<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
September 30, 1999 0-23021
EDUTREK INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2255472
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Embassy Row, 6600 Peachtree Dunwoody Road, Atlanta, Georgia 30328
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
404-965-8000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class A Common Stock, without par value 4,485,168 shares
- ----------------------------------------- ---------------------------------
Class Outstanding at November 9, 1999
Class B Common Stock, without par value 6,293,000 shares
- ----------------------------------------- ---------------------------------
Class Outstanding at November 9, 1999
<PAGE> 2
EduTrek International, Inc.
Form 10-Q Index
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6
Item 3. Qualitative and Quantitative Disclosures About Market Risk 12
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,807 $ 2,779
Accounts receivable -- net of allowance of $1,003 and $277, respectively 2,943 3,054
Deferred income taxes 308 308
Income taxes receivable 1,645 166
Other 891 1,288
---------- ----------
Total current assets 9,594 7,595
Property, plant, and equipment -- net of accumulated depreciation 18,970 14,971
Goodwill -- net of accumulated amortization of $3,050 and $2,292, respectively 37,610 38,369
Deferred income taxes 4,005 2,496
Other 1,931 1,103
---------- ----------
$ 72,110 $ 64,534
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,419 $ 4,816
Accrued expenses 2,380 1,632
Accrued related party transactions (see note 5) 180 --
Convertible Debt payable to related party (see note 5) 1,000 --
Value-added tax payable 403 473
Unearned revenues 8,756 8,477
Line of credit (see note 4) 11,388 1,820
Current maturities -- long-term debt 2,000 1,686
---------- ----------
Total current liabilities 29,526 18,904
Capital leases and other--less current maturities 7,280 5,821
Deferred rent 1,991 966
Other liabilities 197 82
---------- ----------
Total liabilities 38,994 25,773
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, Class A voting, one vote per share, without par value, 40,000,000
shares authorized, 4,485,168 and 4,362,605 issued and outstanding, respectively 36,699 36,611
Common stock, Class B voting, ten votes per share, without par value, 10,000,000
shares authorized, 6,293,000 issued and outstanding 3,973 3,973
Accumulated other comprehensive income/(loss) (7) 24
Accumulated deficit (7,549) (1,847)
---------- ----------
Total shareholders' equity 33,116 38,761
---------- ----------
$ 72,110 $ 64,534
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1999 1998
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Net revenues $ 11,898 $ 7,213
Costs and expenses:
Cost of education and facilities 9,430 4,193
Selling and promotional expenses 2,683 1,845
General and administrative expenses 4,933 2,882
Acquisition costs -- --
Amortization of goodwill 252 252
---------- ----------
Total costs and expenses 17,298 9,172
---------- ----------
Income (loss) from operations (5,400) (1,959)
Interest expense 468 57
Other income -- net 4 46
---------- ----------
Income (loss) before income taxes and minority interest (5,864) (1,970)
Income tax benefit (provision) 2,251 695
---------- ----------
Income (loss) before minority interest (3,613) (1,275)
Minority interest in earnings of American University in Dubai (18) (14)
---------- ----------
Net income (loss) $ (3,631) $ (1,289)
========== ==========
Earnings (Loss) Per Share:
Basic net income (loss) per share $ (0.34) $ (0.12)
Diluted net income (loss) per share $ (0.34) $ (0.12)
Average shares outstanding 10,777 10,634
Dilutive effect:
Options -- --
---------- ----------
-- --
---------- ----------
Average shares outstanding assuming dilution 10,777 10,634
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Net revenues $ 43,936 $ 32,835
Costs and expenses:
Cost of education and facilities 26,223 14,452
Selling and promotional expenses 9,339 5,619
General and administrative expenses 14,423 8,625
Acquisition costs -- 487
Amortization of goodwill 756 756
---------- ----------
Total costs and expenses 50,741 29,939
---------- ----------
Income (loss) from operations (6,805) 2,896
Interest expense 1,085 146
Other income -- net 88 1,519
---------- ----------
Income (loss) before income taxes and minority interest (7,802) 4,269
Income tax benefit (provision) 3,296 (1,581)
---------- ----------
Income (loss) before minority interest (4,506) 2,688
Minority interest in earnings of American University in Dubai (1,196) (1,014)
---------- ----------
Net income (loss) $ (5,702) $ 1,674
========== ==========
Earnings (Loss) Per Share:
Basic net income (loss) per share $ (0.53) $ 0.16
Diluted net income (loss) per share $ (0.53) $ 0.15
Average shares outstanding 10,727 10,627
Dilutive effect:
Options -- 432
---------- ----------
-- 432
---------- ----------
Average shares outstanding assuming dilution 10,727 11,059
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
EDUTREK INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------- ------------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (5,702) $ 1,674
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 2,772 2,072
Bad debt expense 726 160
Increase in accounts receivable (615) (1,028)
Decrease (increase) in prepaid expenses and other receivables 390 (275)
Increase in accounts payable and accrued liabilities 728 1,085
Decrease in unearned revenues 279 (463)
Increase (decrease) in value-added taxes payable (70) 113
Increase in income taxes receivable and deferred tax asset (3,154) (304)
Other 71 (1,110)
---------- ----------
Net cash (used in)/provided by operating activities (4,575) 1,924
---------- ----------
INVESTING ACTIVITIES
Additions to curriculum development costs (879) (3,044)
Purchases of property, plant, and equipment (2,589) (292)
---------- ----------
Net cash used in investing activities (3,468) (3,336)
---------- ----------
FINANCING ACTIVITIES
Borrowings - Net 10,425 --
Principal payments under capital lease obligations (1,076) (347)
Principal repayments on long-term debt (340) (1,764)
Other 89 46
---------- ----------
Net cash provided by (used in) financing activities 9,098 (2,065)
---------- ----------
Effect of exchange rate changes on cash (27) (14)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,028 (3,491)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,779 7,743
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,807 $ 4,252
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,018 $ 112
Income taxes -- 1,845
Non-cash investing activities:
Acquisition of property through capital leases 3,108 2,572
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
EduTrek International, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting
principles for complete financial statements. These unaudited financial
statements include all adjustments, consisting of only normal, recurring
accruals, which EduTrek International, Inc. (the "Company") considers necessary
for a fair presentation of the financial position and the results of operations
for these periods.
The results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the full year ending December 31, 1999. For further information, refer to
the consolidated financial statements and notes thereto for the 7 month
transition period from June 1, 1998 to December 31, 1998 included in the
Transition Report on Form 10-K as filed with the Securities and Exchange
Commission.
Note 2 - Comprehensive Income
The components of comprehensive income are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (3,631) $ (1,289) $ (5,702) $ 1,674
Change in equity due to foreign
currency translation adjustments (3) (31) (31) (90)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ (3,634) $ (1,320) $ (5,733) $ 1,584
========== ========== ========== ==========
</TABLE>
Note 3 - U.S. and Foreign Operations
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"), was issued in June
1998. Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133", was issued in June 1999, deferring the effective
date of FAS 133 from June 15, 1999 to June 15, 2000 for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company has not yet completed
its evaluation of the effect of this standard on its financial statements.
However, at this time the Company does not expect FAS 133 to have a material
effect on its financial position, results of operations, cash flows or
financial statement disclosures.
The Company operates solely in the education industry, and management
makes decisions and assesses performance based on the geographic locations of
its campuses. Therefore, the Company has elected to report segment information
based on geographic areas.
4
<PAGE> 7
The Company's operations are located in the United States, the United
Kingdom, and Dubai, United Arab Emirates. Net revenues and income (loss) from
operations by geographic area for the three and nine months ended September 30,
1999 and 1998 and identifiable assets by geographic area at September 30, 1999
and December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues:
United States $ 9,221 $ 4,605 $ 28,939 $ 18,438
United Kingdom 1,917 2,033 10,327 10,331
Dubai, UAE 760 575 4,670 4,066
Home Office -- -- -- --
---------- ---------- ---------- ----------
Total $ 11,898 $ 7,213 $ 43,936 $ 32,835
========== ========== ========== ==========
Income (loss) from operations:
United States $ (2,240) $ (27) $ (2,041) $ 4,750
United Kingdom (375) 69 2,928 3,617
Dubai, UAE 31 25 1,847 1,570
Home Office (2,816) (2,026) (9,539) (7,041)
---------- ---------- ---------- ----------
Total $ (5,400) $ (1,959) $ (6,805) $ 2,896
========== ========== ========== ==========
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Identifiable assets:
United States $ 67,013 $ 60,001
United Kingdom 2,579 2,753
Dubai, UAE 2,518 1,780
Home Office -- --
---------- ----------
Total $ 72,110 $ 64,534
========== ==========
</TABLE>
Note 4 - Line of Credit
The Company has a $10 million revolving line of credit and a $3.3 million
revolving line of credit with a bank (collectively as amended, the "Credit
Agreement"). The $10 million line of credit matures on April 30, 2001. Amounts
outstanding under the $10 million line of credit bear interest at LIBOR plus
2.75%. At November 1, 1999, the Company had outstanding borrowings under the
$10 million line of credit of $8.1 million. In addition, the Company had issued
$1.9 million in letters of credit against this line of credit. These letters of
credit are required as security under building leases in Los Angeles,
Washington D.C., and Miami.
In order to provide improved working capital flexibility to the Company
during the Company's second and third fiscal quarters, which are the Company's
lower enrollment periods, the Credit Agreement provides for additional
borrowings up to a maximum amount of $3.3 million for the period ending
September 30, 1999, with monthly reductions of $500,000 thereafter until
February 29, 2000 with the maximum available at November 1, 1999 being $2.3
million. The additional borrowings bear interest at the prime rate plus 2%. At
November 1, 1999, the Company had $2.3 million of such additional borrowings
outstanding under this line of credit.
On November 11, 1999, the Credit Agreement was amended to effect the waiver
of two of the financial covenants for the months of October, November and
December 1999. These two covenants were also previously waived for the months of
July, August and September 1999.
Note 5 - Related Party Transactions
Three members of the family of the Company's Chairman and Chief Executive
Officer terminated their employment with EduTrek International, Inc. during the
three months ended June 30, 1999. Termination payments of approximately
$247,000 were accrued in June 1999 with payments scheduled through May 2000. As
of September 30, 1999, there was approximately $180,000 remaining to be paid.
On August 27, 1999, the Company borrowed $1.0 million from R. Steven
Bostic, the Company's Chairman and Chief Executive Officer. This loan bears
interest at the Eurodollar rate (as defined in the promissory note evidencing
this indebtedness), plus 2.0% and is due on the earlier of (i) February 24,
2000, or (ii) the date when the Company receives payment of certain tax refunds
in connection with the corresponding federal or state income taxes for the tax
year ending September 30, 1999 (except that as long as the Company has amounts
outstanding under the Credit Agreement, the Company may repay the loan from Mr.
Bostic only with the proceeds of such tax refunds). The amount outstanding under
the note is convertible, at any time at the option of Mr. Bostic, into shares of
the Company's Class B common stock at a price equal to the lower of $2.875 per
share or the closing price of the company's Class A common stock on the date of
notice of such conversion. If the note is not repaid by February 24, 2000, then
the maturity date will be extended to the earlier of February 24, 2001, or the
date on which the Company receives $1.0 million of tax refunds. In addition, if
the note is not repaid by February 24, 2000, the Company will issue to Mr.
Bostic warrants to purchase a number of shares of Class B common stock equal to
the product of 340,367 times a fraction the numerator of which is the
outstanding principal balance under the note and the denominator of which is
1,000,000. The exercise price of such warrants would be a price equal to the
lower of $2.875 per share or the closing price of the company's Class A common
stock on the date of exercise of warrants.
5
<PAGE> 8
Item 2. 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 should be read in conjunction with the "Selected
Consolidated Financial Data" and the Company's consolidated financial
statements and notes thereto for the 7 month transition period from June 1,
1998 to December 31, 1998 included in the Company's Transition Report on Form
10-K as filed with the Securities and Exchange Commission, as well as in
conjunction with the consolidated financial statements and notes thereto for
the three and nine months ended September 30, 1999 included in Item 1. Unless
otherwise specified, any reference to a "fiscal year" is to a fiscal year ended
December 31.
