuance if a record date
therefor is fixed); and, in the event that such shares or options, rights or
warrants are not so issued, the number of shares of Common Stock to which
Markert is entitled shall again be adjusted to be such number of share of Common
Stock to which Markert is entitled if the date of such issuance had not been
fixed.
(b) No adjustment in the number of shares of Common Stock
issued to Markert shall be required unless such adjustment would require an
increase or decrease of at least one-tenth of one percent (.1%) in such number
of Shares; provided that any adjustments which by reason of this Section 3(b)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 3 shall be made
to the nearest hundredth of one percent.
(c) If any question shall at any time arise with respect to
the adjusted number of Shares, such question shall be determined by the
independent firm of certified public accountants of recognized national standing
selected by the Company and approved by Markert.
4. 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
of the Shares.
5. Notices. Notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered, or, if
by U.S. mail, when deposited in a regularly maintained receptacle, by Certified
First Class Mail, postage prepaid, addressed
(a) if to Markert, at the address shown on the stock or
warrant transfer books of the Company unless Markert has advised the Company in
writing of a different address as to which notices shall be sent under this
Agreement, and
(b) if to the Company at Suite 1420, 3060 Peachtree Road,
Atlanta, Georgia 30305, to the attention of the Chairman of the Board, or to
such other address or to the attention of such other officer, as the Company
shall have furnished to Markert.
6. Miscellaneous. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, whether so expressed or not, and, in particular, shall inure
to the benefit of and be enforceable by any Holder of the Shares. This Agreement
embodies the entire agreement and understanding between the Company and Markert
and supersedes all prior agreements and understandings relating to the subject
matter hereof. This Agreement shall be construed and enforced in accordance with
and governed by the law of the State of Georgia. The
-4-
<PAGE> 5
headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect the meaning hereof. 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.
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.
E HOLDINGS, INC.
By: /s/ S. Bostic
-----------------------------------------
R. Steven Bostic, Chairman of the Board
Attest:
/s/ Douglas Chait
- -----------------------------
Douglas Chait, Secretary /s/ Phillip J. Markert
---------------------------------------------
Phillip J. Markert
-5-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
American European Corporation, a corporation organized under the laws of the
State of Georgia, doing business as The American College, Atlanta and The
American College, Los Angeles.
American College in London, Ltd., U.S., a corporation organized under the laws
of the District of Columbia.
American European Middle East Corporation, LLC, a limited liability corporation
organized under the laws of the State of Georgia.
EduTrek Systems, Inc., a corporation organized under the laws of the State of
Georgia.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
EduTrek International, Inc.
Atlanta, Georgia
We consent to the use in this Registration Statement of EduTrek International,
Inc. (the "Company") on Form S-1 of our report with respect to EduTrek
International, Inc. dated June 18, 1997 appearing in the Prospectus, which is a
part of this Registration Statement, and to the references to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
June 19, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
Board of Directors
American European Corporation and Subsidiaries
Atlanta, Georgia
We consent to the use in this Registration Statement of EduTrek International,
Inc. (the "Company") on Form S-1 of our report with respect to American
European Corporation and Subsidiaries dated June 18, 1997 appearing in the
Prospectus, which is a part of this Registration Statement, and to the
references to us under the headings "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
June 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EDUTREK
INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> FEB-28-1997
<EXCHANGE-RATE> 1
<CASH> 185
<SECURITIES> 0
<RECEIVABLES> 310
<ALLOWANCES> 67
<INVENTORY> 0
<CURRENT-ASSETS> 1,558
<PP&E> 5,029
<DEPRECIATION> 407
<TOTAL-ASSETS> 48,022
<CURRENT-LIABILITIES> 12,550
<BONDS> 27,751
0
0
<COMMON> 5,287
<OTHER-SE> 1,096
<TOTAL-LIABILITY-AND-EQUITY> 48,022
<SALES> 0
<TOTAL-REVENUES> 14,174
<CGS> 0
<TOTAL-COSTS> 9,992
<OTHER-EXPENSES> 431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,572
<INCOME-PRETAX> 2,448
<INCOME-TAX> 1,241
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<NET-INCOME> 1,207
<EPS-PRIMARY> .15
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</TABLE>