This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the Company
from time to time in filings with the Securities and Exchange Commission or
otherwise. The words "believe," "plan," "expect," "anticipate," "project," and
similar expressions identify forward-looking statements, which speak only as of
the date the statement was made. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements may include, but are not limited to, projections of revenues, income
or loss, expenses, capital expenditures, plans for future operations, financing
needs or plans, compliance with the Department of Education's financial
responsibility standards and the consequences of noncompliance, the impact of
inflation, and plans relating to products or services of the Company, as well as
assumptions relating to the foregoing. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events, or otherwise.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. Statements in
this Quarterly Report, including notes to consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others, that could contribute to or cause
such differences. Additional factors that could cause actual results to differ
materially from those expressed in such forward-looking statements include,
without limitation, new or revised interpretations of regulatory requirements,
changes in or new interpretations of other applicable laws, rules, and
regulations, failure to maintain or renew required regulatory approvals,
accreditation or state authorizations, failure to obtain the Southern
Association of Colleges and Schools' ("SACS") approval to operate in new
locations, changes in student enrollment, and other factors set forth in this
Quarterly Report on Form 10-Q and other reports or materials filed or to be
filed with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company or its management).
6
<PAGE> 9
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship of certain statement of operations items to net
revenues for the Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net revenues 100.0% 100.0%
Costs and expenses:
Cost of education and facilities 79.3% 58.1%
Selling and promotional expenses 22.6% 25.6%
General and administrative expenses 41.5% 40.0%
Acquisition costs 0.0% 0.0%
Amortization of goodwill 2.1% 3.5%
---------- ----------
Total costs and expenses 145.4% 127.2%
---------- ----------
Income (loss) from operations -45.4% -27.2%
Interest expense 3.9% 0.8%
Other income -- net 0.0% 0.6%
---------- ----------
Income (loss) before income taxes and minority interest -49.3% -27.3%
Income tax benefit (provision) 18.9% 9.6%
---------- ----------
Income (loss) before minority interest -30.4% -17.7%
Minority interest in earnings of American University in Dubai -0.2% -0.2%
---------- ----------
Net income (loss) -30.5% -17.9%
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net revenues 100.0% 100.0%
Costs and expenses:
Cost of education and facilities 59.7% 44.0%
Selling and promotional expenses 21.3% 17.1%
General and administrative expenses 32.8% 26.3%
Acquisition costs 0.0% 1.5%
Amortization of goodwill 1.7% 2.3%
---------- ----------
Total costs and expenses 115.5% 91.2%
---------- ----------
Income (loss) from operations -15.5% 8.8%
Interest expense 2.5% 0.4%
Other income -- net 0.2% 4.6%
---------- ----------
Income (loss) before income taxes and minority interest -17.8% 13.0%
Income tax benefit (provision) 7.5% -4.8%
---------- ----------
Income (loss) before minority interest -10.3% 8.2%
Minority interest in earnings of American University in Dubai -2.7% -3.1%
---------- ----------
Net income (loss) -13.0% 5.1%
</TABLE>
7
<PAGE> 10
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
NET REVENUES. Net revenues increased by approximately $4.7 million or 65%. The
increase in net revenues was due to a tuition increase and an increase in
student enrollments, including the opening of new campuses in California,
Georgia, Florida, and the District of Columbia.
COST OF EDUCATION AND FACILITIES. Cost of education and facilities increased
approximately $5.2 million or 124.9%. Education costs increased approximately
$3.1 million or 108.6% due to salary, courseware, and other education costs at
the Company's new campuses. Facility costs increased approximately $2.2 million
or 158.0% due to the opening of the Company's new campuses. For the reasons set
forth above, cost of education and facilities increased as a percentage of net
revenues from 58.1% in the 1998 period to 79.3% in the 1999 period.
SELLING AND PROMOTIONAL EXPENSES. Selling and promotional expenses increased by
approximately $838,000 or 45.4%. The increase was due to increases in salary
and other selling and promotional expenses related to the opening of new
campuses, and to new educational programs such as the Masters in Information
Technology, the Bachelors in Information Technology, and the Bachelors in
Business Administration for adult evening students at the Company's new
campuses. As a percentage of net revenues, selling and promotional expenses
decreased from 25.6% in the 1998 period to 22.6% in the 1999 period due to the
additional revenue generated by the new campuses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $2.1 million or 71.2%. The increase was primarily due
to the addition of personnel at the new campuses and the home office to support
the Company's growth. As a percentage of net revenues, general and
administrative expenses increased from 40.0% in the 1998 period to 41.5% in the
1999 period.
AMORTIZATION OF GOODWILL. Goodwill amortization of $252,000 for both periods
was the result of the October 1996 acquisition of American European Corporation
and Subsidiaries with goodwill costs being amortized over a 40-year period.
INTEREST EXPENSE. Interest expense increased approximately $411,000 as a result
of increased outstanding borrowings during the 1999 period compared to the 1998
period.
OTHER INCOME - NET. Other income - net decreased approximately $42,000 or
91.3%. The 1998 period included tax recoveries. There were no similar items in
the 1999 period.
INCOME TAX BENEFIT. Income tax Benefit increased approximately $1.6 million or
224% as a result of greater net losses incurred in the 1999 period as compared
to the 1998 period.
MINORITY INTEREST IN EARNINGS OF AMERICAN UNIVERSITY IN DUBAI. Minority
interest in earnings remained relatively unchanged from the 1998 period to the
1999 period due to relatively unchanged operating income at the Dubai campus.
NET INCOME (LOSS). For the reasons set forth above, the Company experienced a
net loss of approximately $3.6 million for the 1999 period compared to a net
loss of approximately $1.3 million for the 1998 period.
8
<PAGE> 11
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
NET REVENUES. Net revenues increased by approximately $11.1 million or 33.8%.
The increase in net revenues was due to a tuition increase and an increase in
student enrollments, including the opening of new campuses in California,
Georgia, Florida, and the District of Columbia.
COST OF EDUCATION AND FACILITIES. Cost of education and facilities increased
approximately $11.8 million or 81.4%. Education costs increased approximately
$7.9 million or 83.6% due to salary, courseware, and other education costs at
the Company's new campuses. Facility costs increased approximately $3.9 million
or 77.5% due to the opening of the Company's new campuses. For the reasons set
forth above, cost of education and facilities increased as a percentage of net
revenues from 44.0% in the 1998 period to 59.7% in the 1999 period.
SELLING AND PROMOTIONAL EXPENSES. Selling and promotional expenses increased by
approximately $3.7 million or 66.2%. The increase was due to increases in
salary and other selling and promotional expenses related to the opening of new
campuses, and to new educational programs such as the Masters in Information
Technology, the Bachelors in Information Technology, and the Bachelors in
Business Administration for adult evening students at the Company's new
campuses. As a percentage of net revenues, selling and promotional expenses
increased from 17.1% in the 1998 period to 21.3% in the 1999 period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $5.8 million or 67.2%. The increase was primarily due
to the addition of personnel at the new campuses and the home office to support
the Company's growth. As a percentage of net revenues, general and
administrative expenses increased from 26.3% in the 1998 period to 32.8% in the
1999 period.
ACQUISITION COSTS. Acquisition costs consisted of $487,000 of accounting,
legal, and other costs in the 1998 period associated with the then planned
combination with ITI. In March 1998, the Company and ITI announced that the
planned combination was terminated. There were no acquisition costs in the 1999
period.
AMORTIZATION OF GOODWILL. Goodwill amortization of $756,000 for both periods
was the result of the October 1996 acquisition of American European Corporation
and Subsidiaries with goodwill costs being amortized over a 40-year period.
INTEREST EXPENSE. Interest expense increased approximately $939,000 as a result
of increased outstanding borrowings during the 1999 period compared to the 1998
period.
OTHER INCOME - NET. Other income - net decreased approximately $1.4 million or
94.2% in the 1999 period from the 1998 period. During the 1998 period, Other
income - net included the sale of the company aircraft and tax recoveries.
There were no similar items in the 1999 period.
INCOME TAX BENEFIT. Income Tax Benefit increased approximately $4.8 million as a
result of net losses incurred in the 1999 period. The 1998 period resulted in a
net income position and thus incurred an income tax provision of approximately
$1.6 million.
MINORITY INTEREST IN EARNINGS OF AMERICAN UNIVERSITY IN DUBAI. Minority
interest in earnings increased approximately $182,000 or 17.9% due to an
increase in operating income at the Dubai campus.
NET INCOME (LOSS). For the reasons set forth above, the Company experienced a
net loss of approximately $5.7 million for the 1999 period compared to net
income of approximately $1.7 million for the 1998 period.
9
<PAGE> 12
SEASONALITY
The Company experiences seasonality in its results of operations primarily as a
result of changes in the level of student enrollments. While the Company enrolls
students throughout the year, the Company's second and third fiscal quarter
enrollments and related revenues generally are lower than the first and fourth
fiscal quarters due to traditionally lower student enrollment levels in the
summer. Second and third fiscal quarter costs and expenses are higher as a
percentage of net revenues as a result of certain fixed costs which are not
significantly affected by the seasonal second and third fiscal quarter declines
in net revenues. The Company believes that this seasonality will be mitigated by
new educational programs which are offered throughout the year in new campuses
in California, Georgia, Florida, northern Virginia (planned future site), and
the District of Columbia.
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 bank credit facilities. The Company has a $10
million revolving line of credit and a $3.3 million revolving line of credit
with a bank (collectively as amended, the "Credit Agreement"). The $10 million
line of credit matures on April 30, 2001. Amounts outstanding under the $10
million line of credit bear interest at LIBOR plus 2.75%. At November 1, 1999,
the Company had outstanding borrowings under the $10 million line of credit of
$8.1 million. In addition, the Company had issued $1.9 million in letters of
credit against this line of credit. These letters of credit are required as
security under building leases in Los Angeles, Washington, D.C., and Miami.
In order to provide improved working capital flexibility to the company during
the Company's second and third fiscal quarters, which are the Company's lower
enrollment periods, the Credit Agreement provides for additional borrowings up
to a maximum amount of $3.3 million for the period ending September 30, 1999,
with monthly reductions of $500,000 thereafter until February 29, 2000 with the
maximum available at November 1, 1999 being $2.3 million. The additional
borrowings bear interest at the prime rate plus 2%. At November 1, 1999, the
Company had $2.3 million of such additional borrowings outstanding under this
line of credit.
On November 11, 1999, the Credit Agreement was amended to effect the waiver of
two of the financial covenants for the months of October, November and December
1999. These two convenants were also previously waived for the months of July,
August and September 1999.
On August 27, 1999, the Company borrowed $1.0 million from R. Steven Bostic, the
Company's Chairman and Chief Executive Officer. This loan bears interest at the
Eurodollar rate (as defined in the promissory note evidencing this
indebtedness), plus 2.0% and is due on the earlier of (i) February 24, 2000, or
(ii) the date when the Company receives payment of certain tax refunds in
connection with the corresponding federal or state income taxes for the tax year
ending September 30, 1999 (except that as long as the Company has amounts
outstanding under the Credit Agreement, the Company may repay the loan from Mr.
Bostic only with the proceeds of such tax refunds). Proceeds of this loan were
used to cover the shortfall in accounts receivable collection at that Dunwoody,
Georgia campus that arose due to the installation of a new student billing
system at that campus. The system installation is now complete and all student
billing records are being reconciled. As a result of the system implementation
and reconciliation process combined with a large influx of students, the
processing of student financial aid was slowed considerably creating a backlog
of over $2.0 million in accounts receivable as of August 31, 1999, adding
pressure to the Company's cash position. Approximately $1.0 million of this
backlog had been collected at September 30, 1999. It is expected that the
balance of the backlog will be collected by December 31, 1999 net of any
reserves for collectability. The amount outstanding under the note is
convertible, at any time at the option of Mr. Bostic, into shares the Company's
Class B common stock at a price equal to the lower of $2.875 per share or the
closing price of the company's Class A common stock on the date of notice of
such conversion. If the note is not repaid by February 24, 2000, then the
maturity date will be extended to the earlier of February 24, 2001, or the date
on which the Company receives $1.0 million of tax refunds. In addition, if the
note is not repaid by February 24, 2000, the Company will issue to Mr. Bostic
warrants to purchase a number of shares of Class B common stock equal to the
product of 340,367 times a fraction the numerator of which is the outstanding
principal balance under the note and the denominator of which is 1,000,000. The
exercise price of such warrants would be a price equal to the lower of $2.875
per share or the closing price of the company's Class A common stock on the date
of exercise of warrants.
10
<PAGE> 13
Net cash used in investing activities increased from $3.3 million in
the first nine months of 1998 to $3.5 million in the first nine months of 1999.
The increase in investing activities was principally related to the opening of
the new campuses. Purchases of property, plant and equipment for the first nine
months of 1999 were approximately $2.6 million compared to $292,000 for the
first nine months of 1998. Total purchases of property, plant and equipment for
the year ended December 31, 1999 are expected to range from $3.7 to $4.3
million due to: (1) the completion of the build-out of the Washington, D.C. and
Miami campuses; (2) hardware and software costs related to the installation of
a new management information system; (3) improvements to the Company's computer
facilities and telecommunications equipment at the corporate level; (4)
investments in computer technology to support information technology
curriculum; and (5) increases in normal recurring capital expenditures due to
the overall increases in student and employment levels resulting from the
Company's growth. For the nine months ended September 30, 1999, curriculum
development costs totaled approximately $879,000. Curriculum development costs
for the year ended December 31, 1999 are expected to be in the range of $1.3
million to $1.5 million. The Company expects to fund expenditures for existing
and new campuses through cash from operations and proceeds from the Credit
Agreement.
The Company's ability to fund its working capital and capital
expenditure requirements, implement new programs, make interest and principal
payments, and meet its other cash requirements, depends on, among other things,
current cash and cash equivalents, internally generated funds, the proceeds of
the Company's Credit Agreement, and other loans. Management believes that such
sources combined with the reduction of student accounts receivables, will be
sufficient to meet the Company's capital requirements and operating needs
through April 2000. Thereafter, or if there is a significant reduction of
internally generated funds in the interim, the Company will require additional
funds from outside sources. There can be no assurance that the Company will be
able to obtain such funding as and when required or on acceptable terms.
The Department of Education requires that Title IV program funds
collected by an institution for unbilled tuition be kept in a separate cash or
cash equivalent account until the students are billed for the portion of their
program related to these funds. In addition, all funds transferred to the
Company through electronic funds transfer programs are held in a separate cash
account until certain conditions are satisfied. As of September 30, 1999, the
Company had approximately $25,000 in these separate accounts to comply with
these requirements. These funds generally remain in these separate accounts for
an average of 14 days from the date of collection. These restrictions on cash
have not affected the Company's ability to fund daily operations.
All institutions participating in Title IV programs must satisfy
specific standards of financial responsibility. Institutions are evaluated for
compliance with those requirements annually as each institution submits its
audited financial statements to the Department of Education. The standards
consist of an equity ratio, a primary reserve ratio, and a net income ratio. An
institution that is determined by the Department of Education not to meet the
standards of financial responsibility is nonetheless entitled to participate in
Title IV programs if it can demonstrate to the 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. Additionally, an
institution would agree to disburse those funds only on a reimbursement basis.
The Department of Education has interpreted this surety condition to require the
posting of an irrevocable letter of credit in favor of the Department of
Education.
The Company anticipates that, unless it is able to raise assets of approximately
$10 million by December 31, 1999, it will not be in compliance with the
financial responsibility standards. The Company anticipates that it will obtain
such funds through some form of recapitalization, including the private sale of
equity or debt securities of the Company. However, it is unlikely that such
funds can be obtained by December 31, 1999, and there can be no assurance that
such funds can be obtained or that such funds can be obtained on terms favorable
to the Company. In the event that the Company is not in compliance with the
standards, the Company anticipates that it would be required to post an
irrevocable letter of credit on or before July 2000 in the amount of up to
approximately $15 million, which represents 50% of the Title IV funds received
by students during the prior year. The Company anticipates that it will be able
to obtain such credit by July 2000, although there can be no assurance of such.
Failure to post a letter of credit would result in the termination of the
Company as an institution eligible for Title IV financial aid. Approximately 40%
of the Company's revenue is derived from Title IV funds.
In addition, if the Company is not in compliance with financial responsibility
standards, the Company could be required to receive Title IV funds from the
Department of Education under the reimbursement payment method on or after July
2000. Under this method, the Company must first make disbursements to eligible
students and parents through credits to the students' accounts before it
requests or receives funds for those disbursements from the Department of
Education. Any requirement that the Company operate under the reimbursement
method may result in an approximate 30 days' delay in the receipt by the Company
of tuition monies under Title IV.
YEAR 2000 COMPLIANCE
The year 2000 problem arises from the fact that many existing
information technology hardware and software systems and non-information
technology products containing embedded microchip processors may not recognize
the year 2000. Accordingly, problems may arise for such products and systems
when processing information containing dates that fall after December 31, 1999.
Some of the Company's computer information systems are not currently
configured to recognize the year 2000. The Company has completed the testing of
its computer information systems and has identified those needing adjustments in
order to be fully year 2000 compliant. Software patches and other adjustments
have either been received and implemented or are planned for implementation and
testing prior to December 31, 1999.
The Company is currently implementing a new centralized information
system to integrate its operations and financial data including admissions,
financial aid, student services, placement services, and default management. The
new system is designed to properly recognize the year 2000. To date, the
admissions system has been implemented at all domestic campus locations. The
student services and billing systems have been implemented at the Dunwoody, GA
campus with the old and new systems currently running in parallel. Plans are in
place to finalize implementation of the new system in Georgia, California,
District of Columbia, Florida and London before mid-December. The Company
anticipates that the full information system will be fully operational in all
campuses excluding Dubai before the year 2000 and that it will require a total
of approximately $2 million to develop and implement this integrated information
system, of which approximately $1.1 million has been incurred to date, although
there can be no assurance that the new system will be implemented on a timely
basis or that total expenditures will not exceed $2 million. Management does not
anticipate that the expenditure of such funds to implement the new computer
system will have a material impact on the Company's results of operations,
liquidity, or capital resources. In the event this information system is not
11
<PAGE> 14
implemented in a timely fashion, management will evaluate other available
options to revise its computer programs, as necessary, for the effect on the
year 2000 problem including, in a worst case scenario, relying on manual record
keeping, until full compliance is achieved.
The Company has reviewed its material relationships with third parties
such as vendors and evaluated the consequences of third party year 2000
problems on the Company. The Company is requiring contract letters of
compliance from all vendors. The Company does not believe year 2000 problems of
these third parties pose a material risk to the Company. However, because the
Company is in a regulated industry and indirectly relies on only a few sources
for a substantial portion of its revenues, the Company is dependent upon those
entities' efforts to address their own year 2000 issues. Should any such third
parties experience year 2000 related disruptions, it could have a material
adverse impact on the Company's business, results of operations, liquidity, or
financial condition. For example, as with all postsecondary education-oriented
businesses whose students receive governmental financial aid, the Company's
operations and liquidity depend upon the student funding provided by Title IV
Programs for its students. Processing of applications for this funding is
handled by the Department of Education's computer systems. The Company
currently uses the latest version of Department of Education software which is
year 2000 compliant.
IMPACT OF INFLATION
The Company does not believe its operations have been materially
affected by inflation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
No response is required to this item.
12
<PAGE> 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.5.2 - Second Amendment to Credit Agreement and Waiver dated
as of August 16, 1999 between the Company and First
Union National Bank
10.5.3 - Third Amendment to Credit Agreement dated as of
August 27, 1999 between the Company and First Union
National Bank
10.5.4 - Fourth Amendment to Credit Agreement and Waiver
dated November 11, 1999 between the Company and
First Union National Bank
10.8 - Promissory Note dated August 27, 1999 in favor of
R. Steven Bostic in the principal amount of
$1,000,000.
10.9 - Security Agreement dated as of August 27, 1999
between the Company and R. Steven Bostic.
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter ended September 30, 1999.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDUTREK INTERNATIONAL, INC.
Date: November 15, 1999 By: /s/ Steve Bostic
----------------------------------
Steve Bostic, President and
Chief Executive Officer
(principal executive officer)
Date: November 15, 1999 By: /s/ Daniel D. Moore
----------------------------------
Daniel D. Moore, Chief Financial
Officer (principal financial and
accounting officer)
14
<PAGE> 1
EXHIBIT 10.5.2
SECOND AMENDMENT TO CREDIT AGREEMENT
AND WAIVER
THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this
"Amendment") is made and entered into as of the 16th day of August, 1999, by
and between EDUTREK INTERNATIONAL, INC., a Georgia corporation ("Borrower"),
the undersigned Guarantors party hereto (the "Guarantors") and FIRST UNION
NATIONAL BANK ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender are a party to that certain Credit
Agreement, dated as of March 25, 1999, as amended by a First Amendment to
Credit Agreement dated May 27, 1999 (as amended, the "Credit Agreement")
pursuant to which Lender made available to Borrower a $10,000,000 revolving
line of credit pursuant to the Facility A Commitment and a line of credit
providing a maximum availability of $3,300,000 pursuant to the Facility B
Commitment; and
WHEREAS, Borrower has requested that Lender modify the financial
covenants and other provisions set forth in the Agreement and grant certain
waivers with respect thereto and Lender, subject to the terms and conditions
hereof, has agreed to such requests;
NOW, THEREFORE, for and in consideration of the foregoing premises,
the mutual promises, covenants and agreements contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms used herein and not
expressly defined herein shall have the same respective meanings given to such
terms in the Credit Agreement.
2. Amendments. Subject to the conditions contained herein, the
Credit Agreement is hereby amended as follows:
2.1. New Definitions. Section 1.1 of the Credit Agreement
is hereby amended by adding thereto in appropriate alphabetical order
the following new definitions:
"Second Amendment" shall mean that certain Second
Amendment to Credit Agreement and Waiver, dated as of August
16, 1999, between Borrower and Lender.
"Second Amendment Effective Date" shall mean that
date on which all of the conditions precedent set forth in
Section 4 of the Second
<PAGE> 2
Amendment have been satisfied and the Second Amendment has
become effective.
2.2. Net Worth Covenant. Section 9.1 of the Credit
Agreement is hereby amended by deleting such Section in its entirety,
and substituting in lieu thereof a new Section 9.1 to read as follows:
SECTION 9.1 Net Worth. Permit at any time its Net
Worth to be less than an amount equal to (a) in the case of
the fiscal quarters of Borrower ending September 30 and
December 31, 1999, $32,000,000; or (b) for any subsequent
fiscal quarter, an amount equal to the sum of (i) the Net
Worth required pursuant to this Section 9.1 as of the last
day of the immediately preceding fiscal quarter of Borrower
plus (ii) 50% of the Borrower's Net Income (if positive) for
such fiscal quarter plus (iii) 75% of the net proceeds
received by Borrower from the issuance of its Capital Stock
during such fiscal quarter, calculated in each case on a
consolidated basis for Borrower and its consolidated
Subsidiaries in accordance with GAAP.
3. Waivers. Effective on the Second Amendment Effective Date,
Lender hereby waives Borrower's compliance with the following financial
covenants set forth in Article 9 of the Agreement for the respective periods
set forth below:
(a) Ratio of Actual to Budgeted Revenues. Borrower's
compliance with the Ratio of Actual to Budgeted Revenues covenant for
the months of July, August, September, October, November and December
1999.
(b) Accounts Payable. Borrower's compliance with the
Accounts Payable covenant for the months of July, August and September
1999.
(c) Quarterly Rent Expense Ratio. Borrower's compliance
with the Quarterly Rent Expense Ratio covenant for the fiscal quarter
ended September 30, 1999.
4. Conditions Precedent. The amendments and consents contained
herein shall not become effective unless and until the Lender shall have
received each of the following instruments, documents and agreements:
(a) this Amendment, duly executed and delivered by the
Borrower and each Guarantor; and
(b) a certificate from the chief executive officer or
chief financial officer of the Borrower, in form and substance
satisfactory to the Lender, to the effect that all representations and
warranties of the Borrower contained in the Credit Agreement, this
Amendment and the other Loan Documents are true, correct and complete;
that giving effect to this Amendment the Borrower is not in violation
of any of the covenants
2
<PAGE> 3
contained in the Credit Agreement and the other Loan Documents; and
that, after giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
5. Contingent Arrangement Fee. In consideration of Lender
entering into this Amendment, Borrower hereby agrees to pay the following
contingent arrangement fee to Lender in lieu of the contingent arrangement fee
set forth in Section 4.2 of the First Amendment:
5.1. Contingent Arrangement Fee. Borrower agrees to pay a
contingent arrangement fee equal to the lesser of (a) $250,000 and (b)
0.50% of the increase in the Market Capitalization (as such term is
hereinafter defined) of Borrower between the date hereof and the
earlier of (i) April 30, 2000 and (ii) the date the Credit Agreement
is terminated and the Obligations are repaid in full, payable on the
earlier of May 1, 2000 and the date of such termination and repayment.
As used herein, "Market Capitalization" as of any date shall be an
amount equal to the number of issued and outstanding shares of capital
stock of Borrower multiplied by the average closing price of
Borrower's Class A Common Stock for the 20 consecutive date period
ending on the day immediately preceding such date.
6. Representations and Warranties; No Default. The Borrower and
each of the Guarantors (individually a "Credit Party" and collectively, the
"Credit Parties") hereby jointly and severally represent and warrant to the
Lender that (a) all of Credit Parties' representations and warranties contained
in the Credit Agreement, the other Loan Documents and this Amendment are true
and correct on and as of the date of this Amendment (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date); (b) no Default or Event of Default
(other than those being waived under Section 3 of this Amendment) has occurred
and is continuing as of such date under any Loan Document; (c) each Credit
Party has the power and authority to enter into this Amendment and the
instruments, documents and agreements executed and delivered pursuant hereto or
in connection herewith (the "Amendment Documents") and to perform all of its
obligations hereunder and thereunder; (d) the execution, delivery and
performance of this Amendment and the Amendment Documents have been duly
authorized by all necessary corporate or partnership action on the part of each
Credit Party; (e) this Amendment and the Amendment Documents are the legal,
valid and binding obligations of the Credit Parties, enforceable in accordance
with their respective terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar state or federal
debtor relief laws from time to time in effect which affect the enforcement of
creditors' rights in general and the availability of equitable remedies; and
(f) the execution and delivery of this Amendment and the Amendment Documents
and performance thereof by the Credit Parties do not and will not violate the
Certificate or Articles of Incorporation, By-laws or other organizational
documents of any Credit Party and do not and will not violate or conflict with
any law, order, writ, injunction, or decree of any court, administrative agency
or other governmental authority applicable to any Credit Party or its
properties.
7. Reaffirmation of Loan Documents. Each of the Credit Parties
hereby reaffirms its obligations under the Loan Documents, and acknowledges and
agrees that each of the Loan
3
<PAGE> 4
Documents to which such Credit Party is a party, and the obligations of such
Credit Party thereunder, remain in full force and effect, without release,
diminution or impairment, notwithstanding the execution and delivery of this
Amendment or any other agreement, document or instrument in connection
therewith.
8. Expenses. The Credit Parties, jointly and severally, agree to
pay, immediately upon demand by the Lender, all costs, expenses, reasonable
attorneys' fees and other charges and expenses actually incurred by the Lender
in connection with the negotiation, preparation, execution and delivery of this
Agreement and any other instrument, document, agreement or amendment executed
in connection with this Agreement.
9. Defaults Hereunder. The breach of any representation, warranty
or covenant contained herein or in any document executed in connection
herewith, or the failure to serve or comply with any term or agreement
contained herein shall constitute an Event of Default under the Credit
Agreement and the Lender shall be entitled to exercise all rights and remedies
it may have under the Credit Agreement, any other documents executed in
connection therewith and applicable law.
10. References. All references in the Credit Agreement and the
Loan Documents to the Credit Agreement shall hereafter be deemed to be
references to the Credit Agreement as amended hereby and as the same may
hereafter be amended from time to time.
11. Limitation of Agreement. Except as especially set forth
herein, this Amendment shall not be deemed to waive, amend or modify any term
or condition of the Credit Agreement, each of which is hereby ratified and
reaffirmed and which shall remain in full force and effect, nor to serve as a
consent to any matter prohibited by the terms and conditions thereof.
12. Counterparts. This Amendment may be executed in any number of
counterparts, and any party hereto may execute any counterpart, each of which,
when executed and delivered, will be deemed to be an original and all of which,
taken together will be deemed to be but one and the same agreement.
13. Further Assurances. Borrower agrees to take such further
action as the Lender shall reasonably request in connection herewith to
evidence the amendments herein contained to the Credit Agreement.
14. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the parties
hereto.
15. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia, without regard
to principles of conflicts of law.
16. No Claim. Each Credit Party hereby represents, warrants,
acknowledges and agrees to and with the Lender that as of the date hereof (a)
such Credit Party neither holds nor claims any right of action, claim, cause of
action or damages, either at law or in equity, against the Lender, its
4
<PAGE> 5
officers, directors, agents, employees or Affiliates, or any of them, which
arises from, may arise from, allegedly arise from, are based upon or are
related in any manner whatsoever to the Credit Agreement and the Loan Documents
or which are based upon acts or omissions of the Lender, any such officer,
director, agent, employee or Affiliate of Lender, or any of them, in connection
therewith and (b) the Obligations are absolutely owed to the Lender, without
offset, deduction or counterclaim.
[Remainder of page intentionally left blank]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
under seal as of the date first written above.
CREDIT PARTIES:
BORROWER:
EDUTREK INTERNATIONAL, INC.
By:
----------------------------------
R. Steven Bostic
Chairman of the Board and
Chief Executive Officer
Attest:
By:
----------------------------------
Name:
Title:
[CORPORATE SEAL]
(signatures continued on next page)
<PAGE> 7
(signatures continued from previous page)
GUARANTORS:
[CORPORATE SEAL] EDUTREK SYSTEMS, INC.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN INTERCONTINENTIAL
UNIVERSITY, INC.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN COLLEGE IN LONDON, LTD, U.S.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN EUROPEAN MIDDLE EAST CORPORATION, LLC
By: American College in London, Ltd., U.S.
By:
---------------------------------------
R. Steven Bostic
Chief Executive Officer
(signatures continued on next page)
<PAGE> 8
(signatures continued from previous page)
LENDER:
FIRST UNION NATIONAL BANK
By:
-----------------------
Christopher W. Woomer
Vice President
<PAGE> 1
EXHIBIT 10.5.3
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made
and entered into as of the 27th day of August, 1999, by and between EDUTREK
INTERNATIONAL, INC., a Georgia corporation ("Borrower"), the undersigned
Guarantors party hereto (the "Guarantors") and FIRST UNION NATIONAL BANK
("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender are a party to that certain Credit
Agreement, dated as of March 25, 1999, as amended by a First Amendment to
Credit Agreement dated May 27, 1999, as further amended by a Second Amendment
to Credit Agreement and Waiver dated August 16, 1999 (as amended, the "Credit
Agreement") pursuant to which Lender made available to Borrower a $10,000,000
revolving line of credit pursuant to the Facility A Commitment and a line of
credit providing a maximum availability of $3,300,000 pursuant to the Facility
B Commitment; and
WHEREAS, Borrower and Lender desire to further amend the Credit
Agreement as set forth herein;
NOW, THEREFORE, for and in consideration of the foregoing premises,
the mutual promises, covenants and agreements contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms used herein and not
expressly defined herein shall have the same respective meanings given to such
terms in the Credit Agreement.
2. Amendments. Subject to the conditions contained herein, the
Credit Agreement is hereby amended as follows:
2.1. New Definitions. Section 1.1 of the Credit Agreement
is hereby amended by adding thereto in appropriate alphabetical order
the following new definitions:
"Bostic Note" shall mean that certain Promissory
Note dated as of August 27, 1999 made by the Borrower payable
to the order of R. Stephen Bostic or any successor holder
thereof as "Payee" in the original principal amount of
$1,000,000.
"Cash Infusion Event" shall have the meaning given
to such term in Section 8.15 of this Agreement.
<PAGE> 2
"Net Cash Proceeds" shall mean the aggregate cash
payments received, net of all legal, accounting, brokerage
and all other types of fees and expenses, including any
commissions, incurred in connection with such cash payments.
"Proceeding" means any (a) insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment,
composition or other similar proceeding of Borrower, (b)
proceeding for any liquidation, dissolution or other
winding-up of Borrower, voluntary or involuntary, whether or
not involving an insolvency or bankruptcy proceeding, (c)
assignment for the benefit of creditors of Borrower, (d) sale
of all or any substantial part of the assets of Borrower, or
(e) any marshaling of the assets or liabilities of Borrower.
"Third Amendment" shall mean that certain Third
Amendment to Credit Agreement, dated as of August 27, 1999,
between Borrower and Lender.
"Third Amendment Effective Date" shall mean that
date on which all of the conditions precedent set forth in
Section 3 of the Third Amendment have been satisfied and the
Third Amendment has become effective.
2.2. Existing Definitions. Section 1.1 of the Credit
Agreement is hereby further amended by deleting the definitions of
"Facility B Commitment" and "Facility B Termination Date" and
substituting in lieu thereof the following new definitions of such
terms:
"Facility B Commitment" means the obligation of the
Lender to make Loans to the Borrower pursuant to Section
2.1(b) hereof in an aggregate principal amount at any time
outstanding not to exceed during the applicable periods set
forth below, the amount set forth below in respect of each
such period:
<TABLE>
<CAPTION>
Period: Facility Amount
<S> <C>
First Amendment Effective $ 650,000
Date - 05/31/99
06/01/99 - 06/30/99 $2,800,000
07/01/99 - 08/31/99 $3,300,000
09/01/99 - 09/30/99 $2,800,000
10/01/99 - 10/31/99 $2,300,000
11/01/99 - 12/30/99 $1,300,000
Thereafter $ 0
</TABLE>
2
<PAGE> 3
as the same may be reduced or modified at any time or from
time to time pursuant to the terms hereof; provided, however,
if the Cash Infusion Event occurs by August 31, 1999, then
the periods and the facility amounts applicable the Facility
B Commitment shall be as follows:
<TABLE>
<CAPTION>
Period: Facility Amount
<S> <C>
First Amendment Effective $ 650,000
Date - 05/31/99
06/01/99 - 06/30/99 $2,800,000
07/01/99 - 09/30/99 $3,300,000
10/01/99 - 10/31/99 $2,800,000
11/01/99 - 11/30/99 $2,300,000
12/01/99 - 12/31/99 $1,800,000
01/01/00 - 01/31/00 $1,300,000
02/01/00 - 02/29/00 $ 800,000
Thereafter $ 0
</TABLE>
"Facility B Termination Date" means the earliest of
(a) December 31, 1999, (b) the date of termination by the
Borrower pursuant to Section 2.5(a), (c) the Termination
Date; and (d) the date of termination by the Lender pursuant
to Section 11.2(a); provided, however, if the Cash Infusion
Event occurs by August 31, 1999, the date "December 31, 1999"
in part (a) of this paragraph shall be replaced with the date
March 1, 2000.
2.3. Cash Infusion Covenant. Article 8 of the Credit
Agreement is hereby amended by adding in the appropriate numerical
order the following new Section 8.15, to read as follows:
SECTION 8.15 Cash Infusion Event. Cause, on or prior
to August 31, 1999, Borrower to receive Net Cash Proceeds in
an amount not less than $1,000,000 from the incurrence of
debt or the issuance of equity, in either case on terms and
evidenced by documentation in form and substance satisfactory
to the Lender in its sole discretion, which consent shall be
evidenced by a writing delivered to Borrower by Lender (the
"Cash Infusion Event"). In connection with such Cash Infusion
Event, the Borrower may grant to the source of such debt or
equity infusion a security interest in any tax refund claim
of Borrower arising in connection with Borrower's federal or
state income taxes for its tax year ending September 30, 1999
(not to exceed the amount of Net Cash Proceeds from any such
infusion made by such third party), subject to the security
interest of Lender and on such terms and conditions as are
acceptable to the Lender in its sole discretion, which shall
include without limitation that the sole source of repayment
from the Borrower shall be any such tax refund claim
described in this Section and that such third party shall
enter
3
<PAGE> 4
into an intercreditor agreement with Lender on term and
conditions acceptable to Lender.
2.4. Indebtedness. Section 10.1 of the Credit Agreement is
hereby amended by deleting such Section in its entirety, and
substituting in lieu thereof a new Section 10.1 to read as follows:
SECTION 10.1 Limitations on Debt. Create, incur,
assume or suffer to exist any Debt or Contingent Obligations
except:
(a) the Obligations;
(b) Debt incurred in connection with a Hedging
Agreement with a counterparty and upon terms and conditions
reasonably satisfactory to the Lender;
(c) Debt (i) existing on the Closing Date and
not otherwise permitted under this Section 10.1, as set forth
on Schedule 6.1(u) and the renewal and refinancing (but not
the increase) thereof plus (ii) additional purchase money
Debt of the Borrower and its Subsidiaries or Debt incurred in
connection with Capital Lease in an aggregate outstanding
amount not to exceed, in the case of this clause (ii),
$4,000,000, during the Fiscal Year of Borrower ending
December 31, 1999, and $8,000,000 in the aggregate during the
term of this Agreement;
(d) intercompany Debt between the Borrower and
any Guarantor or between Guarantors; and
(e) Debt incurred pursuant to Section 8.15 of
this Agreement and evidenced by the Bostic Note;
provided, that none of the Debt permitted to be incurred by
this Section shall restrict, limit or otherwise encumber (by
covenant or otherwise) the ability of any Subsidiary of the
Borrower to make any payment to the Borrower or any of its
Subsidiaries (in the form of dividends, intercompany advances
or otherwise) for the purpose of enabling the Borrower to pay
the Obligations.
2.5. Liens. Section 10.2 of the Credit Agreement is hereby
amended by deleting such Section in its entirety, and substituting in
lieu thereof a new Section 10.2 to read as follows:
SECTION 10.2 Limitations on Liens. Create, incur,
assume or suffer to exist, any Lien on or with respect to any
of its assets or properties (including without limitation
shares of Capital Stock), real or personal, whether now owned
or hereafter acquired, except:
4
<PAGE> 5
(a) Liens for taxes, assessments and other
governmental charges or levies (excluding any Lien imposed
pursuant to any of the provisions of ERISA or Environmental
Laws) not yet due or as to which the period of grace (not to
exceed thirty (30) days), if any, related thereto has not
expired;
(b) the claims of materialmen, mechanics,
carriers, warehousemen, processors or landlords for labor,
materials, supplies or rentals or similar Liens imposed by
law incurred in the ordinary course of business (i) which are
not overdue for a period of more than thirty (30) days or
(ii) which are being contested in good faith and by
appropriate proceedings;
(c) Liens consisting of deposits or pledges made
in the ordinary course of business in connection with, or to
secure payment of, obligations under workers' compensation,
unemployment insurance or similar legislation or obligations
and deposits made in the ordinary course of business in
connection with, or to secure payment of, obligations under
insurance policies;
(d) Liens of the Lender;
(e) Liens not otherwise permitted by this
Section 10.2 and in existence on the Closing Date and
described on Schedule 10.2;
(f) Liens securing Debt permitted under Section
10.1(c)(ii); provided that (i) such Liens shall be created
substantially simultaneously with the acquisition of the
related asset, (ii) such Liens do not at any time encumber
any property other than the property financed by such Debt,
(iii) the amount of Debt secured thereby is not increased and
(iv) the principal amount of Debt secured by any such Lien
shall at no time exceed ninety percent (90%) of the original
purchase price of such property at the time it was acquired;
and
(g) Liens on the Borrower's right to any tax
refund claim of Borrower arising in connection with
Borrower's federal or state income taxes for its tax year
ending September 30, 1999 to the extent permitted by Section
8.15 and subject to the Liens of the Lender, granted to
secure Borrower's obligations under the Bostic Note.
2.6. Restrictive Payments. Article 10 of the Credit
Agreement is hereby amended by adding, in appropriate numerical order,
the following new Section 10.12 to read as follows
SECTION 10.12 Restrictive Payments. Make any payment
or distribution of cash or property or both, directly or
indirectly, in respect of (a) the principal balance of the
Bostic Note except from proceeds of any tax refund claim of
Borrower arising in connection with Borrower's federal or
state income taxes for its tax year ending September 30,
1999, or (b) interest or any other amount due
5
<PAGE> 6
under the Bostic Note (other than principal) or under the
security agreement executed in connection therewith if (y)
any Proceeding shall have occurred or (z) Borrower shall have
failed to pay any amounts then due and owing to First Union
in respect of the Obligations.
2.7. Events of Default. Section 11.1(d) of the Credit
Agreement is hereby amended by deleting such Section in its entirety,
and substituting in lieu thereof a new Section 11.1(d) to read as
follows:
(d) Default in Performance of Covenants and
Conditions. The Borrower or any Subsidiary thereof shall
default in the performance or observance of (i) any term,
covenant, condition or agreement contained in Article 7 or 8
hereof (excluding Sections 7.5 and 8.15 hereof) and such
default shall continue unremedied for thirty (30) days or
(ii) any other term, covenant, condition or agreement
contained in this Agreement (other than as specifically
provided for otherwise in this Section 11.1) or any other
Loan Document.
3. Conditions Precedent. The amendments and consents contained
herein shall not become effective unless and until the Lender shall have
received each of the following instruments, documents and agreements:
(a) this Amendment, duly executed and delivered by the
Borrower and each Guarantor;
(b) a certificate from the chief executive officer or
chief financial officer of the Borrower, in form and substance
satisfactory to the Lender, to the effect that all representations and
warranties of the Borrower contained in the Credit Agreement, this
Amendment and the other Loan Documents are true, correct and complete;
that giving effect to this Amendment the Borrower is not in violation
of any of the covenants contained in the Credit Agreement and the other
Loan Documents; and that, after giving effect to this Amendment, no
Default or Event of Default has occurred and is continuing;
(c) a certificate of the secretary or assistant secretary
of each Credit Party certifying that (i) the certificate or articles of
incorporation and by-laws of such Credit Party, or the comparable
organizational documents of such Credit Party, have not been amended,
modified or supplemented since the Closing Date and (ii) attached
thereto is a true and complete copy of resolutions duly adopted by the
Board of Directors of the Borrower authorizing the execution, delivery
and performance of this Amendment and the other Amendment Documents to
which it is a party, and ratifying the execution and delivery of the
Second Amendment; and as to the incumbency and genuineness of the
signature of each officer of such Credit Party executing the Amendment
Documents to which it is a party;
6
<PAGE> 7
(d) a consent and acknowledgment to an intercreditor
agreement to be entered into between the Lender and R. Stephen Bostic
in connection with the execution and delivery by the Borrower of the
Bostic Note; and
(e) such other instruments, documents and agreements as
the Lender may reasonably request.
4. References. All references in the Credit Agreement and the
Loan Documents to the Credit Agreement shall hereafter be deemed to be
references to the Credit Agreement as amended hereby and as the same may
hereafter be amended from time to time.
5. Limitation of Agreement. Except as especially set forth
herein, this Amendment shall not be deemed to waive, amend or modify any term
or condition of the Credit Agreement, each of which is hereby ratified and
reaffirmed and which shall remain in full force and effect, nor to serve as a
consent to any matter prohibited by the terms and conditions thereof.
6. Counterparts. This Amendment may be executed in any number of
counterparts, and any party hereto may execute any counterpart, each of which,
when executed and delivered, will be deemed to be an original and all of which,
taken together will be deemed to be but one and the same agreement.
7. Further Assurances. Borrower agrees to take such further
action as the Lender shall reasonably request in connection herewith to
evidence the amendments herein contained to the Credit Agreement.
8. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the parties
hereto.
9. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia, without regard
to principles of conflicts of law.
10. No Claim. Each Credit Party hereby represents, warrants,
acknowledges and agrees to and with the Lender that as of the date hereof (a)
such Credit Party neither holds nor claims any right of action, claim, cause of
action or damages, either at law or in equity, against the Lender, its
officers, directors, agents, employees or Affiliates, or any of them, which
arises from, may arise from, allegedly arise from, are based upon or are
related in any manner whatsoever to the Credit Agreement and the Loan Documents
or which are based upon acts or omissions of the Lender, any such officer,
director, agent, employee or Affiliate of Lender, or any of them, in connection
therewith and (b) the Obligations are absolutely owed to the Lender, without
offset, deduction or counterclaim.
7
<PAGE> 8
[Remainder of page intentionally left blank]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
under seal as of the date first written above.
CREDIT PARTIES:
BORROWER:
EDUTREK INTERNATIONAL, INC.
By:
---------------------------------
R. Steven Bostic
Chairman of the Board and
Chief Executive Officer
Attest:
By:
---------------------------------
Name:
Title:
[CORPORATE SEAL]
(signatures continued on next page)
<PAGE> 10
(signatures continued from previous page)
GUARANTORS:
[CORPORATE SEAL] EDUTREK SYSTEMS, INC.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN INTERCONTINENTIAL
UNIVERSITY, INC.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN COLLEGE IN LONDON, LTD, U.S.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN EUROPEAN MIDDLE EAST CORPORATION, LLC
By: American College in London, Ltd., U.S.
By:
---------------------------------------
R. Steven Bostic
Chief Executive Officer
(signatures continued on next page)
<PAGE> 11
(signatures continued from previous page)
LENDER:
FIRST UNION NATIONAL BANK
By:
---------------------------------
Christopher W. Woomer
Vice President
<PAGE> 1
EXHIBIT 10.5.4
FOURTH AMENDMENT TO CREDIT AGREEMENT
AND WAIVER
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this
"Amendment") is made and entered into as of the 11th day of November, 1999, by
and between EDUTREK INTERNATIONAL, INC., a Georgia corporation ("Borrower"),
the undersigned Guarantors party hereto (the "Guarantors") and FIRST UNION
NATIONAL BANK ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender are a party to that certain Credit
Agreement, dated as of March 25, 1999, as amended by a First Amendment to
Credit Agreement dated May 27, 1999, as further amended by a Second Amendment
to Credit Agreement and Waiver dated August 16, 1999, as further amended by a
Third Amendment to Credit Agreement dated August 27, 1999 (as amended, the
"Credit Agreement"), pursuant to which Lender made available to Borrower a
$10,000,000 revolving line of credit pursuant to the Facility A Commitment and
a line of credit providing a maximum availability of $3,300,000 pursuant to the
Facility B Commitment; and
WHEREAS, Borrower has requested that Lender modify the provisions as
set forth in this Amendment and grant certain waivers with respect to certain
financial covenants and Lender, subject to the terms and conditions hereof, has
agreed to such requests;
NOW, THEREFORE, for and in consideration of the foregoing premises,
the mutual promises, covenants and agreements contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms used herein and not
expressly defined herein shall have the same respective meanings given to such
terms in the Credit Agreement.
2. Amendments. Subject to the conditions contained herein, the
Credit Agreement is hereby amended as follows:
New Definitions. Section 1.1 of the Credit Agreement is
hereby amended by adding thereto in appropriate alphabetical order the
following new definitions:
"Fourth Amendment" shall mean that certain Fourth
Amendment to Credit Agreement and Waiver, dated as of
November 11, 1999, between Borrower and Lender.
<PAGE> 2
"Fourth Amendment Effective Date" shall mean that
date on which all of the conditions precedent set forth in
Section 4 of the Fourth Amendment have been satisfied and the
Fourth Amendment has become effective.
3. Waivers. Effective on the Fourth Amendment Effective Date,
Lender hereby waives Borrower's compliance with the following financial
covenants set forth in Article 9 of the Credit Agreement for the respective
periods set forth below:
(a) Accounts Payable. Borrower's compliance with the
Accounts Payable covenant for the months of July, August, September,
October, November and December 1999.
(b) Quarterly Rent Expense Ratio. Borrower's compliance
with the Quarterly Rent Expense Ratio covenant for the fiscal quarters
ended September 30, 1999, and December 30, 1999.
4. Conditions Precedent. The amendments and consents contained
herein shall not become effective unless and until the Lender shall have
received each of the following instruments, documents and agreements:
(a) this Amendment, duly executed and delivered by the
Borrower and each Guarantor; and
(b) a certificate from the chief executive officer or
chief financial officer of the Borrower, in form and substance
satisfactory to the Lender, to the effect that all representations and
warranties of the Borrower contained in the Credit Agreement, this
Amendment and the other Loan Documents are true, correct and complete
(except, in the case of the representation set forth in Section 6.1(q)
of the Credit Agreement, as reflected in the Borrower's interim
financial statements for the fiscal quarter ending September 30, 1999
which have been delivered to the Lender); that after giving effect to
this Amendment the Borrower is not in violation of any of the
covenants contained in the Credit Agreement and the other Loan
Documents; and that, after giving effect to this Amendment, no Default
or Event of Default has occurred and is continuing.
5. Representations and Warranties; No Default. The Borrower and
each of the Guarantors (individually a "Credit Party" and collectively, the
"Credit Parties") hereby jointly and severally represent and warrant to the
Lender that (a) all of Credit Parties' representations and warranties contained
in the Credit Agreement, the other Loan Documents and this Amendment are true
and correct on and as of the date of this Amendment (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date) except, in the case of representation
set forth in Section 6.1(q) of the Credit Agreement, as reflected in the
Borrower's interim financial statements for the fiscal quarter ending September
30, 1999; (b) no Default or Event of Default (other than those being waived
under Section 3 of this Amendment) has occurred and is continuing as of such
date under any Loan Document; (c) each
-2-
<PAGE> 3
Credit Party has the power and authority to enter into this Amendment and the
instruments, documents and agreements executed and delivered pursuant hereto or
in connection herewith (the "Amendment Documents") and to perform all of its
obligations hereunder and thereunder; (d) the execution, delivery and
performance of this Amendment and the Amendment Documents have been duly
authorized by all necessary corporate or partnership action on the part of each
Credit Party; (e) this Amendment and the Amendment Documents are the legal,
valid and binding obligations of the Credit Parties, enforceable in accordance
with their respective terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar state or federal
debtor relief laws from time to time in effect which affect the enforcement of
creditors' rights in general and the availability of equitable remedies; and
(f) the execution and delivery of this Amendment and the Amendment Documents
and performance thereof by the Credit Parties do not and will not violate the
Certificate or Articles of Incorporation, By-laws or other organizational
documents of any Credit Party and do not and will not violate or conflict with
any law, order, writ, injunction, or decree of any court, administrative agency
or other governmental authority applicable to any Credit Party or its
properties.
6. Reaffirmation of Loan Documents. Each of the Credit Parties
hereby reaffirms its obligations under the Loan Documents, and acknowledges and
agrees that each of the Loan Documents to which such Credit Party is a party,
and the obligations of such Credit Party thereunder, remain in full force and
effect, without release, diminution or impairment, notwithstanding the
execution and delivery of this Amendment or any other agreement, document or
instrument in connection therewith.
7. Expenses. The Credit Parties, jointly and severally, agree to
pay, immediately upon demand by the Lender, all costs, expenses, reasonable
attorneys' fees and other charges and expenses actually incurred by the Lender
in connection with the negotiation, preparation, execution and delivery of this
Agreement and any other instrument, document, agreement or amendment executed
in connection with this Agreement.
8. Defaults Hereunder. The breach of any representation, warranty
or covenant contained herein or in any document executed in connection
herewith, or the failure to observe or comply with any term or agreement
contained herein shall constitute an Event of Default under the Credit
Agreement and the Lender shall be entitled to exercise all rights and remedies
it may have under the Credit Agreement, any other documents executed in
connection therewith and applicable law.
9. References. All references in the Credit Agreement and the
Loan Documents to the Credit Agreement shall hereafter be deemed to be
references to the Credit Agreement as amended hereby and as the same may
hereafter be amended from time to time.
10. Limitation of Agreement. Except as especially set forth
herein, this Amendment shall not be deemed to waive, amend or modify any term
or condition of the Credit Agreement, each of which is hereby ratified and
reaffirmed and which shall remain in full force and effect, nor to serve as a
consent to any matter prohibited by the terms and conditions thereof.
-3-
<PAGE> 4
11. Counterparts. This Amendment may be executed in any number of
counterparts, and any party hereto may execute any counterpart, each of which,
when executed and delivered, will be deemed to be an original and all of which,
taken together will be deemed to be but one and the same agreement.
12. Further Assurances. Borrower agrees to take such further
action as the Lender shall reasonably request in connection herewith to
evidence the amendments herein contained to the Credit Agreement.
13. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the parties
hereto.
14. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia, without regard
to principles of conflicts of law.
15. No Claim. Each Credit Party hereby represents, warrants,
acknowledges and agrees to and with the Lender that as of the date hereof (a)
such Credit Party neither holds nor claims any right of action, claim, cause of
action or damages, either at law or in equity, against the Lender, its
officers, directors, agents, employees or Affiliates, or any of them, which
arises from, may arise from, allegedly arise from, are based upon or are
related in any manner whatsoever to the Credit Agreement and the Loan Documents
or which are based upon acts or omissions of the Lender, any such officer,
director, agent, employee or Affiliate of Lender, or any of them, in connection
therewith and (b) the Obligations are absolutely owed to the Lender, without
offset, deduction or counterclaim.
[Signatures Begin on Next Page]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
under seal as of the date first written above.
CREDIT PARTIES:
BORROWER:
EDUTREK INTERNATIONAL, INC.
By:
-------------------------------
R. Steven Bostic
Chairman of the Board and
Chief Executive Officer
Attest:
By:
-------------------------------
Name:
Title:
[CORPORATE SEAL]
(Signatures Continued on Next Page)
-5-
<PAGE> 6
GUARANTORS:
[CORPORATE SEAL] EDUTREK SYSTEMS, INC.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN INTERCONTINENTIAL
UNIVERSITY, INC.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN COLLEGE IN LONDON, LTD, U.S.
By:
------------------------------------------
R. Steven Bostic
Chief Executive Officer
[CORPORATE SEAL] AMERICAN EUROPEAN MIDDLE EAST CORPORATION, LLC
By: American College in London, Ltd., U.S.
By:
--------------------------------------
R. Steven Bostic
Chief Executive Officer
(Signatures Continued on Next Page)
-6-
<PAGE> 7
LENDER:
FIRST UNION NATIONAL BANK
By:
-----------------------------
Frank Darrow
Vice President
-7-
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$1,000,000.00 August 27, 1999
Atlanta, Georgia
FOR VALUE RECEIVED, EDUTREK INTERNATIONAL, INC. ("Maker"), promises to
pay to the order of R. STEVEN BOSTIC ("Bostic") (Bostic and any other holder
hereof, "Payee"), at 75 14th Street, Apt. 4640, Atlanta, Georgia 30309, or such
other place as Payee may from time to time designate in writing, in lawful
money of the United States of America, the principal sum of ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00), or so much thereof as is outstanding from time
to time, together with interest on so much thereof as is from time to time
outstanding and unpaid, at the rate hereinafter set forth, said principal and
all accrued but unpaid interest (the "Note Payment") being due and payable on
the earlier of (i) the date or dates (the "Tax Refund Dates") upon which Maker
receives payment of the tax refund claims of Maker arising in connection with
Maker's federal or state income taxes for its tax year ending September 30,
1999 ("Tax Refunds"), or (ii) February 24, 2000 (the "Maturity Date");
provided, however, so long as Maker has debt outstanding to First Union
National Bank ("First Union"), or its successors or assigns or any party that
takes its place, pursuant to that certain Credit Agreement dated May 27, 1999
between Maker and First Union, as amended, this Note may be paid by Maker only
from the Tax Refunds. Notwithstanding the foregoing to the contrary, all
accrued and unpaid interest under this Note shall be paid quarterly, commencing
on November 24, 1999, and continuing on the same day of each successive quarter
thereafter, with a final payment of all accrued and unpaid interest on the
Maturity Date.
Interest on the principal balance of this Note from time to time
outstanding and unpaid shall be the Eurodollar Rate, plus 2.00 percent, per
annum (the "Rate"). The "Eurodollar Rate" is the fluctuating rate of interest
equal to the three month rate of interest (rounded upwards, if necessary to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the three month London Interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) on the second preceding business day, as
adjusted from time to time by Bank of America, N.A. (the "Bank") in its sole
discretion for then-applicable reserve requirements, deposit insurance
assessment rates and other regulatory costs of the Bank. If for any reason such
rate is not available, the term "Eurodollar Rate" shall mean the fluctuating
rate of interest equal to the three month rate of interest (rounded upwards, ii
necessary to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
three month London Interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) on the second preceding business day, as
adjusted from time to time by the Bank in its sole discretion for
then-applicable reserve requirements, deposit insurance assessment rates and
other regulatory costs of the Bank; 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.
Notwithstanding any provision of this Note to the contrary, Payee does
not intend to charge and Maker shall not be required to pay any amount of
interest or other charges in excess of the maximum permitted by the applicable
law of the State of Georgia; if any higher ceiling is lawful, then that higher
rate ceiling shall apply. Any payment in excess of such maximum shall be
refunded to Maker or credited against principal, at the option of Payee.
<PAGE> 2
Unless otherwise indicated, interest at the Rate will be calculated by
the actual/360 day method (a daily amount of interest is computed for the
hypothetical year of 360 days; that amount is multiplied by the actual number
of days for which any principal is outstanding hereunder).
THE RIGHTS AND REMEDIES OF PAYEE HEREUNDER ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN INTERCREDITOR AGREEMENT DATED THE DATE HEREOF, AS
AMENDED FROM TIME TO TIME, BY AND BETWEEN BOSTIC AND THE SENIOR LENDER PARTY
THERETO.
Any Rate based on a fluctuating index or base rate will change, unless
otherwise provided, each time as of the date that the index or base rate
changes. In the event any index is discontinued, an index determined by the
Bank to be comparable in its sole discretion shall be substituted.
All payments received hereunder shall be applied first to the payment of
any expense or charges payable hereunder or under any other loan documents
executed in connection with this Note, then to interest due and payable, with
the balance applied to principal, or in such other order as Payee shall
determine at his option.
Notwithstanding any provision of this Note to the contrary, Payee may
elect at any time to convert any or all of the Note Payment to Class B common
stock of Maker at a price per share equal to the lower of (a) the closing price
of Maker's common stock as traded on the NASDAQ Stock Market on the date
hereof, and (b) the closing price of Maker's common stock as traded on the
NASDAQ Stock Market on the date Payee notifies Maker of the conversion set
forth in this sentence (the "Conversion Price"). To exercise this conversion
right, Payee shall give Maker written notice as to the amount of the Note
Payment being converted, and Maker will issue to Payee immediately that number
of shares of Class B common stock calculated by dividing the portion of the
Note Payment being converted pursuant to the previous sentence by the
Conversion Price. If this Note is not paid in full by February 24, 2000 and if
Payee does not elect to convert the Note Payment to common stock (as set forth
in the first sentence of this paragraph), the Maturity Date will be extended
until the earlier of (i) February 24, 2001, or (ii) the Tax Refund Date on
which Maker receives $1,000,000.00 of Tax Refunds in the aggregate, and Payee
shall receive warrants to purchase, pursuant to a stock purchase warrant
substantially in the form of Exhibit A hereto, that number of Maker's Class B
common stock equal to the product of 340,367 times a fraction the numerator or
which is the outstanding principal balance of this Note and the denominator of
which is 1,000,000 to be exercised at any time during the next five (5) years
at a price per share equal to the Conversion Price. To the extent all or any
portion of the Note Payment is unpaid on February 24, 2001, or any subsequent
anniversary date, the Maturity Date shall be automatically extended for one (1)
year.
If one or more of the following events of default (hereinafter an "Event
of Default") shall occur, then in each and every occurrence of any such Event
of Default, at the option of the holder hereof, all liabilities of Maker to the
holder hereof, including this Note, shall upon ten (10) days' prior written
notice to each of Maker and upon demand for payment thereof, immediately mature
and become forthwith due and payable:
(i) Default shall be made in any payment of principal or interest on
this Note when such principal or interest payment is due and such default shall
not have been cured within ten (10) days of Maker's receipt of notice of such
default from Payee; or
2
<PAGE> 3
(ii) Maker (a) makes an assignment for the benefit of creditors, (b)
admits in writing that it is unable to pay its debts generally as they become
due, (c) files a petition in bankruptcy, or for reorganization or for an
adoption of an arrangement under the Bankruptcy Act (as now or in the future
amended), or an answer to a petition seeking relief therein provided, (d) has a
petition in bankruptcy filed against it which petition is not dismissed within
ninety (90) days of the filing thereof, (e) consents to the appointment of a
receiver or trustee for all or a substantial part of its property, or (f) has a
petition filed against its for the appointment of a receiver for all or a
substantial part of its property and such petition is not dismissed within
ninety (90) days of the filing thereof.
Maker expressly agrees that failure of the holder to exercise the right
of accelerating the maturity of this debt or any indulgence granted from time
to time shall in no event be considered a waiver of any right of acceleration
or estop the holder thereof from exercising any such right. Should this Note,
or any part of the indebtedness evidenced hereby, be collected by law or
through an attorney at law, the holder hereof shall be entitled to collect
reasonable attorneys' fees actually incurred. Maker agrees that time is of the
essence. This Note may be prepaid in whole or in part without penalty at any
time without the prior written consent of the holder thereof. This Note shall
be governed by Georgia law.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
27th day of August, 1999.
EduTrek International, Inc.
By: /s/ Daniel D. Moore
-----------------------------------
Title: Chief Financial Officer
--------------------------------
3
<PAGE> 4
EXHIBIT A
STOCK PURCHASE WARRANT
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES REPRESENTED
HEREBY PURCHASABLE ON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (AS AMENDED, THE "SECURITIES ACT") OR THE GEORGIA
SECURITIES ACT (THE "GEORGIA ACT"). THE WARRANT REPRESENTED BY THIS CERTIFICATE
HAS BEEN TAKEN BY THE REGISTERED OWNER FOR INVESTMENT, AND WITHOUT A VIEW TO
RESALE OR DISTRIBUTION THEREOF, AND MAY NOT BE TRANSFERRED OR DISPOSED OF
WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR
DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT, THE GEORGIA ACT OR THE RULES
AND REGULATIONS THEREUNDER.
DATED: February ____, 2000
No. 1
_________ Shares
EDUTREK INTERNATIONAL, INC.
STOCK PURCHASE WARRANT
TO PURCHASE SHARES OF CLASS B COMMON STOCK, WITHOUT PAR VALUE
This is to certify that, for value received, R. Steven Bostic ("Holder
or Warrant Holder"), or his successors, is entitled, upon the due exercise of
this warrant (the "Warrant") pursuant to this Warrant agreement (the
"Agreement") at any time during the period commencing on February 25, 2000 (the
"Commencement Date") and terminating at 5:00 p.m., Atlanta, Georgia local time,
on the date marking the fifth anniversary of the Commencement Date (the
"Termination Date"), to purchase _______ shares (subject to adjustment as
provided herein) of the without par value Class B Common Stock of EduTrek
International, Inc. at a price per share as specified in Section II of this
Warrant and to exercise the other rights, powers and privileges hereinafter
provided, all on the terms and subject to the conditions specified herein.
I.
Certain Definitions. Unless the context otherwise requires, the
following terms as used in this Warrant shall have the following meanings:
(a) Appraised Value. The fair market value of all outstanding Common
Stock, as determined by a written appraisal (the "Appraisal")
prepared by an appraiser acceptable to the Company. "Fair market
value" is defined for this purpose as the price in a single
transaction determined on a going-concern basis that would be
agreed upon by the most likely hypothetical buyer for 100% of
the equity capital of the Company. The Company shall pay for the
cost of any such Appraisal.
(b) Average Market Value. The average of the Closing Prices for the
security in question for the five trading days immediately
preceding the date of determination.
4
<PAGE> 5
(c) Closing Price.
(i) If the primary market for the security in question is a
national securities exchange, the NASDAQ Stock Market, or
other market or quotation system in which last sale
transactions are reported on a contemporaneous basis, the
last reported sales price, regular way, of such security
on such exchange or in such quotation system for such day,
or, if there shall not have been a sale on such exchange
or reported through such system on such trading day, the
highest closing or last bid quotations therefor on such
exchange or quotation system on such trading day;
(ii) If the primary market for such security is not such an
exchange or quotation market in which last sale
transactions are contemporaneously reported, the last bid
quotation in the over-the-counter market on such trading
day as reported by the National Association of Securities
Dealers through NASDAQ, its automated system for reporting
quotations, or its successor or such other generally
accepted source of publicly reported bid quotations as the
Company may reasonably designate; or
(iii) If the Closing Price per share of Common Stock cannot be
ascertained by any of the methods set forth in paragraph
(i) and (ii) immediately above, the Closing Price per
share of outstanding Common Stock shall be deemed to be
the price equal to the quotient determined by dividing the
Appraised Value by the number of shares (including any
fractional shares) of Common Stock then outstanding.
(d) Common Stock. The Company's without par value Class B Common
Stock, any stock into which such stock shall have been changed
or any stock resulting from reclassification of such stock.
(e) Company. EduTrek International, Inc., a Georgia corporation, and
its successors and assigns.
(f) Exercise Date. As set forth in Section III hereof.
(g) Exercise Price. The price per share specified in Section II
hereof, as the same shall be adjusted from time to time pursuant
to the provisions of this Warrant.
(h) Transfer. Any sale, assignment, transfer, negotiation, pledge,
hypothecation or other disposition, and any other event or
transaction in which a lien is created.
(i) Warrant Shares. The Common Stock issuable upon exercise of the
Warrants.
II.
Exercise Price. Subject to the adjustments provided for elsewhere in
this Warrant, the Exercise Price per share shall be equal to the lower of (i)
$2.938, or (ii) the Closing Price of the Company's Common Stock on the Exercise
Date.
5
<PAGE> 6
III.
Exercise of Warrant. The Holder of this Warrant may, at any time on
and after the date hereof but prior to the Termination Date (the "Exercise
Date"), exercise this Warrant in whole at any time or in part from time to time
for the number of shares which such Holder is then entitled to purchase
hereunder.
The Holder may exercise this Warrant, in whole or in part, by
delivering to the Company at its offices maintained pursuant to Section IV for
such purpose (i) a written notice of such Holder's election to exercise this
Warrant, which notice shall specify the number of shares to be purchased, (ii)
this Warrant, and (iii) a sum equal to the Exercise Price therefor in cash
(U.S. dollars) by certified or cashier's check.
Such notice may be in the form of an election to subscribe attached
hereto. Upon delivery thereof, the Company shall as promptly as practicable and
in any event within ten (10) business days thereafter, cause to be executed and
delivered to such Holder a certificate or certificates representing the
aggregate number of fully-paid and nonassessable shares of Common Stock
issuable upon such exercise.
The stock certificate or certificates for shares of Common Stock so
delivered shall be in such denominations as may be specified in said notice and
shall be registered in the name of such Holder or such other name or names as
shall be designated in said notice. Such certificate or certificates shall be
deemed to have been issued and such Holder or any other person so designated to
be named therein shall be deemed to have become a Holder of record of such
shares, including to the extent permitted by law the right to vote such shares
or to consent or to receive notice as a stockholder, as of the time said
notice, Warrant and payment of the Exercise Price are delivered to the Company
as aforesaid. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of said certificate or certificates,
deliver to such Holder a new Warrant dated the date it is issued, evidencing
the rights of such Holder to purchase the remaining shares of Common Stock
called for by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of such Holder, appropriate
notation may be made on this Warrant and the Warrant shall be returned to such
Holder.
The Company shall pay all expenses, transfer taxes and other charges
payable in connection with the preparation, issue and delivery of stock
certificates under this Section III, except that, in case such stock
certificates shall be registered in a name or names other than the name of the
Holder, funds sufficient to pay all stock transfer taxes which shall be payable
upon the issuance of such stock certificate or certificates shall be paid by
the Holder hereof at the time of delivering the notice of exercise mentioned
above.
The Company shall not issue certificates for fractional shares of
Common Stock upon any exercise of this Warrant. Whenever, in order to implement
the provisions of this Warrant, the issuance of fractional shares is required,
the Company shall, in lieu of the issuance of a fractional share, pay to the
Holder an amount in cash equal to the Average Market Value of such fractional
share interest.
IV.
Warrant Registration. The Company shall at all times while any portion
of this Warrant remains outstanding and exercisable keep and maintain at its
principal offices a register in which the registration and exchange of this
Warrant shall be provided for. The Company shall not at any time, except upon
the
6
<PAGE> 7
dissolution, liquidation or winding up of the Company, close such register so
as to result in preventing or delaying the proper exercise of this Warrant.
V.
Covenants of Issuer.
(a) The Company is a corporation duly organized and validly
existing and in good standing under the laws of the State of
Georgia. The Company has the corporate power and authority to
execute and deliver this Agreement and to perform the terms
hereof, including the issuance of shares of Common Stock
issuable upon exercise of the Warrant. The Company has taken
all action necessary to authorize the execution, delivery and
performance of this Agreement and the issuance of the shares
of Common Stock issuable upon exercise of the Warrant. This
Agreement has been duly authorized and executed and
constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with
its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws or equitable principles relating to or limiting
creditors' rights generally.
(b) The Company covenants and agrees that all shares which may be
issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue
thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
VI.
Exchange. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the offices of the Company, for new warrants, in such
denominations as Holder shall designate at the time of surrender for exchange,
of like tenor and date representing in the aggregate the right to subscribe for
and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new warrants to represent the right to subscribe for
and purchase not less than 1,000 shares of Common Stock (except to the extent
necessary to round out the balance of the number of shares purchasable
hereunder).
VII.
Adjustments to Exercise Price and Number of Shares Purchasable. The
Exercise Price and number of shares of Common Stock purchasable pursuant to
this Warrant shall be subject to adjustment from time to time as follows:
(a) In case the Company shall at any time exchange as a whole, by
subdivision or combination in any manner or by the making of
a stock dividend, the number of shares of Common Stock then
outstanding into a different number of shares, with or
without par value, then thereafter the number of shares of
Common Stock which the Holder of this Warrant shall be
entitled to purchase (calculated immediately prior to such
change), shall be increased or decreased, as the case may be,
in direct proportion to the increase or decrease in the
number of shares of outstanding Common Stock of the Company
by reason of such change, and the Exercise Price of the
shares of such Common Stock after such change shall, in case
of an increase in the
7
<PAGE> 8
number of shares of Common Stock, be proportionately reduced,
and, in case of a decrease in the number of shares of Common
Stock, be proportionately increased.
(b) In case of any reclassification or change of outstanding
shares of 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, combination or stock
dividend as provided for in Section VII(a)), or in case of
any consolidation of the Company with, or merger of the
Company into, another corporation, or in case of any sale of
all, or substantially all, of the property, assets, business
and good will of the Company as an entirety, the Company, or
such successor or purchasing corporation, as the case may be,
shall provide that the Holder of this Warrant shall
thereafter be entitled to purchase the kind and amount of
shares of stock and other securities and property receivable
upon such reclassification, change, consolidation, merger or
sale by a holder of the number of shares of Common Stock
which this Warrant entitles the Holder hereof to purchase
immediately prior to such reclassification, change,
consolidation, merger or sale. Any such successor corporation
thereafter shall be deemed to be the Company for purposes of
this Warrant.
VIII.
Holder's Rights. Except as otherwise expressly agreed to herein, this
Warrant shall not entitle the Holder to any rights of a stockholder of the
Company, except that should the Company, during the period in which this
Warrant is exercisable, declare a dividend upon the Common Stock payable
otherwise than in cash out of earnings or earned surplus (computed in
accordance with generally accepted accounting principles) or otherwise than in
Common Stock or securities convertible into Common Stock, or make any other
distribution in respect of the Common Stock, then, thereafter, the Warrant
Holder, upon exercise of this Warrant, shall receive the number of shares of
Common Stock purchasable upon such exercise and, in addition and without
further payment, the cash, stock or other securities and/or other property
which the Warrant Holder would have received by way of dividends (otherwise
than in cash out of such earnings or earned surplus or in Common Stock or
securities convertible into Common Stock) and/or any other distributions in
respect of the Common Stock as if, continuously since the date hereof, such
Warrant Holder (a) had been the record holder of the number of shares of Common
Stock then being purchased, and (b) had retained all such cash, stock and other
securities (other than Common Stock or securities convertible into Common
Stock) and/or other property payable in respect of such Common Stock or in
respect of any stock or securities paid as dividends and originating directly
or indirectly from such Common Stock.
8
<PAGE> 9
IX.
Transfer to Comply with the Securities Act of 1933 and Other
Applicable Securities Laws. This Warrant or the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may not be sold or
otherwise disposed of unless the Holder provides the Company with an opinion of
counsel satisfactory to the Company in form satisfactory to the Company that
this Warrant or the Warrant Shares may be legally transferred without violating
the Securities Act of 1933 and any other applicable securities law and then
only against receipt of an agreement of the transferee to comply with the
provisions of this Section IX with respect to any resale or other disposition
of such securities.
X.
Notices. If there shall be any adjustment as provided above in Section
VII, or if securities or property other than shares of Common Stock of the
Company shall become purchasable in lieu of shares of such Common Stock upon
exercise of this Warrant, the Company shall forthwith cause written notice
thereof to be sent by registered mail, postage prepaid, to the registered
Holder of this Warrant at the address of such Holder shown on the books of the
Company, which notice shall be accompanied by an explanation prepared by the
Company setting forth in reasonable detail the basis for the Holder's becoming
entitled to purchase such shares and the number of shares which may be
purchased and the Exercise Price thereof, or the facts requiring any such
adjustment and the Exercise Price and number of shares purchasable after such
adjustment, or the kind and amount of any such securities or property so
purchasable upon the exercise of this Warrant, as the case may be. At the
request of Holder and upon surrender of this Warrant, the Company shall reissue
this Warrant in a form conforming to such adjustments.
XI.
Cash in Lieu of Fractional Shares. The Company shall not be required
to issue fractional shares upon the exercise of this Warrant. If, by reason of
any change made pursuant to Sections VII or VIII hereof, the Holder of this
Warrant would be entitled, upon the exercise of any rights evidenced hereby, to
receive a fractional interest in a share, the Company shall, upon such
exercise, purchase such fractional interest for an amount in cash equal to the
Average Market Value of such fractional interest, determined as of the Exercise
Date.
XII.
Lost, Stolen, Mutilated, or Destroyed Warrants. If this Warrant shall
become lost, stolen, mutilated, or destroyed, the Company shall, on such terms
as to indemnity or otherwise as it may in its reasonable discretion impose upon
the registered Holder thereof (as shown on the register of Warrants maintained
by the Company), issue a new warrant of like denomination, tenor, and date as
the warrant so lost, stolen, mutilated, or destroyed.
XIII.
Limitation of Liability. No provision hereof, in the absence of
affirmative action by the Holder hereof to purchase shares of Common Stock, and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the purchase price of the
shares or as a stockholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
9
<PAGE> 10
XIV
Applicable Law. The validity, interpretation, and performance of this
Warrant shall be governed by the laws of the State of Georgia.
XV.
Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the Company and the Holder hereof.
XVI.
Headings. Headings of the paragraphs in this Warrant are for
convenience and reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
this ____ day of _____, 2000, by its duly authorized officers, each of which
may be by facsimile.
EDUTREK INTERNATIONAL, INC.
By:
----------------------------------
R. Steven Bostic, Chairman
ATTEST:
- ---------------------------
Secretary
10
<PAGE> 11
EXHIBIT A
[Subscription Form to Be Executed Upon Exercise of Warrant]
The undersigned, registered holder or permitted assignee of such
registered holder of the within Warrant, hereby (1) subscribes for ______
Shares which the undersigned is entitled to purchase under the terms of the
within Warrant, (2) makes the full cash payment therefor called for by the
within Warrant, and (3) directs that the shares issuable upon exercise of said
Warrant be issued as follows:
------------------------------------
(Name)
------------------------------------
(Address)
Signature
---------------------------
Dated
-----------------
NOTICE: The signature on this subscription form must correspond with the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement, or any change whatsoever and must be guaranteed by a
bank, other than a savings bank or trust company, or by a firm having
membership on a registered national securities exchange.
11
<PAGE> 1
EXHIBIT 10.9
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of August 27, 1999
by and between EDUTREK INTERNATIONAL, INC., a Georgia corporation (the
"Company"), and R. STEVEN BOSTIC, an individual resident of the State of
Georgia ("Bostic").
W I T N E S S E T H:
WHEREAS, Bostic has extended certain financial accommodations to the
Company as evidenced by that certain Promissory Note, dated as of the date
hereof, executed by the Company in favor of Bostic in the original principal
amount of $1,000,000 (the "Note"); and
WHEREAS, pursuant to the terms and conditions of the Note, it must be
repaid only from the payment of the tax refund claims of the Company arising in
connection with the Company's federal or state income taxes for its tax year
ending September 30, 1999 (the "Tax Refunds"); and
WHEREAS, the Company and Bostic desire to execute this Agreement to
provide security for the prompt and complete payment when due of all
Obligations (as defined below) owing from the Company to Bostic under the Note;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Whenever used in this Agreement, the following
terms shall have the meanings stated below:
"Event of Default" - each of the events described in Article III hereof.
"Obligations" - any and all amounts, loans, advances, debts, liabilities,
obligations, payments, covenants and duties owing by the Company to Bostic of
any kind and description under the Note, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising, and
including, without limitation, all interest not paid when due, which
Obligations must be repaid only from the Tax Refunds.
"UCC" - the Uniform Commercial Code as enacted in the State of Georgia as
of the date of this Agreement. Any and all terms used in this Agreement which
are defined in the UCC shall be construed and defined in accordance with the
meaning and definition ascribed to such terms under the UCC.
<PAGE> 2
ARTICLE II.
SECURITY INTEREST
To secure timely payment (from the Tax Refunds) and performance in full
of the Obligations, subject to the security interest of First Union National
Bank in the Tax Refunds, the Company hereby sells, assigns, conveys, mortgages,
pledges, hypothecates and transfers and hereby grants to Bostic a right of
setoff against and a continuing lien upon and security interest in and to the
Tax Refunds and all proceeds thereof.
ARTICLE III.
EVENTS OF DEFAULT
Section 3.1 Events of Default. The occurrence of any of the following
shall constitute an "Event of Default":
(a) The Company shall fail to pay when due any principal of, or interest
on, the Note or any other Obligation and fails to cure such failure to pay
within ten (10) days of notice from Bostic of such failure to pay;
(b) The Company (i) makes an assignment for the benefit of creditors,
(ii) admits in writing that it is unable to pay its debts generally as they
become due, (iii) files a petition in bankruptcy, or for reorganization or for
an adoption of an arrangement under the Bankruptcy Act (as now or in the future
amended), or an answer to a petition seeking relief therein provided, (iv) has
a petition in bankruptcy filed against it which petition is not dismissed
within ninety (90) days of the filing thereof, (v) consents to the appointment
of a receiver or trustee for all or a substantial part of its property, or (vi)
has a petition filed against its for the appointment of a receiver for all or a
substantial part of its property and such petition is not dismissed within
ninety (90) days of the filing thereof.
Section 3.2 Remedies Upon Default. At any time after the occurrence and
during the continuance of an Event of Default, Bostic may, at its election and
without demand, do any one or more of the following, all of which are
authorized by the Company:
(a) Declare all Obligations to be immediately due and payable; or
(b) Without notice to or demand upon the Company or any guarantor of the
Obligations of the Company, make such payments and do such acts as Bostic
considers necessary or reasonable to protect his security interest in the Tax
Refunds.
Section 3.3 Remedies Cumulative. Except as otherwise provided herein,
Bostic may exercise any of the remedies set forth above without notice of his
election to the Company. Bostic's rights and remedies under this Agreement and
all other agreements shall be cumulative. Bostic shall have all other rights
and remedies not inconsistent herewith as provided under the UCC, by law or in
equity. No exercise by Bostic of one right or remedy shall be deemed an
election, and no waiver by Bostic of any default on the Company's part shall be
deemed a continuing waiver. No delay by Bostic shall constitute a waiver,
election or acquiescence by it.
-2-
<PAGE> 3
ARTICLE IV.
MISCELLANEOUS
Section 4.1 Amendments; Waiver; Consent. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by the Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Bostic (and in the case of amendments, the Company), and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
Section 4.2 Notices. All notices and other communications relating to this
Agreement shall be in writing and addressed as follows:
If to Bostic: Mr. R. Steven Bostic
75 14th Street
Apt. 4640
Atlanta, Georgia 30309
If to the Company: EduTrek International, Inc.
6600 Peachtree-Dunwoody Road
500 Embassy Row
Atlanta, Georgia 30328
or to such other address as the respective party or its successors or assigns
may subsequently designate by proper notice. All such notices and
communications shall be effective when personally delivered or three (3) days
after being sent by certified mail, postage prepaid, addressed as aforesaid.
Section 4.3 No Waiver. No failure on the part of Bostic to exercise, and
no delay in exercising, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right.
Section 4.4 Binding Effect; Governing Law. This Agreement shall be
binding upon and inure to the benefit of the Company and Bostic and their
respective successors and assigns, except that the Company shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of Bostic. This Agreement, and any other documents delivered
hereunder shall be governed by, and construed in accordance with, the laws of
the State of Georgia, excluding its conflict of laws provisions.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as
of the date and year first above written.
EduTrek International, Inc.
By: /s/ Daniel D. Moore
-----------------------------------------
Title: Chief Financial Officer
--------------------------------------
/s/ R. Steven Bostic
--------------------------------------------
R. Steven Bostic
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,807
<SECURITIES> 0
<RECEIVABLES> 3,946
<ALLOWANCES> 1,003
<INVENTORY> 0
<CURRENT-ASSETS> 9,594
<PP&E> 22,787
<DEPRECIATION> 3,817
<TOTAL-ASSETS> 72,110
<CURRENT-LIABILITIES> 29,526
<BONDS> 0
0
0
<COMMON> 40,672
<OTHER-SE> (7,556)
<TOTAL-LIABILITY-AND-EQUITY> 72,110
<SALES> 43,936
<TOTAL-REVENUES> 43,936
<CGS> 50,741
<TOTAL-COSTS> 50,741
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,085
<INCOME-PRETAX> (7,802)
<INCOME-TAX> 3,296
<INCOME-CONTINUING> (4,506)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,702)
<EPS-BASIC> (.53)
<EPS-DILUTED> (.53)
</TABLE>
